Small and Medium Enterprise (SME)

Bangladesh is an agricultural based country, where around 85% people are living at village with activities of agriculture, in this perspective Bangladesh can achieve industrialization through agriculture based small and cottage industry to start aggressively.

Small and Median Enterprises (SME) from Sohag Ahmed

Small and medium enterprises (SMEs) make up the largest portion of the employment base in many developing countries and, indeed, are often the foundation of the local private sector. Now the SMEs are not only concentrated to low-tech, traditional, and agro-based economic activities; these are spread over other non-traditional manufacturing and service sector as well. In fact, the SMEs are recognized as engines of economic growth worldwide. To achieve high and sustained economic growth, a triggering force is mandatory to exit from endemic poverty and socioeconomic deprivation.

Definition of Small Enterprise: The defination of SME is deffer from country to country and palace to place. The country wise definitions of SME are given below:

In Bangladesh , An enterprise with fewer than 25 people and capital investmet less than 20,00,00,000 tk is called a SME.

In Sri Lanka, An enterprise with fewer than 50 people and capital investment less than 50 million Rs is referred as Small Enterprise. An enterprise with more than 50 people and less than 99 people with capital investment more than 50 million Rs is referred as Small Enterprise.

According to the SME bank of Pakistan, SME means an entity, ideally not a public limited company, which does not employ more than 205 persons (if it is manufacturing concern) and 50 persons (if it is trading/service concern) and also fulfils the following criteria of either ‘a’ and ‘c’ and ‘c’ or ‘b’ and ‘c’ as relevant; (a) A trading/service concern with total assets at cost excluding land and buildings up to Rs 50 million. (b) A manufacturing concern with total assets at excluding land and buildings up to Rs 100 million. (c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.

In India the Small Scale Industries (SSIs) are industrial undertaking in which the investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or by hire purchase does not exceed Rs. 10 million. The Small Scale Service and Business (Industry related) Enterprises (SSSBEs) are industry related service and business enterprises with investment in fixed assets, excluding land and building up to Ps. 1 million.

In Nepal, the enterprise with asset less than 30 million Rs is referred as a small enterprise and enterprise with asset more than 30 million Rs but less than 100 million Rs is referred as a small enterprise.

In Bhutan, the enterprise with asset between 1 million to 10 million is referred as the Small Enterprise and the enterprise with asset between 10 million to 100 million is referred as the Medium Enterprise.

According to the European Union (2003), SMEs are defined as enterprises, which have at most 250 employees and an annual turnover not exceeding 50 million Euros. Further, there is the distinction of small enterprises — they have fewer than 50 staff members and less than 10 million Euros turnover — and micro-enterprises (less than 10 persons and 2 million Euros turnover).

According to the World Bank (2006), medium enterprises are defined as enterprises, which have at most 300 employees and an annual turnover not exceeding 15 million US dollars. Further, there is the distinction of small enterprises — they have fewer than 50 staff members and up to 3 million US dollars turnover — and micro-enterprises have up to 10 persons and $100,000 turnover.

In the UK, sections 382 and 465 of the Companies Act 2006 define a SME for the purpose of accounting requirements. According to this a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees. It is worth noting that even within the UK this definition is not universally applied.

The loan application process for SME Credit:

Women in SME sectors

Submission of application form and other required documents
Assessment and approval of facilities requested
Insurance of letter of offering / rejection to customer.
Customer declines offer or appeal against facilities
Disbursement of Credit facilities

Loan documents needed for SME financing by Banks:

Criteria for loan selection are similar among financial institution. Most frequently requested documents by financial institution as a part of the loan application process include:

Personal guarantee
Business plan
Appraisal of assets to be financed
Purchase agreement
Cash flow statement
Personal financial statement
Formal application for financing
Business financial statement
Tin certificate
Bank solvency certificate
vat certificate
Export license

Sources of Funds for SME: In general, the sources of funds for SME are that-

i. Personal funds-saved or inherited of their own capital,

ii. Loans from relatives and friends- It may be able to obtain some money at low or no interest from relative(s) or friend(s),

iii. Trade credit,
iv. Loans of credit from equipment sellers,

v. Mortgage loans,

vi. Commercial Bank loans,

vii. Bangladesh Small and Cottage Industries Corporations (BSCIC) loans,

viii. Enterprises Growth and Bank Modernization program (EGBMP),

ix. Small and Medium Enterprises Development Project (SMEDP),

x. Taking partners,

xi. Selling capital stock,

xii. Miscellaneous sources (Life Insurance policies, Amortized loans etc).

Problems of SME sector in Bangladesh: At present SME sector is facing many problems in Bangladesh. Some major problems are as follows;

i. In Bangladesh scarcity of raw materials hinder the ability of SME to be export oriented and limits its ability to reach more advanced stages of international business.

ii. Due to limited growth of SME most of the skilled employees leave SMEs. Levy (2003) observed that SMEs are knowledge creators but poor at knowledge retention.

iii. One of the main barriers for the development of SME in Bangladesh is inadequate technologies. Many SMEs have failed to adopt modern technology.

iv. In Bangladesh, the definition of SME has changed overtime in different industrial policy announced by the government in different year. Absence of uniform definition makes the formulation and implementation of SME policy difficult.

v. Conservative attitude towards risk, lack of vision, ability to make plan and implementing those hinder the growth of SME in Bangladesh.

vi. It is observed that investment in R&D is still negligible in.

Finally, it can be said that SMEs are considered to be the seedbed for the development of entrepreneurial skills and innovation. Small capital requirement makes easy entry and exit possible and private sector entrepreneurial activities have many important spill over and positive externality effects. However, liberalization of the economy along with rapid globalization has posed several challenges to SMEs not only in international market s but also in the domestic economy. Since SMEs are based on relatively small investment, their survival depends on readily available markets with easy access. In today’s world, market development is a much more challenging task, which requires coordinated efforts by individual business enterprises and the Government. Bangladesh has failed to maximize the benefits derived from the SME sector, which promises and needs to play a pivotal role in promoting and sustaining the industrial as well as overall economic growth. Banks are the major sources of financing for SME sector. Many of the banks are not interested to provide more loans in SME sector because sometimes they face difficulties to recover the loan amount. SMEs are the growing sector in Bangladesh and here is a great possibility to develop the socio economic condition through the development of SMEs. Banks have also a great possibility to extend their business by providing loan in SME sector.

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