EXECUTIVE SUMMARY

Overall, the SME FDI is currently an extremely valuable initiative. Through appropriate and careful analysis of the data, public policy can be directed yet more efficiently to further improve competitive advantage of Canada's SMEs. In particular, the baseline survey associated with the SME FDI is an extraordinarily valuable research undertaking. It provides the potential to assess directly the extent to which financing gaps might occur in the capital markets on which SMEs rely. This is an important issue in practical terms, in terms of the role of public policy, and in terms of economic and finance theory. The SME FDI baseline survey data provides, for the first time internationally, a means of empirically testing Nobel prize-winning ideas related to information asymmetry and capital rationing. The data provides a means of providing yet better guidance for public policy with respect to addressing potential capital market imperfections that might constrain growth and economic development of SMEs. As designed, the research initiative can and will provide valuable information about these issues. In summary, the baseline survey undertaken as part of the SME FDI is a potentially invaluable resource with respect to the design, targeting, implementation, and follow-up assessment of public policy approaches to nurturing SME growth and viability. The outcomes of this research process could help Industry Canada and its partners to provide Canadian SMEs with substantial competitive advantage through policy measures that are yet more precisely targeted, effective, and efficient. It is therefore essential that this valuable resource be used with appropriate and careful study. Analysis of these data may allow for the resolution of several long-standing contentious issues with which policy makers, researchers, lobby groups, and, indeed, SME owners have had to wrestle.

Table of content

Name of chapter Topic’s name page no.

Chapter -1 Origin of the report 1 Background of the study 1 Objective of study 2 Methodology of study 2 Limitation of study 2 Chapter -2 Introduction 1 Definition of SME 1 History of SME 1 Growth of SME 2 Contribution of SME in economy 3 Role and regulation of SME 4 SME around the world 6 SME in Bangladesh 7 Limitation of SME 7 Suggestion of limitation 9 Conclusion 11 Recommendation 11

1. Origin of the Report:

In recent days the Small and Medium Enterprise (SME) Financing has become an important area for Commercial Banks in Bangladesh. To align its corporate policy with the regulation of Central Bank, banks have become more concerned about SME and windows to conduct business in this particular area. This study has been conducted to fulfill the requirements of sixth term MBM program and gain an insight about the present condition of small and medium enterprise in the economy of Bangladesh and their financing scenario in light of Bangladesh Bank regulation.

