Fintech Academy

SME sector contributes 30 percent to GDP

Emphasis should be placed on SME sector for job creation and inclusive development

The role of the small and medium enterprises (SME) sector is essential in the economy of any country. This sector contributes significantly to expanding trade and commerce, creating employment, and bringing dynamism to the economy.

he role of small and medium enterprises or SME sector is essential in the economy of any country. This sector makes an important contribution to expanding trade and commerce, creating employment and bringing dynamism to the economy. Since independence, SME entrepreneurs in Bangladesh have played a significant role in various fields including reducing rural poverty. Although there have been discussions about the SME sector, no visible and effective steps have been taken. Only large institutions and the oligarch class were receiving huge loans and government incentives from banks and the financial sector and were enjoying the freedom to loot it. Employment did not increase much as they were smuggling the country's money abroad. Meanwhile, the SME sector, which could have been a major source of employment, was languishing due to the lack of necessary and adequate state and institutional support. A major reason behind the mass uprising of 24 was the lack of employment. A large number of young people are entering the workplace every year in the country, but there are no decent jobs for them. The SME sector can be a good source of decentralization of the economy and employment. That is why the necessary policy support from the government and the facility to obtain loans on easy terms from banks and the financial sector are needed.

Bangladesh is trying to graduate from LDC by 2026. Developing and middle-income countries have been emphasizing the SME sector along with large industries. Moreover, the SME sector also plays a role as a supporting sector for large and heavy industries. Such a scenario can be seen when looking at China and Thailand. Unfortunately for Bangladesh, the SME sector here is facing various obstacles instead of cooperation. Starting from obtaining business licenses, unequal tax rates to the crisis of getting easy credit, this sector is not developing.

Our SME entrepreneurs are creating employment opportunities, but the role of this sector in adding value to manufactured goods is still not as expected. In this case, the complexity of obtaining financing, lack of skills and lagging behind in the use of modern technology are playing a role. The development of the SME sector can be one of the main driving forces in ensuring inclusive growth of the Bangladeshi economy. In addition to eliminating inequality of opportunity, the obstacles to the development of this sector must be removed.

The SME sector contributes about 30 percent to the national GDP. In addition, about 85 percent of the total employment in the industrial sector comes from here, as stated in a recent event by the Industry Advisor. The Industry Advisor said this at the closing ceremony of the 'Buyer-Seller Summit 2025' at the Multipurpose Hall of the Institute of Architects in Agargaon in the capital. The summit was jointly organized by the SME Foundation and the World Bank Group, Bangladesh.

The SME sector can play an important role in reducing the influence of oligarchs in the country's economy. In the past one and a half decades, the country has been run by an oligarch-based growth model. Evidence of the limitations of this model has been found. GDP has grown, but there has been no real development. Employment has not been created in line with GDP growth. Unemployment has not decreased either. We now have to move away from this model and move towards inclusive growth. The small and medium enterprise (SME)-based growth model can play an important role in inclusive development. This model will create new jobs and develop new businesses and trade in the country. The simple meaning of inclusive growth or development is that the number of employment, productive institutions and entrepreneurs will increase in proportion to the achieved growth rate. Inclusion is relative. If instead of three businessmen benefiting from 8 percent growth, 10,000 businessmen benefit and 400,000 jobs are created, it will be much more inclusive. Again, it can be more inclusive growth than this. We must try to move towards the most inclusive growth. The main reason for the economic disaster in the country is that a handful of people are developing here. They have high income and capabilities, which most people do not have. There is no alternative to inclusive growth to overcome this situation. And the SME sector can contribute in this regard.

In fact, the SME industry is the main force behind the country's industrial development. The contribution of SMEs to GDP is about 30 percent, but they are facing various obstacles. Sector stakeholders say that although there are several loan programs for this sector, the expected benefits are not being obtained from them. In addition to loans, SME entrepreneurs also face difficulties in business registration, customs and taxes, import of raw materials, marketing, etc. There are at least five types of problems in financing entrepreneurs in small and medium industries. The problems are high interest rates, obligation to provide collateral, lack of necessary documents, risk-averse attitude of banks and lack of non-bank alternative financing facilities. However, marginal and women entrepreneurs face the most problems with collateral in terms of bank loans. This is a major obstacle for small entrepreneurs. Therefore, it is necessary to provide capital to entrepreneurs, provide collateral-free loans to women entrepreneurs as much as possible, develop technical skills, develop infrastructure and provide policy support for the development of the SME sector. In addition, to further strengthen the position of the SME sector in the international market, it is necessary to bring product diversity. In this regard, entrepreneurs' communication in different markets should be increased.

In the future, post-LDC period, SME entrepreneurs will face capacity constraints, financial and policy support, lack of appropriate infrastructure and skilled human resources. In this situation, it is necessary to formulate and implement effective skill development programs, provide financial and policy support, sign free trade agreements, ensure sustainable development of the infrastructure sector, and ensure uninterrupted gas and electricity connections.

