Cottage, Micro, Small, and Medium Enterprises (CMSMEs) are considered to be catalyzers of any economy. In the development context, CMSMEs play a crucial role in both developed and developing countries impacting positive changes in the community level economy and in boosting the national economic scenario.
Terming the contribution of CMSMEs to be the lifeline of Bangladesh’s economy, the Honorable Commerce Minister Tipu Munshi recently stated on 11 January 2021 that the sector is contributing about 26 percent to the country’s Gross Domestic Product (GDP) annually on average for since long.
As Bangladesh had been able to maintain a 5.24 percent economic growth rate in FY 2019-20, where, the apparel sector earned US$ 38.2 billion contributing 11.58 percent to GDP amid the COVID-19 havoc, in that economic perilous state, the CMSME sector was still able to have more than twice impact than to the dominating apparel sector on country’s GDP believed to be driven by the ever-expanding local consumption market till to the date.
Furthermore, the share of industrial accomplishments in the economy increased gradually with the developments of manufacturing elements and capacity following the first three industrial revolutions that are poised to change in the coming days as the fourth industrial revolution is already upon us now. Flexibility over the large enterprises leads CMSMEs to take the challenges of reaching competitive supplying of demanded products within the shortest time frame.
Thus, their presence strengthens the national income, employment, productivity and entrepreneurial advancement. The market access of the CMSMEs refers to national and global presence through trade, international investment, strategic alliances, partnerships and networking arrangements creating an environment of business functions ranging from research, innovation, and product development to customer outreach.
Although CMSMEs are the main contributors to the economy, they mostly lag behind to reach the destined market. Many factors contribute to the lower rate of participation of CMSMEs in expanding their businesses vertically and horizontally throughout the country as well as the international market.
The constraints are mainly– lack of symmetric information, inadequate access to intermediary business services, unavailability of national guidelines to explore new markets, mere presence and utilization of digital techniques to exploit new market opportunities.
Furthermore, CMSMEs are affected by trade barriers like standards and technical regulations, frequently changing and unstable policy-law formulations, logistics processes and services, and customs and other administrative procedures due to proper knowledge.
The government policies regarding income tax, corporate tax, value-added tax, import duties, export provisions, business & product licensing and certification, services provided by the commercial and scheduled banks, interest rates and financing procedures announced by the central bank change from time to time.
This information is not regularly and easily communicated with the CMSMEs, and that is why, CMSMEs fall into vulnerabilities that massively hinder their business continuity, even in the worst case, CMSMEs are forced to close down their businesses as to be unable to cope with the new Tax-VAT-Duty-Interest Rate regime.
Besides, proper information is not available regarding training programs offered by government organizations. For this reason, most of the CMSME entrepreneurs take training from privately owned subpar training providers as National Skills Development Authority (NSDA) does not disseminate information to the CMSMEs about upper-standard privately owned internationally affiliated and recognized training institutes like DCCI Business Institute (DBI).
Again, they are not much aware of the new product line or trend of the world and don’t know what standard need to follow to access the market or communicate with the potential buyers.
Business intermediary and development services, such as advisory and consultancy firms on full-service business brokerage and mergers & acquisitions, trade license application and renewal, name clearance and registration process in the Registrar of Joint Stock Companies and Firms, factory-labor and environmental compliances, application and renewal process in Office of the Chief Controller of Imports and Exports, etc. are mainly in Dhaka City.
Because of this, CMSMEs located in other parts of the country are going through time-consuming and cost-increasing problems in time of expanding their businesses or trying to go the upper level of the ladder. As a result, it creates a great hindrance in the development of CMSMEs and their market accession.
There are some privately arranged courses which are mainly offered in Dhaka city that gives some learning’s to the CMSMEs about export market access, but, there are no nationally arranged training programs by the government to educate new entrepreneurs and locally operated CMSMEs going global by exploring export market opportunities, and knowing tariff rates, non-tariff measures such as required certificates and standards to be fulfilled for entering any particular with any specific product.
The Small & Cottage Industries Training Institute (SCITI) also conducts a training program on ‘Export Marketing’ often only in Dhaka, but not nationally.
Access to Finance
In Bangladesh, most of the CMSMEs experience great hurdles in raising their funds for working capital or to expand their businesses. The main problem they face in accessing finances from the financial and Non-Financial Banking Institutions (NBFI’s) due to lack of proper documentation, complex loan disbursement procedure, no banking account, bankable project submission, poor relations with banks, collateral problem, etc.
As a result, many of the cottage and micro-enterprises in our country do not have a bank account but doing business through cash payment or in good faith. In a study of World Bank with Policy Research Institute (PRI), in South Asian countries, Bangladesh has an estimated financing gap of about Taka 237 billion (US$ 2.8 billion).
Again, in this pandemic, the situation goes more aggravate for the CMSMEs. Although govt. has announced a 20,000 crore Taka stimulus package to support the CMSMEs while they are still struggling to get loans from the banks due to complex procedures and the reluctant nature of the banks found from a DCCI survey. Thus, it is very important to find out an alternative financing mechanism, other than a banking channel, to support the vulnerable CMSMEs.
- An alternative financing platform like Trade Discounting Platform can be created to circulate cash flow for the CMSMEs. The Platform will be an online platform, transaction will be transparent, adequate funding will be available for the CMSME entrepreneurs. The entrepreneurs who do not have any formal bank account yet, need to be brought under the shade of banking financial services. For this, it is needed to introduce a specific policy for unbanked and underprivileged Cottage and Micro-enterprises to make them bankable through the 10 Taka account opening scheme.
- Despite contributing as a raw material sourcing point for the intermediary and tertiary domestic market and export-oriented manufacturers, traders are not getting the due attention of the financier and unable to obtain adequate funds. Thus, the credit limit for the Trading Businesses under the current stimulus package for CMSMEs, regulated by Bangladesh Bank, needs to be increased up to 30%.
- It is required to create a cluster-based scheme to support new and existing entrepreneurs for expanding their businesses. At least Taka 8,000 Crore circular fund is needed to support the scheme. The scheme shall disburse credits to the CMSMEs at zero-interest for the first 2 years and from the 3rd year, they can be charged with an interest rate at 5%. And the time-period needs to be at least 10 Years for the full repayment of credit plus interest. It will help to develop clusters and entrepreneurs in different sectors.
- A decentralized govt. office system needs to be initiated to provide the business intermediary and development services to the CMSMEs at the district level too.
- Nationally, more cluster-based training programs are needed throughout the country to create an industry-based strong workforce and explore the untapped national and international market.
- The platform of the “Bangladesh Trade Portal” needs to be popularized to the CMSMEs as well as to the businesses for better access to information for trade expansion around the globe.
- An easier version of TAX, VAT guideline needs to be developed and proper training programs need to be conducted throughout the country since most of the CMSME entrepreneurs are not much educated in our country.
- The growth of the CMSMEs can be extrapolated by a more internationalized infrastructure development for the business ecosystem. This applies to the infrastructure for financial markets, advisory services, information access, access to finance, intellectual property rights markets and regulation, etc. are need to be in line with international standards. To make this happen, it is required to create an active collaboration between governments, international agencies, and the private sector to reap the significant potential benefits from it.
Mohammad Musleh Uddin is the Deputy Secretary, Research & Development and SME Development, Dhaka Chamber of Commerce and Industry (DCCI). He can be reached at firstname.lastname@example.org.
Views expressed here are not from the organization that the authors represent.