2. Background of the Study:

After Liberation of Bangladesh, intensive efforts were undertaken to accelerate the rate of industrialization in the country. At the beginning, import substitution and subsequently export-led economic growth strategy was pursued for industrialization. In order to attain this objective, large amount of industrial credit was funneled to the industrial sector. other non priority sectors. Policy makers, of late, have come to recognize the contribution of SME sector towards economic development in the country. Small and medium enterprises have been recognized as one of the most important means for providing better economic opportunities for the people of least developing countries like Bangladesh. A developing economy like that of ours suffers from many peculiar problems such as disproportionate pressure of population on agriculture due to lack of rural in dust realization, unemployment and underemployment of human and materials resources, unbalanced regional development etc. The contribution of small and medium enterprises in the solution of these problems is beyond doubt, provided they are organized and run on scientific basis .Small and medium enterprises are particularly suitable for densely populated countries like Bangladesh where SME sector can provide employment with much lower investment per job provided. Out of 11% employment of the civilian labor force provided by the manufacturing sector, about two thirds are estimated to be provided by the small and cottage industries sector. Again, development of small industries facilitates the effective mobilization of capital and labor resources. They also help in raising standards of living1 of people in rural areas. Contribution of SME sector to GDP remained above 4% during the period from 1985-86 to 1999-00. Moreover, the present contribution of SME sector to GDP is approximately 5% and SME sector employs 25% of the total labor forces, thus this sector is the present available sector for creation of jobs (Saha, Sujit R. 2007).Research papers developed by Bakht, Zaid (1998) and Ahmad, Salahuddin(1998)described that the policy environment within which SMEs in Bangladesh operate accompanies legal, regulatory and administrative constraints to employment creation by SMEs. The robustness of SME contributions to employment generation is a common phenomenon in most developing countries in that the magnitude varies between 70% to95% in Africa and 40% to 70% in the countries of the Asia-Pacific region (Ahmed, M.U.1999).Liberalization of industrial and trade regimes along with globalization are likely to have had significant effects on Bangladesh’s SMEs (Ahmed, 2002; Bhattacharya (2000).Various recent studies (Ahmed, M.U. 2001, ADB 2001, USAID 2001) show that SME shave undergone significant structural changes in terms of product composition, degree of capitalization and market penetration in order to adjust to changes in technology, market demand and market access brought by globalization and market liberalization. The official data show that the share of private investment in Bangladesh’s GDP in the late1990s, which may be considered as the post-reform era, has remained more of less constant at around 15% (Bhattacharya, 2002). This may be interpreted as an evidence of stagnant private sector activities in the country. The recent private sector survey estimates the contribution of the micro, small, and medium enterprises (MSMEs) is 20-25% of GDP (Daniels, 2003). While SMEs are characteristically highly diverse and heterogeneous, their traditional dominance is in a few industrial sub-sectors such as food, textiles and light engineering and wood, cane and bamboo products. According to SEDF sources quoted from ADB (2003), food and textile units including garments account for over 60% of the registered SMEs.Despite these contributions in the economy of the country, Banking sectors are not interested in financing the small and medium enterprises; rather there is a decline in the amount of advances by the Banking sector. There are approximately 52 Banks operating2 in our country and all are serving large enterprises rather than SMEs though only the small enterprise’s contribution is 5% in GDP of Bangladesh in 2007. But why? What are the causes for which Banks are not interested in financing this sector? From recent statistical data of Sonali Bank of Bangladesh, we see that the credit recovery rate is51.44% in this sector. Why this recovery rate is not large enough? Why the SMEs are failing to payback their credit to the lenders? We have tried to find out the answer of these questions in this research paper.

3. Objectives of the Study:
Based on the above discussion the following objectives are set for the study :

•To review the role of SMEs in the economy as well as current status of SME sand their financing by Banks in Bangladesh.

•To find out the reason why the Banks are not interested (problems) to finance the SMEs.

•To review the present role of Regulatory Authorities in SME financing and development.

4. Methodology of the Study:
The study was conducted mainly based on secondary information although some information relating to entrepreneurs have been collected primarily. The sources of data include Office Records, BIBM - Library, Different Research Paper regarding SMEs, Different Publications on SMEs of different banks and some websites. Sample banks of DNCBs, PCBs, and FCBs from the sample frame, was selected purposively considering the amount of loan size, interest rate, loan processing fees, period of loans, mode of finance and management. Policies relating to SME financing such as fiscal policy, monetary policy and internal policies of commercial banks was examined thoroughly with a view to find out the influence of existing policies on SME financing. Trend and pattern of bank financing to SME was analyzed by classifying the financing in terms of areas, rate of interest, types, category, and banks.

5. Limitations of the Study:
Since this research is only for academic purpose, there were some limitations in this study. These are mentioned below:

1. Discussion about the Small and Medium Enterprises is a vast subject, but only some selected areas are covered in the research paper. 2. The study is basically based on secondary data.

3. Time was enough but it was not possible to give full concentration in this regard due to continuous pressure from other courses
Introduction
small and medium enterprises (SME) is a generic term used to describe small scale industrial (SSI) units and medium-scale industrial units. Any industrial unit with a total investment in its fixed assets or leased assets or hire-purchase asset up to Rs10 million is considered as a SSI unit and investment up to Rs. 100 million is considered as a medium unit. In addition, an SSI unit should neither be a subsidiary of any other industrial unit nor can it be owned or controlled by any other industrial unit. The SME sector produces a wide range of industrial products such as food products, beverage, tobacco and tobacco products, cotton textiles, wool, silk, synthetic products, jute, hemp & jute products, wood & wood products, furniture and fixtures, paper & paper products, printing publishing and allied industries, machinery, machines, apparatus, appliances and electrical machinery. SME sector also has a large number of service industries Definition of SME:

Small and medium enterprise or small and medium-sized enterprise (SMEs, small and medium-sized businesses, SMBs and variations thereof) are companies whose personnel numbers fall below certain limits. The abbreviation "SME" is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO). The term "small and medium businesses" (or "SMBs") is predominantly used in the USA. In most economies, smaller enterprises outnumber large companies by a wide margin. SMEs are said to be responsible for driving innovation and competition in many economic sectors.

