Inclusion of cottage and micro enterprises into SME Policy

The 'SME Policy 2019', announced in September last year, is expected to play an important role in changing positively the country's SME scenario. To facilitate growth of small and medium entrepreneurs (SMEs), the Ministry of Industries (MoI) has prepared the policy which will remain effective until June 2024.

The policy has been formulated in line with the government's Vision-2021 and Vision-2041, target of graduation from least developed country (LDC) status by 2024 and UN Sustainable Development Goals (SDG) 2030, As the SMEs are considered backbone of the Bangladesh economy, this policy aims to increase contribution of the SME sector to gross domestic product (GDP) from 25 per cent to 32 per cent by 2024.

This SME policy has 11 strategies based on six broader areas -- human resource development, business development services, access to finance, transfer of technology, cluster-based SME development strategy and access to marketing and information. The policy emphasises extensive SME Development activities.

It is dedicated to building a sustainable, environment-friendly SME sector and has underlined the4 need for creating necessary cluster and infrastructure development. Accordingly, different financial and non-financial supports would be provided to women entrepreneurs for their development.

The new SME policy is also pointing to improving SME business environment by increasing scope of institutional funding for the SME sector, adoption of ICT-based technology, developing marketing strategy and establishing SMEs as backward linkage of large industries. It focuses on establishing public-private partnership (PPP) and creating new SME initiative (start-up). In order to enhance innovation and attain business competitiveness, this policy recommends strengthening research and development (R&D) activities.

According to a 2013 census, out of 7.8 million enterprises in Bangladesh, 88 per cent or 6.86 million are cottage enterprises that have created employment of 13.16 million. Even though the cottage industry is representing a large portion of the enterprises, there is no mention of it in the new SME policy. How the interest of this huge cottage industry will be addressed is not mentioned anywhere, except some of the circulars of Bangladesh Bank. This SME policy has not clarified how these cottage enterprises would be accommodated in the mainstream economy.

Definition of Cottage, Micro, Small and Medium Enterprises as described in 'National Industrial Policy 2016' and subsequent industrial policies are acknowledged in the 'SME Policy 2019. Cottage enterprises are the ones which have investment up to Tk 10 lakh except land and building, engaging family labour and with employment of 15 persons. While micro enterprises are the ones that have investment worth between Tk 10 and Tk 75 lakh and employ 16-30 people. Number of micro enterprises, the census suggested, is 0.11 million that create employment of 0.56 million.

While defining SMEs in the SME Policy, these two categories -- cottage and micro enterprises -- are included, but required supports including financing. They are mostly funded by non-governmental organisations (NGOs) or micro finance organisations, but these institutions are not included in the list of agencies that are entrusted with specific activities as per plan of actions of the present SME Policy.

For small enterprises, required investment amount is between Tk 75 lakh and Tk 15 crore with employment target of 6.6 million. These three categories together cover 99.84 per cent of the total enterprises in the country.

Obviously, the policies should not be the same for the three segments given the required investment and employment opportunities in cottage, micro and small enterprises. Cottage, micro enterprises are entirely different from small and medium enterprises. Cottage and micro and small enterprises (CMSEs) can be the supplier of primary or intermediate goods and services to medium and large industries and thus establishing good linkages between these industries ultimately can contribute to proper industrialisation of Bangladesh. Successful examples of industrialised countries have followed this model and for that proper policies have been enunciated.

It is not possible to ensure SME development without bringing this large portion of the industry under the policy. These cottage and micro enterprises have immense potential to produce innovative and diversified products. By linking these cottage and micro enterprises with small, medium and large enterprises, dependency on imported items as supportive materials for finished goods could be reduced. Encouraging policies for CMSEs are essential for their development.

Most of the SMEs as well as cottage enterprises are located in rural and marginal areas. Those enterprises are deprived of many facilities that are available in urban areas. Most of the rural based entrepreneurs of CMSEs face trouble at the time of procuring raw materials. Those entrepreneurs mainly depend on intermediary or third person for procuring raw materials. Sometimes those intermediaries charge unjustified prices. The government needs to focus on those deprived groups and by making required focus on entrepreneurs of CMSEs, migration to Dhaka and other cities can be reduced.

The SMEs are not found to be very active in international trade due to lack of proper direction. In most cases, large companies are engaged in international business where SMEs are dependent on the domestic market. Some SMEs are engaged in exports but those are limited to low end market segments. This situation can be addressed if SMEs can raise quality of their products for global markets.

In order to nourish the SMEs and to understand the policy suitability for cottage and micro enterprises, policies need to be revisited and given proper thrust.

Bangladesh Small and Cottage Industries Corporation (BSCIC) and SME Foundation are the organisations that are responsible for implementation of strategic goals and action plans of SME Policy. The Ministry of Industries (MoI), responsible for evaluating progress and monitoring action plans, would provide both financial and nonfinancial supports to BSCIC and SMEF as per their needs.

In order to ensure flourishing of SMEs, it is necessary to implement all the action plans of the SME Policy. To reduce knowledge gap and boost confidence of SMEs, there is no alternative to capacity building. To accelerate development of the SME sector and carry out the Action Plan, two policy coordination committees would be formed -- one styled National SME Development Council and the other titled National SME Task Force. These committees should evaluate implementation status of the policy on time so that they can take corrective measures quickly if they find any weakness or delay in implementation.

A time-bound action plan is developed based on implementation strategies. There are eight short-term activities to be implemented within a year, 37 medium-term activities to be implemented within 2-3 years, and 37 long-term activities to be implemented within three years. About 36 government and nine non-governmental agencies are assigned to carry out the activities under 11 strategic goals of the SME Policy 2019.

Cluster development is one of the strategies and there is specific action plan for its implementation. In order to ensure sustainability of the clusters, necessary measures should be taken to include them in backward linkage of large industries. It would help them become more competitive. Some clusters are extremely vulnerable and deprived of necessary financial supports. Banks and non-bank financial institut6ions (NBFIs) would provide special financial facilities to those clusters. Clusters too should focus on developing a structured association and linkage among themselves. Micro and cottage enterprises of these clusters will be supported if clusters are developed properly. By adopting latest technology, clusters can improve their productivity and quality.

BSCIC and SMEF need to maintain a linkage with Bangladesh Bank and other financial organisations to support SMEs. The policy for supporting cottage and micro enterprises should be different, as formalities and documentation requirement would need to be different for a small amount of loan. BSCIC and SMEF could contribute to identifying large and medium enterprises/ entities/NGOs that may procure from cottage, micro and small enterprises so that a tripartite arrangement can be put in place for facilitating financial inclusion of cottage and micro enterprises. In that respect, Bangladesh Bank can introduce a refinancing scheme to address the credit risk concerns of banks and financial institutions.

According to UN statistics, there are 420-510 million small and medium businesses worldwide. The SMEs represent 99 per cent of all businesses and account for 85 per cent of new jobs created in the last five years. CMSEs or SMEs can be a good contributor to creating new jobs and implementation of SME Policy 2019 is important. There could be special treatment for cottage and micro enterprises so that nurturing of these sector are not deserted.

Ferdaus Ara Begum is CEO at BUILD, a PPD Platform supported by DCCI, MCCI and CCCI

[email protected]