Assignment on
Financing challenges and prospects in a small business venture
MGT 306: SME Management
Prepared for:
Tahmina Khanam
Assistant Professor
Department of Management
University of Dhaka
Prepared by:
Md Tarik Enam
ID-11, Sec-A (MGT-24th Batch)
Department of Management
University of Dhaka
Date of Submission: November 17, 2020
Introduction:
There is great interest in small and medium enterprises (SMEs) as major tool of poverty
reduction in Bangladesh. Government of Bangladesh formulated a comprehensive Industrial
Policy-2005 by putting special emphasis for developing Small and Medium Enterprises (SMEs)
as a thrust sector for balanced and sustainable industrial development in the country to help deal
with the challenges of free market economy and globalization. With multilateral trade
negotiations is often leading to improving market access and with developing countries also
being a lot more willing than before to participate in globalization, rich country government and
the aid agencies have apparently decided to focus on the SMEs as one important ingredient of
private-sector development. Small and Medium-sized Enterprises (SMEs) have been playing a
pivotal role in terms of economic growth, employment generation, poverty reduction and
industrialization (e.g. through entrepreneurship development) in Bangladesh. Industrialization’s
link to poverty reduction is through – charging-up the growth rate of the country, enhancement
of the productivity of the worker(s) in employment, providing employment to the unemployed,
expanding consumer spending and thus the confidence level by sharing lower costs from scale
economies via lower prices. As a result SME in Bangladesh takes several strategies to grow itself
& economy of this country. Such as Market development strategy, product development strategy,
diversification strategy etc.
Karim enterprise's financing:
Abdul Karim is a very energetic and passionate man. To earn his livelihood, Mr Karim runs a
variety store at Mugda area in Dhaka. He is in mixed condition now with the current situation of
his small business venture. Mr. Karim have started this business 2 years ago and till now running
the business quite smoothly. He is aware of his business’ limited financing opportunities. He
started this business with a capital of 20 lakh taka. Among which 8 lakh taka was given to the
room owner as an advance fee. Then he has got products of 12 lakh taka in his shop. Because of
his business's growing popularity Mr. Karim wants to extend his business. For this extension he
needs to collect 8 lakh taka more. He tried to get this amount from bank as loan but was in vain.
Because he has no such thing to give the bank as security the bank disapproved his loan
appraisal.
To meet an emergency situation Mr. Karim had taken 2 lakh taka loan from a cooperative
society. He has to give weekly installment for this loan. Beside this he sometimes collects
current capital from his close friends also to give current expenses properly.
Challenges Mr. Karim facing:
Mr. Karim is an small business owner. He has to go through a lot of challenges regarding the
finance of his business. Major challenges that Mr. Karim is facing are listed below:
High interest rates of bank loan
High interest on government bonds
High rates of non performance loans in banking sector
Fixed deposit against loan
Lack of collateral assets
Lack of ability to draw a business plan
Lack of proper contact with SME
Hazardous in lengthy process to get bank loans
Lack of long time relationship with financial institutions
Too much paper work to get loan
Credit approval against loan
So it can be said that Mr. Karim has to go through lot of difficulties regarding financial help to
build his business. One of the major challenges is that Mr. Karim has less knowledge about
government's beneficiary plans for SME's.
Prospects of Small business in Bangladesh:
From the survey we have learnt that there are several prospects and opportunities are rising
regarding SME financing in our country. Some measures which our government and many
international organizations have already taken and propose to take regarding SME financing
opportunities are mentioned below;
Basic Bank: Basic Bank was established in 1989 to finance small and medium industries.
It is mentioned in its memorandum of articles that at least 50% of loan-able fund should
be invested in small and medium industries. The bank offers moderate interest rates
office SME lending compared to other private commercial banks and foreign banks.
Refinance scheme for small and medium enterprises: to help overcome the financial .
constraints of the sector and induce the banks and other financial institutions to provide
credit facilities to the SME sector, particularly the small entrepreneurs, Bangladesh
Bank introduced a finance scheme with a special fund of Taka 10 billion effective from
May 1, 2004. Credit distribution package: It has been announced by the SME cell that
eighty percent of total resources available for SME will be allocated specially for a small
enterprises.
Lead Bank: it has been decided by the SME sale that in the short run Basic bank and
BRAC bank will be working together as lead banks and will be responsible for
distribution of the credit and venture capital fund.
SME Foundation: Asian Development Bank has expressed it's interesting to support the
government to set up a small and medium enterprises (SME) Foundation as part of its
country assistant strategy. Some other development partners will support the SME
foundation and it can be an apex body for these industries. The functions of the
foundation would be to be provision one window delivery of all promotional and
administrative facilities including some resources needed for capacity building
appropriate industry association for assembly in the country.
Palli Karma-Sahayak Foundation (PKSF): the government established PKSF in 1990 to
work as an apex organisation for the development of microfinance sector in Bangladesh.
PKSF is distributing micro credit among the poor through 225 large and small NGOs.
Special fund for the improvement of the extreme poor administrated by PKSF.
Financial incentive scheme: Government is trying to develop financial incentive scheme
for SMEs through a ranking system for their sound business plan and feasibility study.
So, these measures are taken by the government and other international financial organizations to
facilitate SMEs financing.
Recommendations:
Special SME Development Fund: Government should set up special funds to raise
the required equity capital for SMEs with the potential entrepreneurs.
Credit Guarantee Scheme: Government should provide mortgage and guarantee free
loan up to a certain limit under the credit guarantee scheme
Financial Incentive Scheme: Government should develop financial incentive
schemes for SMEs through a ranking system for their sound business plan and
feasibility study.
Institutional Network: Development should be done on institutional network through
public-private support partnership would be more effective in SMEs financing by
pooling the unused or surplus funds available around the country. To make it
viable, restructuring of the existing public agencies as well as private support
institutions are required.
Alternative Credit Scheme: As an alternative to collateral based financing, loan
should be provided to potential SMEs based on previous years cash flow
statements .
Venture Capital: Venture capital formation for SME financing should be highly
urged through enforcement of proper rules and regulations by the Stock Exchange
Commission (SEC) and other key players including the Bangladesh and private
support organizations.
Bank Syndication Scheme: Forming bank syndication between micro finance
institutions and commercial banks for SMEs financing. Micro finance institutions
should provide recommendation and credit history to commercial banks for SME
development.
Training and Development: Relevant associations of Chamber of Commerce and
Industries should take the leadership role in promoting 31№SMEs training and
development.
Specialized Financial Institution: There should be created a separate financial
institution to deal exclusively regarding SME financing and promotion of their
goods and services, both in domestic and foreign market.
Conclusion :
Small and Medium Enterprises (SME) play a vital role to build up our economy strong. This
hatcheries are providing significant benefits to the ecosystem and to humans. There is little doubt
these hatcheries will continue to be part of our country landscape for many years to come. A
sustainable approach to fisheries and aquaculture will help to protect our national resources and
ensure that fish stock will available for the future generation. Small business owners like Mr.
Karim will be in a very supportive situation if government takes necessary steps to reinforce the
suggestions in the recommendations part.
