How far has cluster-based SME development come?

Despite the considerable potential of cluster-based development of small and medium enterprises (SMEs) to contribute to Bangladesh's economy and generate employment, the sector has yet to receive the attention it deserves.

Primarily due to a lack of government support, limited financial assistance, and inadequate logistical services for entrepreneurs, the SME sector—despite its promise—has struggled to flourish.

Nevertheless, the SME Foundation has been working within its means to promote cluster-based industrial development and expand markets for products. Both entrepreneurs and foundation officials believe that to develop this sector effectively, greater support is needed, particularly in product diversification, skills development, and quality control in production.

Stakeholders stress that cluster-based SME development is crucial for accelerating economic growth and job creation in the country. They point out that local raw materials are extensively used in SME manufacturing, reducing reliance on imports. If the products from these clusters can be expanded to broader markets or exported, the country stands to gain significant foreign currency.

Anwar Hossain, managing director of the SME Foundation, stated, "The SME sector has the potential to make a major contribution to the national economy—if proper support is extended. In 2013, we conducted cluster mapping to help develop enterprises operating in similar industries, but not all identified clusters have been developed yet."

He added, "We have already conducted needs assessments in many clusters and are working to support entrepreneurs through common facilities, financial assistance or low-interest loans, market expansion via linkages with larger businesses, and product diversification."

"If cluster-based development can be achieved," he said, "the SME sector will be able to play a much larger role in the economy. To realise this potential, financial support and strategic cooperation are vital."

Around a decade ago, the SME Foundation identified 117 clusters comprising small industries that shared raw material availability and operated within defined regions. These were categorised into 'SME booster' and 'non-booster' groups across all 64 districts using structured questionnaires, with development plans created accordingly.

So far, needs assessments have been completed in 90 clusters. Of these, the foundation is actively working in 43 clusters to support entrepreneur development, product diversification, improved access to finance, and linkage creation.

The clusters under active development include sectors such as leather, electrical and electronics, light engineering, pottery and jewellery, furniture, wood and bamboo, traditional crafts (nakshi), handloom, hosiery fashion, and home textiles.

Combined, the 177 identified clusters represent around 70,000 enterprises with an annual turnover of approximately Tk30,000 crore.

According to the SME Cluster Mapping Study, a cluster is defined in the National Industrial Policy 2022 as a geographical area with a radius of five kilometres, within which 50 or more manufacturing or service-oriented cottage, micro, small, medium, or large enterprises produce the same or related products, or create backward-forward linkages supporting such production.

The mapping study further reveals that the number of cluster-based enterprises is highest in the divisions of Dhaka, Rajshahi, Chattogram, and Khulna. Around 51% of factories in these clusters rely entirely on local raw materials, while 7% use imported materials and 38% use a mix of both.

According to foundation officials, entrepreneurs in these clusters frequently face challenges related to product marketing, access to appropriate financing, technological capabilities, entrepreneurial skills, product quality, working conditions, and health and safety standards. Addressing these issues could significantly improve the development prospects for SME entrepreneurs.

Mirza Nurul Ghani Shovon, president of the National Association of Small and Cottage Industries of Bangladesh (NASCIB), told The Business Standard, "After identifying SME clusters, some progress has been made, but much remains to be done. Like in other countries, proper cluster-based development can make a major contribution to our national economy."

He added, "SME development has the potential to transform the nation's economic landscape. For this, we need government prioritisation and long-term planning. Especially in cluster development, dedicated allocations from the government are essential. At present, there is no such allocation. The SME Foundation is undertaking limited work with its own resources, but it is far from sufficient."

He also noted, "Our foreign missions each appoint an Economic Counsellor, but in reality, they do little to promote domestic products abroad. If these missions played an active role in marketing Bangladeshi products internationally, exports from small and medium entrepreneurs could increase significantly."