Small and Medium Enterprises

• SMEs are the most important segment of any economy in

the world.
• They are getting the highest priority from policymakers
due to their already proven multidimensional
contribution to the socioeconomic environment of a
country.
• These enterprises are easy to start, require only
minimum capital, employ a comparatively higher number
of people, and produce goods that meet local demands
as well as contribute to export earnings.
• Definition of SMEs is based mainly on indicators of
replacement cost (invested amount), number of people
employed, yearly revenue, etc.
• Size of the indicators varies based on the socioeconomic
condition of the country or even the region.
 SME Finance
• Bangladesh Bank (BB) has updated its definition of
micro, cottage, small and medium enterprises in line
with the National Industrial Policy 2016 and set a
limit to the amount of credit they can avail.
 Significance of SMEs
• SMEs are considered the engine of economic growth
in both developed and developing countries. The
common importance of SMEs are:
• Provide low cost employment since the unit cost of
persons employed is lower for SMEs than for large-
size units.
• Assist in regional and local development since SMEs
accelerate rural industrialization by linking it with the
more organized urban sector.
• Help achieve fair and equitable distribution of wealth
by regional dispersion of economic activities.
 Significance of SMEs
• Contribute significantly to export revenues because
of the low-cost labour intensive nature of its
products.
• Have a positive effect on the trade balance since
SMEs generally use indigenous raw materials.
• Assist in fostering a self-help and entrepreneurial
culture by bringing together skills and capital through
various lending and skill enhancement schemes.
• Impart the resilience to withstand economic
upheavals and maintain a reasonable growth rate
since being indigenous is the key to sustainability and
self-sufficiency.
 Economic Importance of SMEs

• Contribution to the GDP

• Employment Generation
• Removing Disguised Unemployment
• Capital Formation
• Increase Market Infrastructure and Efficiency
• Raising Export and Reducing Import
 Social Importance of SMEs

• Women entrepreneurship Development

• Women Empowerment
• Creates more education opportunity
• Creates more access to health services
• Ensures child and mother nutrition
Contribution of SMEs to the Economy
• SMEs play a vital role in the country’s economy by
making a substantial contribution to employment
and income generation for the nation (Burns &
Dewhurst 1996; Bushong 1995; Holmes et al. 2003).
1. New employment opportunities: In Bangladesh,
SMEs are the most important source of new
employment opportunities claiming contributed
approximately 1.5 million jobs in the country;
accounting for 80% of industrial employment and
25% of the total labor force (ADB Report 2004).
2. Creeping economic growth: Governments throughout
the world attempt to promote economic progress by
focusing on SMEs (Harper & Soon 1979).
Contribution of SMEs to the Economy

• Bangladesh has traditionally been in agriculture

production process and producing of agricultural
goods like jute, rice, potato, wheat, onion spices, and
many other cereal and non-cereal products.
• The jute, garments, fish, hide skin, and manpower
are the country’s vital part of foreign currency earnings
• Over the last two decades, Bangladesh has been
experiencing a creeping economic growth.
• All concerned unanimously recognize the need of SMEs
development to boost up the country’s economy.
Contribution of SMEs to the Economy
3. Use of labor: Because the more SMEs born in an
economy like Bangladesh, the more a country will
grab its high labor intensity, dependence on
indigenous skills and technology, contribution to
entrepreneurship development and innovating
capability, and growth of industrial linkage (Ahmed,
M.U.2003).
4. Government Support: The SME sector generates
employment, adds value, brings in foreign currency
and investment, improves labor skills, and has
linkages with large enterprises (Raquib, A. 2005). So
SME sector deserves priority in quest of support
from government.
Contribution of SMEs to the Economy
5. Largest employer: The mass media cater the SMEs in
Bangladesh that at least 7.81 million SMEs have
employed around 80 percent of the total industrial
workforce numbering about 2 millions, including
agriculture, fisheries, and forestry sectors, that
contribute nearly 25 percent to the Bangladesh’s GDP.
The 2013 National Economic Census.
• ADB praised the country's estimated 7.81 million SMEs
and micro enterprises and firms of fewer than 100
employees for playing a magnificent role in generating
growth and jobs, postured their contribution up to 25
percent to the country's GDP last year, about 40 percent
of gross manufacturing output, 80 percent of industrial
jobs, and around 25 percent of the total labor force in
Bangladesh. The Bangladesh Observer Editorial
Contribution of SMEs to the Economy
5. Contribution to GDP: The WB has estimated that the
nominal GDP for the fiscal year ending June 2003
was Taka 2,996 billion (WB Report 2002).
The results from the survey show that cottage, micro,
small and medium size enterprises (CMSMEs)
contribute Taka 741 billion to GDP in the past year or
25% of the GDP. Mfg. contributes the greatest
amount followed by trade and retail (Daniels, 2003).
Contribution of SMEs to other Economy
About 88 percent of these economic entities are
cottage enterprises, while 11 percent are SMEs. But
in reality, about 99 percent of Bangladeshi formal
business enterprises are SMEs (ADB Institute, 2016).
About 97.3 percent of enterprises in China,
99.4% of enterprises in Singapore,
99.7 percent in Japan,
97.3 percent in Malaysia,
97.5 percent in Kazakhstan,
97.7 percent in Vietnam are SMEs.
Contribution of SMEs to other Economy

99.5 percent in Sri Lanka,

99.6 percent in the Philippines,
99.7 percent in Thailand, and finally,
99.9 percent in the Republic of Korea are SMEs.

SMEs also play a vital role in employment in these

countries.
For example, SMEs make up 87.7 percent of
employment by enterprise in the Republic of Korea,
80.3 percent in Thailand, and
71.8 percent in Cambodia.
 Contribution of SMEs to other Economy

• Similarly, SMEs are contributing to GDP growth and

increasing export earnings of these countries.
• They generate
• 60 percent of GDP in Indonesia and China,
• 47.6 percent in the Republic of Korea,
• 45 percent in Singapore, and
• 43.7 percent in Japan.
 Contribution of SMEs to other Economy

• In terms of export earnings, about

• 42.4 percent of export earnings in India
• 41.5 percent in China,
• 26.3 percent in Thailand,
• 20 percent in Sri Lanka,
• 18.8 percent in the Republic of Korea, and
• 15.7 percent in Indonesia.