Assignment on

SMEs in Bangladesh Prospects and Challenges During Covid-19

 MGT 306: SME Management

Prepared for:
Tahmina Khanam
Assistant professor
Department of Management
University of Dhaka

Prepared by:
Team Ambition
Student Information:

Sl. No. Name Roll

1 Md. Jahidur Rahman 53
2 Md. Mahabubur Rahman 100
3 Md. Tarik Enam 11
4 Miraz-Ul-Alam 65
5 Md Al Islam 47
6 Faysal Chowdury 31
7 Mohiman Al Nur 10
8 Suzana Sharmin 05
9 Farhan Zaheen Anika 30
10 Mst. Nahida Akter Tamanna 19

Date of Submission: October 20, 2020

Small and Mid-size Enterprise (SME)
Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a number
of employees below a certain threshold. Each country has its own definition of what constitutes a
small and medium-sized enterprise (SME). Certain size criteria must be met and occasionally the
industry in which the company operates in is taken into account as well.
Though small in size, small and mid-size enterprises (SMEs) play an important role in the
economy. They outnumber large firms considerably, employ vast numbers of people and are
generally entrepreneurial in nature, helping to shape innovation.[ CITATION Wik20 \l 1033 ]
SMEs are important for economic and social reasons, given the sectors role in employment. Due
to their sizes, SME are heavily influenced by their Chief Executive Officer, a.k.a. CEOs. The
CEOs of SMEs often are the founders, owners, and manager of the SMEs. The duties of the CEO
in SME are difficult, and mirror those of the CEO of a large company: the CEO needs to
strategically allocate her/his time, energy, and assets to direct the SMEs. Typically, the CEO is
the strategist, champion and leader for developing the SME or the prime reason for the business
failing.
Key Takeaways
1. Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a
number of employees below a certain threshold.
2. Each country has its own definition of what constitutes a small and medium-sized
enterprise (SME).
3. Small and mid-size enterprises (SMEs) play an important role in the economy, employing
vast numbers of people and helping to shape innovation.
4. Governments regularly offer incentives, including favorable tax treatment and better
access to loans, to help keep them in business.
5.

SMEs Enhancing Women Empowerment in Bangladesh:

Empowerment can be defined in several terms based on context and the background entity using
the term: however, empowerment in the simplest sense talks about the distribution of power. So,
it means that empowerment deals with empowerment over a particular variable. When
empowerment is considered in terms of women there are four key terms which overlap to form
the consensus “option,choice,control and power”. In a broad sense this describes how much
flexibility a woman has to influence decisions in her family and own life.
SMEs represent the backbone of local economies in most developing countries. As a part of the
world, the role of women SME entrepreneurs in development of Bangladesh has also a
tremendous potential in empowering women and transforming existing sex ratio in demographic
structure of Bangladesh indicates that women comprise almost 50% of the total population.
There is an organized integration between two major development concepts of developing
nations; women entrepreneurship development and women empowerment. The role of women
SME entrepreneurs has been considered from a different angle, as women involvement is
necessary for empowerment. By observing different research based-writings, it has been
observed that the contribution of different women SME activities has empowered women. It is
also impossible to achieve the target of a poverty free society without empowering women.
Bangladesh is one of the countries which rectified the UN Convention on the Elimination Of All
Forms Of Discrimination Against Women (CEDAW). The constitution of Bangladesh grants
equal rights to women and men in all spheres of public life [Article 28(1) and 28(3)]. In response
to the international concerns and constitutional commitment, the government of Bangladesh has
initiated some Institutional measures for the enhancement of women’s empowerment. The major
initiatives undertaken by the government so far included establishment of a separate ministry on
women’s affairs and formulation of the national policy for Advancement Of Women-2008 and
the National Action plan. By ensuring women’s participation in skills development programs, it
is possible to bring more women to light and make optimum utilization of our human capital and
women empowerment. Identifying new ventures ideas through SMEs, women is getting involved
in diversifying products and creating jobs and entrepreneurship opportunities for women. By
doing so they are helping boost women empowerment in Bangladesh.
Women SME entrepreneurs play a vital role in the empowering women by increasing not only
their own position but also the women workers under their supervision. It is no secret that
women SME owners in Bangladesh has great growth potentials to have a part in the growth of
their financial crisis. There are far more SMEs which are owned by women in rural parts of
Bangladesh than in the urban areas. These SMEs are at the most times based at home on a small
scale in sectors which does not involve farming. Their numbers are greater than that of men
owned SMEs in the indigent population. The opportunity to be a more active part of the
economy has encouraged females to take part in paid labour which has increased their level of
economic empowerment. This development of women economic empowerment has increased
the flame of women empowerment across all the sectors of Bangladesh.

