Problems of SME in Bangladesh: At present SME sector is facing a lot of problems in

Bangladesh. Some major problems are as follows;

1 Resource scarcity: In Bangladesh scarcity of raw materials hinder the ability of SME to be
export oriented and limits its ability to reach more advanced stages of international business.
2 High employee turnover: Due to limited growth of SME most of the skilled employees leave
SMEs. Levy (2003) observed that SMEs are knowledge creators but poor at knowledge
retention.
3 Absence of modern technology: One of the main barriers for the development of SME in
Bangladesh is inadequate technologies. Many SMEs have failed to adopt modern technology.
4 Poor physical infrastructure: Inadequate supply of necessary utilities like electricity, water,
roads and highways hinder the growth of SME sector. Moreover unfavorable geographical
conditions increase the transportation cost.
5 Financial constraints: Availability of finance hinders the growth of SMEs in Bangladesh.
Bangladeshi bank considers SMEs as high risk borrowers because of their inability to comply
with the bank’s collateral requirements. Only about 15-20% of the owners of SMEs own any
immovable property. Bankers issue loan on the basis of ownership of immovable property as
collateral risk. As a result it automatically excludes rest 80% SME’s from the list of privileged
clients of the banks. Whatever collateral SME’s can manage gets used up in talking the term loan
leaving them with no means to seek working capital loans from banks. Because of low access to
institutional financing SME’s rely on inefficient financing services from informal sources.
6 Lack of uniform definition: In Bangladesh the definition of SME has changed overtime in
different industrial policy announced by the government in different year. Absence of uniform
definition makes the formulation and implementation of SME policy difficult.
7 Lack of information: Miah (2006) has observed that SMEs have very limited use of
information technology (IT). Accounting package is used by 1-2% of the SMEs. The use of
computers is revealed by say 15% of the SMEs, while the use of the Internet for business
purposes applies to say 8-10% of SMEs.
8 Lack of entrepreneurship skills: Conservative attitude towards risk, lack of vision, ability to
make plan and implementing those hinder the growth of SME in Bangladesh.
9 Participation of women entrepreneurs: Equality of opportunity is a major problem for SME.
Female entrepreneurs are treated discriminately. They are not well represented in business
organization. Government does not provide adequate institutional assistance for women
entrepreneurs.
10 Access to Market and lack of awareness regarding the importance of marketing tool:
For SME, owing a retail space is very expensive in the major cities in Bangladesh. As a result
many customers are not interested to buy products and services from SMEs. Because they can’t
judge the quality until they physically examined the product. Most of the cases SMEs in
Bangladesh are not able to use the Integrated Marketing Communication (IMC) tools. But these
tools play the role of important stimulus to motivate the customers and retain them. The country
does not have enough marketing capability and resources to invest in marketing.
11 Bureaucracy: Wang (1995) observed that the inadequate government supports are top
ranking constraints for SMEs. Unnecessary layers of Bureaucracy and red-taps reduce the
competitiveness of SME and raising the cost of transactions and operations.
12 Absence of transparent legal system: The absence of an effective and transparent legal
system discourages SMEs in exploring into risky ventures of business. There are a number of
unnecessary formal requirements to start and run business that create high compliance costs and
become barriers to SME development, growth and market entry.
13 Lack of commitment to innovation and customer satisfaction: Ernesto (2005) stated that
to keep in pace with international competition, firms of all size are challenged to improve and
innovate their products processes constantly. But in Bangladesh SMEs are still not relating the
importance of satisfying and retaining customers by offering novel and desired benefits.
14 Lack of quality assurance: Govt. has failed to frame a national quality policy, provide
adequate support systems and establish a national quality certification authority. As a
consequence SME of Bangladesh has failed to ensure the quality of their products and services
both in local and international market.
15 Lack of research and development facilities: It is observed that investment in R&D is still
negligible in.
16 Fierce competition with the cheaper foreign goods: Fierce competition with the cheaper
goods of China, Taiwan, Korea, India, and Thailand also pose threat to SME in Bangladesh.

Suggestions and Recommendations:

SMEs will continue to be the major driving force for income and employment generation in
Bangladesh. The future for entrepreneurship appears to be very bright. We are living in the age
of the entrepreneur, with entrepreneurship endorsed by government, business community,
educational institutions, society, and corporations. Development of SMEs in Bangladesh is the
need of the hour to raise the standard of living of the people of our country. The modest
suggestions and recommendations are given below:
1) Enhancing Access to SME Finance: Access to institutional finance for SMEs is still greatly
limited. Less than 30% SMEs have access to institutional loans. Enhancing access to institutional
finance by 50% of SME entrepreneurs may be a target within next five years through
strengthening SME foundation, motivating institutional sources of financing to provide access to
the deserving loan applicants.
2) Development of SME Infrastructure: Infrastructure development is a prerequisite to
efficient development and financing of SMEs Currently, the most severe constraint that hinder
the development of SMEs is the lack of infrastructure (e.g., roads, gas and electricity), limited
access to market opportunities, technology, expertise and business information and
communication. Providing appropriate infrastructure for SME growth should be given priority.
3) Quality of SME Products: Poor quality of products is a big setback for expansion of SME
business and SME sector as a whole. Measures for quality improvement and standardization of
SME products have to be one of the targets. The BSTI may be made more effective in
monitoring quality of product both for domestic market and for exports.
4) Training Facilities for SME workers and Entrepreneur: Bangladeshi workers are very
good at learning production skills and copying them. However, training facilities for SME
workers and development of entrepreneurial skills are not adequate in our country. Some training
Institutes like the Training Institute of BSCIC impart training but it is not utilized properly.
Special programs are to be undertaken for the establishment of training institutes regarding
entrepreneurship development.
5) Organizing Trade Fairs, Symposiums, Workshops on SMEs on Regular Basis: At present
workshops and symposiums on SMEs are held by different organizations and think tanks, but
these are held infrequently and not in any systematic manner. A plan for holding seminars,
workshops, trade fairs, etc. on a regular basis should be formulated.
6) Setting Help Desks in Banks and Business Promotion Bodies with Internet Facilities: To
extend the outreach of SME development particularly in respect of women entrepreneurs, a Help
Desk with computer and internet facilities should be set up in bank branches dealing with SME
finance as well as in all chambers of commerce and industry and other trade promotional bodies.
7) Use of modern technology: Product design and technology is a very important aspect of
SME development. Most SMEs are characterized by indigenous technology and they are
involved in improving their existing production techniques and processes. If there is no use of
modern technology and innovation does not take place in an indigenous sector, enterprises
become uncompetitive.
8) Proper implementation of SME policy: Government has formulated SME policy to accept
SMEs as an indispensable player in growth acceleration and poverty reduction. To this end
government has introduced various strategies and provides facilities and incentives for
development and growth of SMEs. So this policy must be implemented properly.
9) Role of NGO: Government, financial institutions and Non-Government Organizations
(NGOs) may take necessary steps to ensure uninterrupted financial support to the prospective
SMEs in Bangladesh. In order to encourage women entrepreneurship govt. may; involve women
entrepreneurs in policy formulation and implementation. Arrange funds for women
entrepreneurs. Provide necessary training to women entrepreneurs in rural and urban area of
Bangladesh.
In this era of intense competition continuous planning and quality improvement act as a
prerequisite for the survival of SMEs. In order to improve the quality SMEs can follow the Just
in Time (JIT) philosophy and use Total Quality Management (TQM) and can ensure the
improvement of quality and productivity at a time. Restriction may be imposed on import of
SMEs’ products, which are available in Bangladesh.