Editorial
Rejuvenating SMEs
Commercial banks' role cut out
THE Bangladesh Bank (BB)'s decision to set financial targets for the commercial banks in order to enhance their lending operation for the Small and Medium Enterprise (SME) sector is commendable in view of the fact that it will go to ensure better use of the huge funds known to be lying idle with them. This renewed attention of the central bank towards this mostly labour-intensive sector will help stimulate the sector better and create employment.
Though the SMEs have a capacity to employ a considerable chunk of the total industrial labour force, this sector has long remained on the back burner, its accessibility to bank credit was limited as the commercial banks were more at ease with bigger industrial and trading concerns so far as substantial longer-term lending was concerned.
The BB's fresh look at the issue will help mainstream lending institutions to diversify their traditional lending practices and provide a boost to this potential sector of the economy.
The experience of the farm sector, in reaping the benefits of enhanced credit supply has meanwhile been amply demonstrated. The cash-strapped SMEs, too, stand to benefit from it immensely.
The good news is, according to the BB data, the commercial banks and other financial institutions have already increased their lending to the SMEs by 140 per cent between March 2008 and March 2009. Compared to previous years, this is undoubtedly a commendable achievement. However, there is still no cause for complacency. On this score, the central bank's critique of certain lending practices such as diverting other sectors' credit in the name of the SMEs at higher interest merits attention. This needs to be stopped.
The SME sector that employs around a quarter of the industrial labour force and accounts for about 45 per cent value addition in the manufacturing is something to build up on. The sector can be so developed as to significantly meet the goals of export diversification. The government's role as a facilitator should not be wanting.
Once the SMEs are able to come out of their financial hurdles they have been facing so far, it is hoped that they would emerge as a very productive and useful sector of the economy.
To make the BB's initiative to rejuvenate the SME sector a success, a concrete strategy has to be devised. Some experienced bankers have already suggested identification of potential SME units, especially in the backward regions of the country. This will help effective distribution of the banking credit resources for the SMEs.
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