In developing and middle-income countries like China, India, Thailand, and South Korea, a large part of export earnings comes from the SME sector. In China, about 70 percent of exports come from SMEs, in Thailand more than 40 percent, and in South Korea more than 43 percent of exports are through SMEs. On the other hand, despite its large contribution to GDP in Bangladesh, the participation of the SME sector in export earnings is very low. Although there are SMEs in Bangladesh, most of it is limited to the domestic market. There are many sectors including handicrafts, leather, agro-based products, processed food, IT, and e-commerce products that can reach the global market through SMEs. Like in the developed world, some steps can be taken in Bangladesh to increase the share of the SME sector in export earnings, such as increasing support for the production of export-oriented products; Effective training in packaging, branding, achieving international standards; making export finance and export incentives easily available; forming effective business networks and increasing public-private connections.

It has been found that entrepreneurs in the country's SME sector lack financial, technical and skills to expand their businesses abroad. Therefore, emphasis should be placed on conducting research activities at a higher rate to diversify products, expand markets and increase the capacity of SME entrepreneurs. For this, it is necessary to emphasize the technical and vocational education system and explore export markets. In the interest of planning to expand SMEs on a larger scale, those concerned are emphasizing on amending the definition of SME with the aim of developing the country's SMEs and providing financial and policy support to face the post-LDC challenges. Emphasis should be placed on strengthening the supply chain system.

One thing to remember is that in the present era, free flow of information plays a supportive role in the expansion of any sector. Besides, there is no alternative to increasing skills in a competitive market. Therefore, it is expected that if a favorable environment can be ensured for the development of the SME sector, it will complement the further development of this sector.

The Rise of Vietnam from the Ashes of War” shows how Vietnam has dramatically transformed from a war-torn country into a rapidly developing economy. There are many valuable lessons that Bangladesh can learn from Vietnam’s progress:

Key Lessons for Bangladesh:

1. Focused Economic Reform & Growth:
Vietnam: GDP grew from $14B (1985) to $476B (2024).

Lesson: Bangladesh can focus on consistent economic reforms, trade liberalization, and industrial policy to accelerate its GDP growth.

2. Boost in Exports & Manufacturing:
Vietnam: Exports rose from $2B (1986) to $375B (2023).

High-tech exports form 43% of manufacturing exports.

Lesson: Bangladesh should diversify beyond garments—into electronics, ICT, and high-tech exports.

3. FDI Attraction Strategy:
Vietnam: FDI grew from $0.18B (1990) to $20B (2024).

Lesson: Bangladesh must improve its ease of doing business, infrastructure, and political stability to attract long-term foreign investment.

4. Human Development Improvements:
Poverty: Fell from 14% to 98%, secondary 80% (2024).

Lesson: Bangladesh needs to invest more in secondary and vocational education aligned with job market needs.

6. Electricity & Infrastructure Access:
Vietnam: Electricity access rose from 14% (1993) to ~100% (2019).

Lesson: Ensure reliable, nationwide power and infrastructure to support industry and rural development.

7. Climate & Sustainability Goals:
Vietnam’s Target: Net-zero by 2050, high-income by 2045.

Lesson: Bangladesh, also vulnerable to climate change, should adopt green growth strategies and long-term sustainability goals.

All Important News of Tuesday
19-Nov-2024

1. Chief Adviser Professor Dr. Muhammad Yunus told the Indian daily "The Hindu" that Dhaka will initiate the process to bring ousted Bangladeshi Prime Minister Sheikh Hasina back from India.

2. The High Court has ordered the formation of a high-level committee to re-evaluate and investigate all agreements made with India's Adani Group for power. The Energy and Mineral Resources Secretary has been instructed to do so.

3. Financial Adviser Salehuddin Ahmed said that although some banks are in financial crisis, No bank will be closed.

4. The Russian Defense Ministry has said that Ukraine has attacked Russia with long-range missiles supplied by the United States.

5. Three High Court judges have resigned. They are Justice Salma Masud Chowdhury, Justice Kazi Reza ul Haque and Justice AKM Zahirul Haque.

6. It has been decided to form a committee within seven working days to consider whether it is possible to convert the government Titumir College into a university. In view of this, the students have suspended their programs.

7. BNP Secretary General Mirza Fakhrul Islam Alamgir has said that if elected, the BNP will form a national government and run the country with everyone.

8. The graduation parade of the 40th BCS (Police) batch of Assistant Police Superintendents of the Bangladesh Police Academy has been postponed again. At the same time, the graduation parade of the 40th batch of cadet SIs undergoing training has also been postponed.

9. Legal Advisor Asif Nazrul said that elections will be held soon after completing the much-needed reforms. At the same time, Some amendments to the International Crimes Tribunal Act will be taken up in the Advisory Council tomorrow.

Bangladesh

10 Immediate Measures to Save Bangladesh’s Economy

1. Government Expenditure Control
2. Rebuilding Forex Reserves
3. Checking Corruption & Money Laundering
4. Inflation Control
5. Banking Sector Reform
6. Government Revenue: Addressing Emerging Concerns
7. Revisiting Disaster Management Framework
8. Performing Right to Information Framework
9. Lowering Gas and Electring Prices
10. Prioritizing Empolyment: Strategy for Disposal of Ticking Timebomb

Sorce: EIB