Opportunities of SME:
SME has emerging opportunities in Bangladesh. As reported more than 90 percent of businesses
are small and medium enterprise but still, there are many opportunities in this sector that will
help contributing more into GDP. Bangladesh is one of the most densely populated country in
the world. It has great manpower source and every year 2 million people add to the workforce,
half of them wanted to work at home and half of them wanted to go abroad for employment.
Small and medium enterprises are not only labor-intensive but also cost-effective. So, SME can
be a better solution for unemployed people in the country. In our country, there are many training
and vocational institutions where unemployed people can be trained and can be turned into
strong manpower. Although poor training facilities are hampering the SME and its acceptance
abroad. And this is why young people are not interested in the training program but if they take
the opportunity of those training programs it may increase its facilities and become helpful for
SME. The Daily Star took a survey in 2019 in which 50 SME took part in a fair in Dhaka and
responded to the survey. Most of them demanded a common marketing platform for micro and
SME along with easy access to funding. And now there are many online platforms which are
jointly promoting SME.  There are many banks and NGOs who are helping especially SME
organizations which are helping our economy though there are many people who are not capable
but getting those loan opportunities if a capable person gets those opportunities, they will be
more helpful for our economy and total governance can be a solution to this. In Bangladesh
handmade things like bags dresses which created a great opportunity for SME. And along with
Bangladesh, there is demand abroad for those things produced through SME. The product of
Bangladesh might not rival with hyper competition of European world but have chance to lock
head with India and China due to recent labor cost hike there.[ CITATION New18 \l 1033 ]

Limitation of SME in Bangladesh:

Small and medium enterprises have drawn a lot of interest among policy makers, academics,
businessmen and people in general. There is a broad consensus that a vibrant SME sector is one
of the principal driving forces in the development of the economy of Bangladesh. SMEs
stimulate private ownership and entrepreneurial skills and can adapt quickly to changing market
situation, generate employment, help diversified economic activities, and make a significant
contribution to exports and trade. Therefore, policies and initiatives to develop SMEs and to
increase their competitiveness are a priority for Bangladesh. Liberalization of the economy along
with rapid globalization has posed severe challenges to SMEs not only in international market
but also in the domestic economy. Since SMEs are based on relatively small investment, their
survival depends on readily available market with easy access. In this context, access to finance,
market development and expansion as well as removal of other bottlenecks are a challenging
task, which requires coordinated efforts by individual business enterprises and the government.

Challenges and limitations:

 Inability to Market SME Product: The present and future growth prospect of any
product depends to a large extent upon marketing activity. This requires having a
well-planned marketing strategy including advertisement campaign as well as
resources for implementing that strategy. Unfortunately, SME entrepreneurs are at the
bitter end in this respect as they cannot make adequate investments in marketing and
also lack necessary marketing skills.

 Inability to Maintain Product Quality: A major constraint to the sustainability of

SME growth in Bangladesh is the inability to maintain the quality of SME products.
At present Bangladesh produces mostly common consumer goods which are labor-
intensive and require relatively simple technology. But due to poor quality these
products cannot stand competition from imported products. The challenge for
 Bangladesh today is not in competing with high-tech products of developed countries
but to make its SME sector survive competition from its rivals.

 Lack of Investment Finance and Working Capital Finance: It goes without saying
that access to finance particularly working capital finance and investment finance to
enable them to expand their business is a prime constraint facing the SMEs. Banks in
general do not consider SME financing as profitable activity. SMEs are also regarded
as high-risk borrowers because of their low capitalization, insufficient assets and high
mortality rates, and consequently banks are not keen to offer them credit at
comparable interest rates. SMEs in the export sector also face problems of access to
working capital.

 Lack of Skilled Technicians and Workers: Lack of skilled manpower is a perennial

problem in Bangladesh. This problem is particularly acute for small and medium
scale export-oriented enterprises. Bangladesh has made large inroads in the world’s
apparel market through commendable performance of RMG sector. However, the
value addition of the products is low. Despite high demand, Bangladesh cannot make
much entry into high value fashion wear exports due to dearth of trained workers.

