SME production boost effort through common facility centres stalled for lack of funds

Infographic: TBS

An effort by the SME Foundation to establish common facility centres (CFCs) for small and medium enterprise (SME) entrepreneurs across Bangladesh, aimed at enhancing production and improving product quality through the use of modern technology and machinery, has remained stalled for years due to a lack of adequate funding.

A CFC is a centralised hub equipped with state-of-the-art, high-end, and capital-intensive machinery, offering a range of services at cost-effective rates.

The primary objectives of these CFCs are to enhance product quality, diversify offerings, increase production rates, and foster overall business development for entrepreneurs, according to the SME Foundation.

Mohammad Jahangir Hossain, general manager of the SME Foundation, told TBS, "We have around 177 SME clusters. CFCs are needed to provide heavy machinery for small entrepreneurs. It costs Tk1 crore to establish a CFC in a cluster. Despite our demand, we can't set up CFCs in all SME clusters due to a lack of funds. Therefore, we need a separate allocation in our budget for the upcoming fiscal year."

He further said, "We have submitted a written proposal to the industries ministry to ensure that there is an allocation for the SME Foundation in the budget. We are also in discussions with foreign partners to secure funding."

Anwar Hossain Chowdhury, managing director of SME Foundation, said the government allocates budget for the SME sector as a whole, but not for the Foundation specifically. 

"We have urged the government to allocate funds for the Foundation specifically so that we can further develop the sector including establishing CFCs," he added.

The SME Foundation established the country's first CFC in 2023 in Rajshahi's Kaluhati footwear cluster, equipped with 13 state-of-the-art machines. 

Since then, no further CFCs have been established due to a lack of funding.

The SME Foundation has reviewed 100 clusters for potential CFC establishment, with 43 clusters initially selected. The Foundation is poised to commence work swiftly once funding is secured. 

Planned sectors for CFCs include leather, light engineering, handloom, hosiery, fashion and home textiles, nakshi kantha (embroidered quilt), furniture, wood and cane, pottery and jewellery, electrical and electronics, agar-attar, and dried fish.

The SME clusters nationwide are employing approximately 20 lakh workers, of whom 74% are male and 26% are female. These clusters house around 70,000 enterprises with an annual turnover of roughly Tk30,000 crore.

What is a cluster?

An industrial cluster refers to a geographical area within a 5km radius where 50 or more enterprises – ranging from cottage to large industries – produce similar goods or provide related services.

These enterprises can also support production through backward and forward linkages.

A 2013 cluster mapping study shows that Dhaka, Rajshahi, Chattogram, and Khulna divisions have a higher number of cluster-based enterprises compared to other regions.

Among these, 79% are micro, 16% are small, and 5% are medium-sized enterprises.

'Establishing CFCs linked to sustainable development'

Farzana Khan, deputy managing director of the SME Foundation, said small entrepreneurs often lack funds to buy modern machines, making CFCs essential for cluster-based production.

"We want all entrepreneurs to access these CFCs. With budget support from the government, we can speed up implementation," she said.

She highlighted the example of Narendrapur's cricket bat cluster in Jashore. Currently, wood seasoning there takes six months, but a seasoning plant at a CFC could reduce this to 15 days.

As head of Cluster Development, Farzana said, "CFCs will give entrepreneurs modern machinery to improve product quality and productivity."

Experts argue that government funding alone won't be enough. Public-private partnerships are vital to provide technology, finance, and market support. They noted that India has gained from establishing CFCs on a large scale.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, also urged the government to allocate funds for CFCs. "The required funding is not large, but the return on investment will be huge."

She added that large and private sector investment is still limited in this field. "The SME sector can create jobs and boost GDP. The government should allocate more funds here."

Spot visits

During recent visits to Bauphal's pottery cluster in Patuakhali and the Shital Pati cluster in Jhalakathi's Nalchhiti, TBS observed that many entrepreneurs face challenges in upgrading product quality and diversifying due to the lack of common facilities.

In Bauphal, about 80 pottery entrepreneurs mostly use manual methods, despite the availability of machinery for clay preparation and pottery making.

Kamal Pal, a local entrepreneur, said, "A well-equipped common facility centre with various machines would benefit many micro and small entrepreneurs. An improved kiln would improve pottery quality. It would also provide customers with more options in one place, helping our business grow."

Babul Dutta, executive director of Nalchhiti Shital Pati Shilpa Jubo Foundation, said, "There are 250 Shital Pati entrepreneurs here. We have applied to the SME Foundation for a common facility centre. If it's established, it will enhance product competitiveness and increase production capacity for marginal entrepreneurs."

Economic importance

According to 2013 data from the Bangladesh Bureau of Statistics, there are around 78 lakh micro, small and medium enterprises in the country, employing about 2.1 crore people.

The Bangladesh Economic Survey 2024 highlights that the SME sector contributes around 30% to GDP and 37.95% of industrial sector participation.

The SME Foundation points out that this share is considerably lower than in neighbouring countries, where SMEs contribute about 40% in Vietnam, 52% in Sri Lanka, 58% in Cambodia, around 45% in India, and 60-70% in China, Japan and South Korea.

However, the SME Foundation believes that with proper financing and technological support, the contribution of SMEs in Bangladesh can be significantly increased.