SME Foundation: Underfunded, understaffed, yet forging ahead
SMEs are the lifeline of the economy, contributing on an average, more than 50% to the GDP of many countries. In Bangladesh, however, it is only a little over 25%
The Small and Medium Enterprise (SME) Foundation was established back in 2007 as a non-profit organisation. In the preamble of the Memorandum of Association (MoA), it was clearly stated that SMEs have the potential to generate the desired levels of employment and economic growth for poverty alleviation, if this sector is supported by undertaking crucially important planning, development, capacity-building, awareness-raising, evaluation and other appropriate ancillary services, and advocacy at all levels.
There were 17 objectives mentioned in the MoA, which includes almost every corner of SME development. We can say the main functions of the foundation are to create new entrepreneurs through support, skill development, product development, market linkage for the SME products, and policy support.
The foundation aims to create an enabling environment for easy access to finance, capacity building of the SME trade body associations, research and development, to take necessary steps for enhancing productivity, facilitating ICT and technology-based programs for SME growth, promote quality and viability of the SMEs through different programs and actions, and to develop itself as a one-stop facilitation window for the SME sector.
The government has allocated only Tk200 crore as seed money, which has been invested in different institutions as FDR. With the interest received from this FDR income, the foundation is implementing various development programs and covering its administrative expenditure.
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Nowadays, yearly FDR income is roughly Tk25 crore. The foundation has 153 positions in its organogram. However, we only have 78 employees at present. The foundation has no branch offices other than the headquarters situated in Dhaka. But even with very small human and financial resources, the foundation managed to have a great impact throughout the country through hard work and some of its flagship programs.
Each year, the SME Foundation takes a number of specific programs for sector development. It has several wings to implement these programs. For example, the Business Support Service Wing is dedicated to creating an enabling environment for SMEs through a business linkage program, national and regional fairs, and support in participating in international fairs.
The Women Entrepreneur Development Wing is dedicated to women entrepreneurs' skill development, gender sensitisation, B2B/B2C business matchmaking, etc. The Finance Wing is dedicated to credit wholesaling and stimulus package distribution and other fund matchmaking programs. And the Policy Advocacy and Research Wing creates and maintains a non-discriminatory policy environment for the SMEs. Important areas of advocacy and intervention by the SME Foundation includes reduction of regulatory barriers, rationalisation of taxes and VAT.
The ICT Wing ensures access to information for SME entrepreneurs and other stakeholders. The SME Foundation is deeply committed to removing technology gaps in the sector and improving SME competitiveness through technology upgradation, adoption and diffusion of new appropriate technology.
The foundation is organising many training programs through its own budget, as well as some programs under the public-private partnership model to enhance skills of the SME entrepreneurs. The SME Foundation provides an extensive range of business support services to entrepreneurs through its advisory service centre on market information, promotion and expansion, linkages between buyers and sellers, and by providing advice on creating new enterprises.
Cluster development is another significant work of the foundation. The foundation identified 177 clusters in 2013 and has now undertaken another cluster mapping program, to be done shortly. Strengthening of trade bodies and associations is designed to enhance capacity building of the SME related trade bodies, associations and organisations and develop public-private partnership as a way of promoting SME growth and development.
The foundation has distributed its Tk300 crore stimulus package within a very short period of time among 3,145 entrepreneurs, of whom 26.31% were female entrepreneurs. This is much higher than the national figure of stimulus packages distributed by all other banks and NBFIs, with women entrepreneurs receiving even less than 5% of the total stimulus packages distributed to combat Covid-19.
But the SME Foundation is facing many challenges. It has no land, plot or building of its own and therefore is spending huge resources as rent for the office. Due to this reason, the foundation cannot take the initiative to build an SME Product Display Centre, which is an utmost need of SMEs. FDR income from seed money is almost nothing compared to the programs and the present size of the economy. Moreover, a large amount is stuck with PK Halder's International Leasing and Financial Services Limited.
The foundation cannot expand its size and volume of programs for millions of SMEs due to shortage of resources. It is not under the regular budget of the finance ministry; it does not even have a development project. Moreover, NBR is clamouring for 30% tax without deducting any cost over FDR income, even after Advance Income Tax (AIT) is paid at source, whereas many other foundations of the same nature are exempted from tax paid. It is clearly mentioned that the SME Foundation is a non-profit organisation, but NBR is still pushing hard for tax payment.
Like all other countries, SMEs are the lifeline of the economy. Their contribution to the GDP is, on an average, more than 50% in many countries. In Bangladesh though, it is only a little over 25%. The SME policy 2019 has set a target of achieving 32% of GDP contribution from the SME sector by 2024. Different policy makers, scholars and researchers have already identified the SME Foundation as a key institution for SME development in Bangladesh. Prime Minister Sheikh Hasina has mentioned in her speeches that we are doing a very good job for the development of the sector.
Millions of unemployed youths throughout the country have immense expectations of the SME Foundation, that this organisation will provide them all with sorts of support to be an entrepreneur. Huge number of existing SMEs are expecting that the foundation will be supporting them in their business development, skill development, quality improvement, technology transfer and so on. However, due to resource constraints, the foundation cannot fulfil their expectations.
To create an SME Product Display Centre and build its own office building, a plot of land is very crucial. The government also needs to allocate another round of seed money. This organisation should be brought under the regular budget of the government. The government can consider resource allocation for the SME Foundation through development projects.
The author is the managing director of SME Foundation