 Poor Management Skills of Entrepreneurs: In the modern-day economy,

managerial skills for undertaking planning, marketing, and cash-flow management
are vital for survival of an industry, small or large. SME entrepreneurs in Bangladesh
are very much lacking in managerial skills and are not used to strategic planning.

 Absence of Supportive Help Desks: In a competitive world, market information

regarding demand and supply situation for a product at a particular period, changing
consumer tastes, etc. are crucial elements for the success of an SME. In Bangladesh,
although some financial institutions and few trade bodies like Dhaka Chamber of
Commerce (DCCI) have introduced help desk and knowledge centers with internet
facilities, such services are too few to provide service to the SME entrepreneurs on
the whole. Lack of market information is a serious constraint to SME development.

 Barriers in access to finance for women entrepreneurs: Discrimination still exists

regarding access to finance by women entrepreneurs. Studies on the subject noted that
women contribute around 26 per cent in total deposit of the banking system but their
access to credit is below 2 per cent of the total outstanding loans. This is an
unfortunate situation. Access to finance is one of the most critical constraints faced by
women entrepreneurs. Although most of the banks have SME banking, few women
apply for the bank loans as they need to submit a number of statements such as bank
statement of the enterprise, reference of guarantor etc. for collateral free loans.
Problems were more pronounced for women entrepreneurs in the informal sector. A
recent study noted that about 79 percent of women entrepreneurs in this sector had no
 access to formal financial institutions and depended on own savings and family as
source of capital to start a business. [ CITATION Cho15 \l 1033 ]

Post Covid-19 Outbreak Situations in Bangladesh

It is too early to make judgements referring to COVID-19 impressions on various aspects of
economy. However, SMEs in Bangladesh have already been experiencing devastating and
ruthless impact. Bangladesh’s GDP which was enjoying an exponential growth of 8.15 percent
would be slowing down significantly due to COVID-19. According to the Economist
Intelligence unit (EIU), the decline of GDP could lower down to 4 percent. The hardest hit would
be the small business sector. This sector contributes 20.25 percent in our GDP growth and
accounts for 35- 40 percent of our employment. Hence the government and private sector has to
take special steps for survival of small and medium enterprises.
Since the COVID-19 pandemic has disrupted the supply chain, about 76% produced goods of
Small and Medium Enterprises (SMEs) valued at Tk 6.75 lakh each, says a survey. Meanwhile,
SME entrepreneurs in the rural areas are being hit the hardest due to the impact of Covid-19, as
their revenue has dropped by 67% in 2020 compared to the previous year. However, the average
reduction of revenue for all SMEs is 66% in 2020 compared to 2019. As per the survey findings
of the surveyed entrepreneurs, 76% goods produced by the entrepreneurs remain unsold and the
value of unsold goods is Tk 6.75 lakh each. Economic activities were not completely shut down
during the lockdown, while only 16% of SMEs were open. However, it was 38.24% in cases of
handicrafts and rural SMEs were opened by 11.40%, the report showed. On an economically
viable optimal length of lockdown from SME point of view, enterprises can sustain about a
month paying all bills, while most of the workers are not sure if they will be paid after one month
of shutdown, said the report.
Enterprises are cutting corners massively by optimizing costs – 46% of SMEs are projecting to
layoff over 50% of their staff within four months if the situation does not improve. 42% of
enterprises have cut their marketing expense down to zero. Over 42% surveyed workers received
piratical salary and 3.62% did not get their wages during the period. On the other hand, the
owners claimed that 19.15% workers were paid partially, while 1.17% did not get payment. They
also claimed that 79.15% workers were paid fully. Nonpayment of wages was higher in the
electrical, light engineering and plastic sector by 9%.
74.12% SMEs owners are aware of the government incentives packages, and about 70% SMEs
think they will get the benefits of the government announced incentives. However, rural SMEs
know better than the overall sector as 78.8% are aware of incentives. The lowest knowledge
level about packages is found among the smaller ones, which is 63.2% of the surveyed people
and of them 59% think they will get benefits from it.
28% SMEs have seen revenue drop by at least 50%, while 52% SMEs have locks hung over their
businesses generating no revenue at all. 2/3 rd of the SMEs has a window of less than four months
to survive in current conditions before they exhaust all their cash reserves. The continuation of
pandemic beyond 7 months will force a majority of the small businesses to close down. This
sector employs over 50 million people. Global organizations have allocated US $50 billion to
fight the pandemic. At least 1.5 billion could be procured for our country for small and medium
enterprises.

