Small and medium-sized firms are essential cogs in the economic wheel globally because they drive innovation and provide employment opportunities. Despite the vital role Small and Medium-sized Enterprises (SMEs) play in our communities, they frequently face obstacles in gaining access to capital, skilled workers, and sales channels. SMEs often face trouble growing and staying competitive, hurting local economies and communities.

More widespread assistance for SMEs is essential for macroeconomic benefits. Because of the gravity of this problem, the government, businesses, and banks must collaborate to offer the necessary aid to SMEs. Financial resources, educational opportunities, and mentorship are all examples of the kinds of help that can be provided. Big businesses need to help small and medium-sized businesses connect to their supply chains and network with other local businesses.

SME sector in Bangladesh

SMEs account for a sizable share of the country’s industrial base and contribute substantially to the economy regarding job creation, GDP growth, and exports. SMEs in other Asian economies add considerably more to GDP than in Bangladesh (25%). Despite our best efforts, our SMEs face challenges like affordable financing, market integration, skilled labor, access to international markets, etc.

A Center for International Private Enterprise (CIPE) report stated 33 distinct product and service subsectors within Bangladesh’s thriving SME sector. According to the data, SMEs account for 49.1% of the country’s total micro-economic activity, 34.1% of all jobs, and 48.4% of the GDP in Bangladesh. Significantly contributing to the economy, SMEs encounter hurdles that impede their development.

Challenges Faced by SMEs

Small and medium-sized businesses require capital for day-to-day operations and business expansion. Due to their informal structure, however, they typically do not acquire loans from established institutional channels such as banks. And due to the perceived high transactional and operational expenses of small loans and the high risk of these loans not being returned because of the questionable sustainability of many SME business models, banks are unwilling to lend loans to them. Consequently, they are often compelled to get loans through informal channels at extremely high-interest rates, which can impede their growth.

Several nations, particularly in East and Southeast Asia, have implemented various initiatives to address this challenge, including establishing SME banks, incorporating informal financing channels into the formal process, and developing new innovative mechanisms for financing SMEs.

Although various measures have been undertaken in our country, they still need to be implemented. New and appropriate measures must ensure that small and medium-sized enterprises receive the required assistance to survive.

Because there is a full market failure in terms of SME finance, the government must take the lead in this endeavor. To finance SMEs, the government must establish effective financing channels, banking channels, and new organizations if necessary. Along with the government, large corporations are first in line, which should come forward to help small enterprises as SMEs immediately impact large corporations.

Impact of SMEs on large corporations

Large corporations are directly affected by anything that directly relates to SMEs. As ESG (Economic, Social, and Governance) regulations change worldwide, big businesses realize they have a small business problem. In the past ten years, the corporate sector has witnessed a sharp acceleration in the trend toward sustainability in investment management and the embrace of ESG factors in financial analysis.

Banks and large corporates facing pressure to show progress on ESG goals and emissions targets have recognized that they will struggle to measure their climate impact, meet reporting requirements and hit their goals. This is because too many of their small business suppliers and customers lack the means to collect and report accurate data on their emissions, waste, energy use, and environmental impact.

Financial institutions and multinational corporations are under increasing pressure to demonstrate progress on ESG goals and emissions targets. They are finding it difficult to accurately assess their climate impact, comply with reporting requirements, and achieve their objectives. This is because many of their SMEs’ suppliers and consumers lack the resources to gather and publish reliable data on their emissions, waste, energy use, and environmental impact. So, most companies focus on directly connecting with the SMEs they’re associated with to meet environmental and financial goals.

Corporations supporting SMEs in Bangladesh

Over the past few years, the Bangladesh Bank has implemented many stimulus and refinancing initiatives to provide low-cost lending to SMEs.

IPDC also released ‘Orjon’ in 2019, the first blockchain-based digital supply chain financing platform in South Asia. Financing options have been provided for suppliers of many trustworthy companies in a streamlined and paperless manner via this platform. 

Unilever has teamed up with the UK’s Department for International Development (DFID) through their joint initiative, TRANSFORM, to support five social enterprises in Bangladesh. The initiative, founded in 2015, combines private sector creativity and commercial approaches to tackle persistent global development challenges.

Marico Bangladesh and the United Nations Development Programme (UNDP) have signed a Memorandum of Understanding (MoU) to continue working together on the ‘Strengthening Women’s Ability for Productive New Opportunities’ (SWAPNO) initiative. This project, a social transfer effort for ultra-poor women, engages them in necessary public works vital for rural communities’ economic and social health. This program attempts to increase these women’s employment and future employability.

Bottom Line

To support the growth and success of the SME sector, it is necessary to implement a favorable policy and regulatory environment, strong institutions providing financial and non-financial services, and accessible financial and business services for all entrepreneurs, including women, rural populations, youth, individuals with disabilities, and ethnic minorities. It is crucial for reducing poverty and supporting equitable economic growth.