Determinants of SME Business and Some Recommendations to the Policymakers of Bangladesh

According to Bangladesh Bureau of statistics extreme poor was 10% and poor was 20.5% in 2019-20.  Small and Medium Enterprise (SME) can play an important role to reduce this poverty and unemployment of Bangladesh. Small and Medium Enterprise (SME) helps to generate employment, investment, export and economic growth.

The contribution of broad industry to GDP was about  35.36 percent   in fiscal year 2019-20 (BBS). Industry consists of cottage, micro, small, medium and large industries. Among these five industries Small and Cottage Industries contribute a large portion to GDP in Bangladesh. In Bangladesh, there are nearly 7.9 million SME including micro enterprises.  T

his contribute of SME to GDP is about 25% ( ADB, 2015) . The sub industries of SME can be defined as follows: fisheries ,horticulture , feed mill ,automobile service center and workshop ,auto rice mill, hatchery, bakery , printing and press .muri manufacturing, dairy farm ,trading ,business  The challenges of SME are financing and marketing. The advantage of financing in the SME is taken by the owners of Medium Entrepreneur because the medium enterprise always keep their record and documentation.

The extreme poor was 30% and poor was 50% in Mymensingh in 2019-20 - which are higher than national poverty situation of Bangladesh. Unemployment rate is about 4% (BBS).That's why, Mymensingh has been selected as a study area of this study. In this study 224 data of SME owners have been collected form Trishal, Valuka and Mymensingh sadar Upazila and 9 persons Key Informant Interview has been collected from various commercial banks of these upazila.

The study shows that among the SME owners less than 4 % are medium enterprise and about 96 % are small enterprise. In addition to this about 8% were female and 92 % are female. In this study, general to specific modeling has been used to see impact of various factors on yearly SME turnover.

These factors are as follows:  gender, access to SME loan, level of education of owner of SME enterprise, family size of the respondents, experience of businessman, initial investment of the firm, total investment of firm, the number of workers and access to the training of the firm The results show that access to SME loan, years of schooling of SME owner's total investment and number of workers increases yearly turnover of SME firms.  

There are some problem of loan collection from institutional sources. These are as follows: fake SME loan receiver are not able to pay the loan. So, actual SME businessman cannot get loan. SME loan recovery problem. i.e loan receiver are not able to pay the loan . So bank file case against the loan defaulters. But this cases take 2 or three years to solve.  Therefore, banks take strict measure to sanction loan.

Political reference is required to get loan in public bank. Credit Guarantee scheme of central bank does not work because central bank does not pay this credit to the commercial banks mentioning lack of proper loan procedure. . Since access to SME loan and higher total investment increase yearly SME turnover, sufficient SME loan should be provided with easy conditions from bank , NGOs and non-bank financial Institution  without any political reference . Loan should be provided to the actual SME businessman.

Loan defaulter's case should be solved within 6 months. Government should take essential steps to make Credit Guarantee Scheme effective. Branches of commercial bank should conduct prospective business survey in their respective region and encourage young entrepreneur to start SME business .Since higher level of education of SME owner increase turnover, educated persons should encourage to start SME business.

 In the study area medium enterprise is only 3.57 %, more emphasis should be given to set up Medium enterprise in the national industrial policy, national budget and 8th five year plan, because it creates more employment opportunity .In the study area female entrepreneur is less than 8% .So special attention should be given to the female enterprise in the national industrial policy.If this problems can be solved SME business will expand and employment opportunity will be created more. This play an important role to reduce poverty and unemployment in Mymensingh as well as in Bangladesh.


Md. Tanjil Hossain, Associate Professor of Economics Jatiya KabiKazi Nazrul Islam University &Research Director of UGC financed research project  Role of SME to Reduce Poverty and Unemployment in Mymensingh