Bangladesh’s SMEs want change in definition to stop larger peers from profiting from the benefits of the attribute
SMEs are a large sector in Bangladesh as the number of corporations in the sector have been growing for a long time now. Between 2009 to 2014, the SME industry produced 1.5 million jobs in the market accounting for about 80% of the jobs as of that time period. The growth of the industries has been important for the financial stability and employment opportunity for the general people of the country. According to the Economic Census 2013 conducted by the Bangladesh Bureau of Statistics (BBS), there are 78.18 lakh business establishments in the country, of which 99.93% are cottage, micro, small and medium enterprises (CMSME) and only 0.07% are large establishments.
The SME industry enjoys many advantages in the market, provided to them by the government. These incentives are offered in order to promote the growth of the sector so that the rise of SMEs can positively affect the overall economic condition of the country. Moreover, as a large portion of the general public depend on this sector for their employment, the government is particularly concerned about it.
The incentive policies set by the government for the benefit of the SMEs include micro-credit facilities at little to no interest. During the COVID-19 pandemic, many small and mid-sized enterprises faced a lot of financial strain as the economy was badly affected. Many businesses struggled heavily to survive. As a result, a lot of employees who were breadwinners for their families lost their jobs due to the pandemic. It was only after the government offered a helping hand for the survival of small and medium-sized enterprises, with an incentive package of BDT 200 crore on 13th April of 2021, that a lot of establishments were able to manage loans with low-interest rates and continue doing business..
The facilitators were unsuccessful in reserving program benefits exclusively for the SMEs who needed it, and many large corporate entities who were not intended for the grants also managed to grab the chance to identify themselves as SMEs and take advantage.
The SME foundation has also helped the government to prepare plans to promote women entrepreneurs. In order to do that, an incentive package worth about BDT 60 crore was dedicated for women entrepreneurs managing small to medium-sized enterprise. The intention of the SME Foundation and the government to support SMEs was clear through this contribution.
However, all this while, the definition of SME was not well thought out. Many large corporations have allegedly benefitted from the SME incentive programs that the government has planned and executed so far. The facilitators were unsuccessful in reserving program benefits exclusively for the SMEs who needed it, and many large corporate entities who were not intended for the grants also managed to grab the chance to identify themselves as SMEs and take advantage.
In order to mitigate this problem, the SME Foundation has taken initiatives to design proper criteria that would help to identify if a business is an SME or not. The SME Foundation and the Bangladesh Small and Cottage Industries Corporation (BSCIC) have proposed to change the definition of Small to Medium-Sized Enterprises based on fixed assets so that the ones who actually need the incentives get better access to government support. For example, according to these two agencies, an enterprise in the manufacturing sector should be categorised as part of the medium industry if the value of its fixed assets, excluding land and buildings, is more than BDT 10 crore but less than BDT 30 crore. Those with fixed assets worth BDT 30 crore and above should be categorised as large industries. As per allegations, many large corporations currently identify themselves as medium corporations although they have fixed assets worth more than BDT 30 crore. With this farcical identity, they are currently soaking up the incentives that the government has reserved for the survival and growth of SMEs. The recent disbursement of the BDT 200 crore loan for the SMEs did not strictly go only to the small and medium enterprises that needed them the most. Many large corporations also identified themselves as SMEs and availed the loan grant for the development of their businesses. Because of recent events, a lot of SMEs who were in high need of funds for survival could not avail the low interest loans due to various conditions set by banks and other complexities. Meanwhile, many large corporations who were able to identify as SMEs exploited the loopholes.
The proposal for the new definition of SMEs explains that small enterprises in the manufacturing industry can have up to 100 employees as the operational capacity requires the involvement of high blue-collar employees, but small enterprises in the service or trade industry cannot have more than 50 and 30 employees respectively. The maximum annual turnover for small enterprises has to be under BDT 15 crore. If a business has an annual turnover of below BDT 1 crore, it has to be enlisted as a micro-enterprise, which consists of 10 to 25 employees and is often supported by NGOs or governments. Micro-enterprises generally do not have a large team and hence do not risk the jobs of too many employees when they go bankrupt. In many cases, these businesses do not even hold sustainability in operations.
Medium-sized enterprises may have 31 to 250 employees for their operations. The annual turnover for these businesses can range from BDT 15 to 50 crores.
If a business crosses BDT 50 crores annual turnover, it cannot be considered a medium-sized enterprise anymore. Businesses exceeding the amount bar have to be considered as large enterprises and treated accordingly for identification, as per the requests of the SME Foundation and BSCIC.
The SME Foundation and the Bangladesh Bank have expressed their opinions to categorise enterprises based on manpower, but the BSCIC supports the classification of industries based on the annual turnover. Both organisations have presented their opinions to be implemented in the National Industrial Policy 2021, which is soon to replace the National Industrial Policy 2016.
