Recognising contribution of small and cottage enterprises
Debate over definitional issues of small and medium industries has gone for long, but the general agreement both in this part of the world and in developed countries is that the small and medium-sized enterprises (SMEs) are the main pillars of growth and development. A 2013 census shows that about 98.51 per cent of the total enterprises are from the small and cottage enterprise (SCE) sector. Financing policies for SMEs, micro and cottage types are different and raises several questions. Those must be answered properly to make development of the SMEs realistic.
The same census shows that SMEs comprised about 11 per cent of the total 7.8 million units. The small, micro and cottage industries (SmCIs) types can be placed in one segment while large and medium industries (LMIs) in another segment. The important issue is that small has got some close connection with micro and cottage while the medium could be tagged with large industries. So the acronyms are SmCI and LMI. The issues are very important on the question of structuring financial policies for each segment. Presently policies are overlapping, confusing and non-transparent for different segments. Somebody termed SMEs a 'buzz word', another thought it was the missing middle. However, small may include all types of small, micro and cottage entities. Thus in the definition of the Ministry of Industries(MOI), for the small category, the value range is from Tk 7.5 million to 150 million with the number of employees ranging between 31-120. The Bangladesh Bank (BB) puts the value for this category between Tk 5.0 million to 100 million, employing 25-99 employees.
The definitional issues are dealt by different organisations for different purposes. A comparison between The BB and the Ministry of Industries and the Bangladesh Bank is shown below as these two organisations play the main roles in defining policies on SMEs; a comparison between the definitions of the two organisations is shown in Table -I.
SMEs have got different definitions by the National Board of Revenue (NBR), economic census and other organisations. The Table shows the difference of definitions in respect of assets and employment aspect. In the BB circular there is no mention of definition of large enterprises, while in the MoI definition trading has been dropped. A significant number of SMEs in the country is engaged in trading but not reflected in the definition. Based on the guidelines of the BB, scheduled banks prepare their own policies and they are not interested to go for funding for the small enterprises. Micro and cottage industries are definitely out of their purview as their issues are taken care by the Micro Credit Financing Institutions (MFIs) which is regulated by the Micro Credit Regulatory Authority (MRA) under the Bangladesh Bank.
Small and Medium Enterprises (SMEs) contribute significantly to the country's economic growth, employment generation and accelerated industrialisation. The sector is labour-intensive, it creates more employment opportunities and acts as a poverty alleviation tool. SMEs also foster development of entrepreneurial skills and innovation. Between the small and medium enterprises, the former is the main agent to create employment and can be a good conduit to serve medium and large ones, but the growth of small industries is much below expectation.
There is, however, a policy gap so far as addressing the issue of small enterprises is concerned. Financing these enterprises would need a clear guidline from the regulatory body. Interestingly, the contribution and statistics of micro and cottage industries is not reflected in the Bangladesh economic review, so the mainstream policy has gone passed them.
SMEs get importance, but cottage and micro categories are the main contributor to employment creation. The 2013 census shows that cottage industries created employment for 13.16 million and micro for 0.56 million people while small created employment for 6.6 million. Thus the SmCEs' total contribution to employment creation is 20.32 million out of 24.5 million employment created by economic establishments.
Deciding the status of cottage and micro as well as small and medium enterprises could have given the best result for reducing inequality and addressing the Sustainable Development Goal (SDG) targets.
Definitional issues are important for policy consideration in matters of extending finance and other related support to different categories of business enterprises, specially small and micro categories.
The writer is CEO, Business Initiative Leading Development (BUILD), a partnership organization of DCCI, MCCI and CCI.