History of SME

The original company was formed in 1946 under the title The Scale Model Equipment Company Limited to manufacture scale models and detail parts for the model engineering trade. During the 1950's movement was away from model making to precision engineering, principally parts for aircraft instruments and business machines. In 1959 Alastair Robertson-Aikman, the Company's founder, required a pick-up arm for his own use and an experimental model was built. It received such an enthusiastic reception from friends in the sound industry that it was decided to produce it commercially and the first SME precision pick-up arm appeared in September 1959. Production was 25 units per week composed entirely of individually machined components. At this time a new factory situated in Mill Road, Staying was opened and the Company's name was changed to SME Limited, a less committal title to suit its new activities.SME now has over 60 years experience in high quality precision engineering and the Company's plant at Staying is now probably the largest and best equipped devoted to the manufacture of precision pick-up arms and turn tables. To maintain the very high standards of quality all manufacture and processing is carried out 'in house'. Facilities commence with design and tool making through all aspects of manufacturing including CNC machining, pressure die-casting, injection molding , metal finishing, electro-plating, anodizing and many other processes. Inspection at every stage of manufacture and assembly is particularly critical and ensures the consistent standards for which the Company's products are noted. In 1992 our quality assurance system was formally accredited under BS EN ISO 9001 The present manufacturing programmed consists of five precision turntables and twelve standard pick-up arms which together with special models offer a very wide range of application.SME precision pick-up arms are exported to almost every country of the world and are available through agents supported by direct service from the factory to the customer.

Growth of SME:

Over the last two decades in particular, growth SMEs have received considerable attention from researchers and policy-makers around the world for reasons identified by Turok (1991, p. 29) as follows:
There is considerable interest within the field of small firms policy and research in the identification of features that distinguish firms which grow from those that stand still or fail. This is thought important if more selective small firms policies are to be developed. Identifying distinctive features of more and less successful firms may also provide insights into the factors influencing small firm development and hence improve understanding of the growth process. Gibb & Davies (1989, 1990, 1991) give a fuller account of the research and policy imperatives for ‘picking winners’ amongst SMEs world-wide. worldwide are recognized as engines of economic growth. The commonly perceived merits often emphasized for their promotion especially in the developing countries like Bangladesh include their relatively high labor intensity, dependence on indigenous skills and technology, contributions to entrepreneurship development and innovativeness and growth of industrial linkages. The case for fostering SME growth in Bangladesh is irrefutable as these industries offer bright prospects for creating large-scale employment and income earning opportunities at relatively low cost for the un-and unemployed especially in the rural areas strengthening the efforts towards achieving high and sustained economic growth which are critically important prerequisites for triggering an exit from endemic poverty and socio-economic deprivation. These promotional arguments for the SMEs, while universally emphasized are often put forward by their ardent advocates in a small versus large context and thus arouse serious debates concerning their economic viability. Much of such controversies may, however breakdown if the intrinsic virtues specific to SMEs and unavailable to large-scale industries are correctly identified and carefully exploited. A combined interaction of the forces of product-mix, lavational factors, technological advantages and market advantages create opportunities for SMEs to grow and prosper at all levels of development which are often ignored by the traditional approach to their economic strengths and development potentials. The growing economic significance of the SMEs as sources of new business creation and employment generation in the developed, OECD countries especially since 1970s is now widely recognized in an increasingly growing volume of literature (OECD1997). The recent structural shifts in industrial production from the For dist approach of mass production to more flexible and adaptable production regime in response to constantly changing market opportunities have led to a notable resurgence of these industries in the West. The re-emergence of the SMEs in the developed world makes economic case for fostering development of these industries more stronger than ever before.