The Impact of Covid-19 On Financing of SME Enterprise

The global recession in corona has affected all industrial sectors in Bangladesh. SME enterprises
are facing the effects mostly. The industries are facing tremendous loss as there is trouble getting
financing, continue sells and shrinking job opportunities.

Several researches have been showing us the crisis SME enterprises are facing and possible
devastating failures. Small and medium enterprises run mainly from day to day transaction. So,
they are fragile if the transactions are not performed periodically. Due to the widespread of
Corona virus the whole country has been on lockdown for several months affecting their natural
way of business. As a result, multiple problems are emerging that are crucial for the existence of
SME business.

Surveys are showing that inconvenience of business activities are leading to mass layoffs and
closures. Existing businesses cannot afford as much employees due to lack of liquidity.
Percentage of closing down of small enterprises are alarmingly high.

In spite of the downward flow of transaction, enterprises could continue business by borrowing
SME debt. Sadly, Covid-19 corona virus has also affected new equity transaction by lowering
the level drastically. Consequently, borrowing debts from banks and other financial
organizations have become difficult than ever.

Surveys also indicate that few small and medium enterprises of our country had prepared
themselves for any crucial moments like this pandemic. Enterprises took no precautionary
measures to save money which would certainly help them to survive this pandemic period.

In a nutshell, in can be indicated that SME organizations of our country are facing huge financial
risk that increases the risk of continuing business further.
Recommendations
We would like to propose some recommendations for survival of SMEs in during covid-19 are as
the followings:
1. Concessional financing: From the current international practices it is noticeable that 70% of
the respondents asked for soft loans/working capital loans to survive the crisis. The government
should ask Banks and financial institutions   sanction up to BDT 25 lacs to women entrepreneurs
against the personal guarantee. Entrepreneurs’ credit limit may be ranged from BDT 50,000 to
BDT 50 lacs.
2. Tax reductions and grants: The government should be reducing the tax rate and offering
grants to businesses in hard-hit sectors in an effort to help reduce costs and boost the bottom line.
3. Digital Transformation: The SMEs should try to digitize their business operations to the best
of their ability. Since the lockdown is forcing people to stay inside homes, it is imperative that
businesses switch to online channels.
4. Digital Financial Services: Cashless transactions could transform the way SMEs conduct
business. It widens the possibilities of reaching customers across the country. Mobile financial
services like bKash, Rocket, UCash, Nagad opened new doors in transferring, transacting and
storing money digitally instead of cash.
5. Digital Supply Chain Management: Supply chains having web-enabled capabilities render
enterprises the ability to source and sell on digital platforms. This not only increases the potential
market by folds but also ensures a seamless transaction and traceability from the factory to the
consumers’ doorstep.
6. Digital Credit: Traditionally, large banks that have had controlled capital investments in
Bangladesh. Most financial institutions have been reluctant to lend beyond large corporates. One
prevalent reason is assessing the creditworthiness of SMEs has been seen by banks as more
difficult and expensive. Apart from providing a platform to SMEs for selling their
products/services — Sheba.xyz & Shopup also provide digital credit to SMEs and smaller
enterprises, which are underserved by traditional banks. They are also leveraging digital
platforms to expedite credit assessments.
SMEs create livelihoods and if they fail, we will go into deeper economic shock with
more and more people coming below the poverty line. Hence, we all need to work together to
support and uplift the sector. On the off chance that there is one thing that COVID-19 has shown
unmistakably is that interest in digitization is not a luxury. Innovation is not only to survive this
crisis but it is to create a sustainable business, which will be resilient and evolving in the ‘new
normal’.[CITATION LIG20 \l 1033 ]
References
Chowdhury, M. A. (Year 2015). Small and Medium Enterprise in Bangladesh-Prospects and. Global
Journal of Management and Business Research: C, 11.
LIGHTCASTLE ANALYTICS WING. (2020, April 25). COVID-19: Impact on Bangladesh’s
SME Landscape. From LIGHTCASTLE Partners:
https://www.lightcastlebd.com/insights/2020/04/25/covid-19-impact-on-bangladeshs-
sme-landscape
NewYork Essays. (2018, January 05). Opportunities and Challenges of Sme Business in
Bangladesh. From NewYork Essays: https://newyorkessays.com/essay-opportunities-
and-challenges-of-sme-business-in-bangladesh/
Wikipedia. (2020, October 20). Small and medium-sized enterprises. From Wikipedia:
https://en.wikipedia.org/wiki/Small_and_medium-sized_enterprises