Financing Problems of Small and Medium Enterprises in Bangladesh

Abstract

Small and Medium Enterprise (SME) Financing is a topic of significant research interest to academics and an issue of great importance to the policy makers around the world. Economic, as well as technical and social arguments warrant the promotion of SMEs, as they create large scale low-cost employment opportunities, use locally available inputs and technologies, mobilize small and scattered private savings, deveiop entrepreneurship, and correct the regional imbalance in development that exists in developing countries. Despite all these potentials, SMEs are disappearing, abandoning the potential role they could have played in economic development. Several studies have identified the major obstacles that include, but not limited to,.financing, infrastructure facilities, taxes and regulations and stability in policies. To make an overall view on smail business prospects in Bangladesh I survey on small business operating in Bangladesh usuaily. To make a successful and efficient report I made a questionnaire and went to the respective person who are basically the owner of such small business or strongly related that specific business. Some of our surveyed sectors are grocery shop, candle business, Laundryshop, boutique shop, beauty parlor, restaurant, printing press etc. Using the collected information. I have analyzed the small business market in the sector as a whole. This has given us a welldefined present scenario of small business including the problems and prospects of such type of business sectors. Based on these prospects and problems I have tried to give some recommendations on this business arena. This paper focuses on the financial constraints inBangladesh. Moreover, it tries to emphasize on the importance of developing SMEs in the country as well as the obstacles the entrepreneurs are facing in shaping their ventures mainly in accessing the institutional credit facilities. In Bangladesh, among the formal sources, commercial banks are not interested because of the high risk and high supervision cost associated with this type of financing. Absence of sound collateral puts SMEs at a relative disadvantage. However, I have found that some of the commercial banks have some 'innovative' products or services targeting at SMEs only, while others have 'repackaged' some of their existing products as SME products. It has been observed in the study that commercial banks disburse loans to this sector only when government introduces 'credit guarantee scheme' in different capacity.