Contribution of SMEs in the Economy

In view of present economic development effort in Bangladesh the SME sector plays an important role. These are reflected in the following performance /activities of this sector:
During the Fourth Five year plan, a total of 0.35 million jobs were created against the target of 0.4 million. Contribution of SME sector to GDP remained above 4.5% during the period from2000-01 to 2004-2005 despite decline in the amount of advances by the banking sector to this sector.SME sector employs 25% of the total labor force. As a result, this sector is the present available sector for creation jobs.SME sector help alleviate poverty, increase income level of rural people and promote agro-industrial linkage in Bangladesh.SME sector requires lower energy supply, lower infrastructure facilities and this sector imposes less environmental risk. They contribute towards better utilization of local resources and skills that might otherwise remain unutilized. Small industries being labor oriented are capable of generating more employment. They are necessary to maintain and retain traditional skills and handicrafts. They are the only medium for diversification of rural economy and for peaceful and concurrent socio-economic development of all classes of people. From the above discussion, we can say that SMEs are playing an important role in our economy in various ways.

Role & regulation

Source and capacity of repayment and cash flow backed lending:
Banks shall specifically identify the sources of repayment and asses the repayment capacity of the borrower on the basis of assets conversion cycle and expected future cash flows. In order to add value, the banks must assess conditions in the particular sector /industry they are lending to and its future prospects * Personal guarantees:
All facilities to SMEs shall be backed by the personal guarantees of the owners of the SMEs. In case of limited companies, guarantees of all directors other than nomine directors shall be obtained.

* Per party exposure limit:
The minimum and maximum exposure of a bank on a single SE shall remain within the range of Tk 2 lac and Tk.50 lac respectively subject to the following:
In case of working capital finance - Maximum up to 100% of the net required working capital or 75% of the sum total of inventory and receivables whichever is lower. In case of fixed assets purchase - Maximum up to 90% of the purchase price. Aggregate exposure of a bank on small enterprise sector.

* Limit on clean facilities:
In order to facilitate growth of smaller loans, banks are free to determine security requirements for loans up to Tk. * Loan documentation:
For all facilities, banks must obtain (as applicable) and not limiting to following documents before disbursement of loan can be made:
1)Loan Application Form duly signed by the customer.
2)Acceptance of the terms and conditions of Sanction Advice.
3)Trade License.
4)In case of Partnership Firm. Copy of Registered Partnership Deed duly certified as true copy or partnership Deed on non-judicial stamp of Tk.150 denomination duly notarized. * Margin requirements:
Banks shall adhere to the minimum margin requirement as prescribed by Bangladesh Bank (if any). * Credit information bureau (CIB) clearance:
While considering proposals for any exposure, banks should give due weight age to the credit report relating to the borrower and his group obtained from a of Bangladesh Bank. The condition of obtaining CIB report will be governed by rules & regulations as prescribed by Bangladesh Bank from time to time.

* Minimum conditions for taking exposure:
Banks shall, as a matter of rule, obtain a copy of financial statements duly audited by a practicing Chartered Accountant, relating to the business of every borrower who is a limited company or where exposure of a bank exceeds Tk.40lac, for analysis and record. How ever, financial statements singed by the borrower will suffice where the exposure is fully secured by liquid assets.

SME around the world

According to the European Union (2003) SMEs are defined as enterprises which have at most 250 employees and an annual turnover not exceeding 50 million Euros. Further there is the distinction of small enterprises — they have fewer than 50 staff members and less then 10 million Euros turnover — and micro-enterprises (less than 10 persons and 2 million Euros turnover).According to the World Bank (2006) medium enterprises are defined as enterprises which have at most 300 employees and an annual turnover not exceeding 15 million US dollars. Further there is the distinction of small enterprises — they have fewer than 50 staff members and up to 3 million US dollars turnover — and micro-enterprises have up to 10 persons and $100,000 turnover. In the UK, sections 382 and 465 of the Companies Act 2006 define a SME for the purpose of accounting requirements. According to this a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees. It is worth noting that even within the UK this definition is not universally applied. In the USA, the definition of small business is set by a government department called the Small Business Administration (SBA) Size Standards Office. The SBA uses the term “size standards” to indicate the largest a concern can be in order to still be considered a small business, and therefore able to benefit from small business targeted funding. The concern cannot be dominant in its field, on a national basis. It must also be independently owned and operated. Unlike the UK and the European Union which have simple definitions applied to all industries, the US has chosen to set size standards for each individual NAICS coded industry. This variation is intended to reflect industry differences in a better way.

