Development of Small and Medium Scale Enterprise in Bangladesh: Prospects and Constraints

Abstract

The Small and Medium scale Enterprise (SME) working as the engines of economic growth. Promotion of SME especially in the developing countries like Bangladesh include their relatively high labor intensity, dependence on indigenous skills and technology, contributions to entrepreneurship development and innovativeness and growth of industrial linkages. The growing economic significance of the SMEs as sources of new business creation and employment generation. Bangladesh followed a development strategy in which private investment was controlled through a host of regulations involving investment sanctioning, credit disbursement, import licensing, foreign exchange allocation, etc. While these regulatory barriers dissatisfied private investment in general, the impact fell unevenly on SMEs. This was because of the relative inability of the SMEs to cope with the regulations compared to their large-scale counterparts. Today there is a widespread perception that most of the laws under which the small and medium scale institutions are operating seem to have fallen short in dealing with their institutional and operational aspects. The lending institutions should be encouraged to emphasize on the relationship lending technologies, which is based on “soft” information. The soft information may include the character and reliability of the SME’s owner based on direct contact over time by the institution’s loan officer; the payment and receipt history of the SME gathered from the past provision of loans, deposits, or other services to the SME by the institution; or the future prospects of the SME garnered from past communications with SME’s suppliers, customers, or neighboring businesses. Banking norms and attitudes towards SME financing should be changed as because small enterprises differ considerably from the traditional clientele and do not conform to the norms detailed in the manual of banking norms and procedures.