According to the SME bank of Pakistan, SME means an entity, ideally not a public limited company, which does not employ more than 205 persons (if it is manufacturing concern) and 50 persons (if it is trading/service concern) and also fulfils the following criteria of either ‘a’ and ‘c’ and ‘c’ or ‘b’ and ‘c’ as relevant; (a) trading/service concern with total assets at cost excluding land and buildings up to Rs 50 million. (b) A manufacturing concern with total assets at excluding land and buildings up to Rs 100 million. (c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statement.

SME in Bangladesh

Different countries and organizations define SME differently. The Government of Bangladesh has categorized SME into two broad classes. Manufacturing enterprise. Non Manufacturing activities 1.2.1 Manufacturing enterprise Manufacturing enterprises can be divided into two categories; Small enterprise : an enterprise would be treated as small if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalize costs (of turn-key consultancy services, for example), etc, excluding land and building, were to up to Tk. 15 million;
Medium enterprise : an enterprise would be treated as medium if, in current market prices, the replacement cost of planted machinery and other parts/components, fixtures, support utility, and associated technical services by way of capital costs (of turn-key consultancy services, for example), etc, excluding land and building, were to up to Tk. 100 million;
1.2.2 Non-manufacturing activities (such as trading or other services)
Non-manufacturing activities can be divided into two categories;
Small enterprise: an enterprise should be treated as small if it has less than 25 workers, in full-time equivalents;
Medium enterprise: an enterprise should be treated as small if it has between 25 and 100 employees.

Limitations of SME

At present SME sector is facing a lot of problems in Bangladesh. Some major problems are as follows: * Resource scarcity:
In Bangladesh scarcity of raw materials hinder the ability of SME to be export oriented and limits its ability to reach more advanced stages of international business. * High employee turnover:
Due to limited growth of SME most of the skilled employees leave SMEs. Levy (2003) observed that SMEs are knowledge creators but poor at knowledge retention. * Absence of modern technology:
One of the main barriers for the development of SME in Bangladesh is inadequate technologies. Many SMEs have failed to adopt modern technology. * Poor physical infrastructure :
Inadequate supply of necessary utilities like electricity, water, roads and highways hinder the growth of SME sector. Moreover unfavorable geographical conditions increase the transportation cost. * Financial constraints:
Availability of finance hinders the growth of SMEs in Bangladesh. Bangladeshi bank considers SMEs as high risk borrowers because of their inability to comply with the bank’s collateral requirements. Only about 15-20% of the owners of SMEs own any immovable property. Bankers issue loan on the basis of ownership of immovable property as collateral risk. As a result it automatically excludes rest 80% SME’s from the list of privileged clients of the banks. Whatever collateral SME’s can manage gets used up in talking the term loan leaving them with no means to seek working capital loans from banks. Because of low access to institutional financing SME’s rely on inefficient financing services from informal sources.

* Lack of uniform definition:
In Bangladesh the definition of SME has changed overtime in different industrial policy announced by the government in different year. Absence of uniform definition makes the formulation and implementation of SME policy difficult. * Lack of information:
Miah (2006) has observed that SMEs have very limited use of information technology (IT). Accounting package is used by 1-2% of the SMEs. The use of computers is revealed by say 15% of the SMEs, while the use of the Internet for business purposes applies to say 8-10% of SMEs. * Lack of entrepreneurship skills:
Conservative attitude towards risk, lack of vision, ability to make plan and implementing those hinder the growth of SME in Bangladesh. * Participation of women entrepreneurs:
Equality of opportunity is a major problem for SME. Female entrepreneurs are treated discriminately. They are not well represented in business organization. Government does not provide adequate institutional assistance for women entrepreneurs. * Access to Market and lack of awareness regarding the importance of marketing tool:
For SME, owing a retail space is very expensive in the major cities in Bangladesh. As a result many customers are not interested to buy products and services from SMEs. Because they can’t judge the quality until they physically examined the product. Most of the cases SMEs in Bangladesh are not able to use the Integrated Marketing Communication (IMC) tools. But these tools play the role of important stimulus to motivate the customers and retain them. The country does not have enough marketing capability and resources to invest in marketing. * Bureaucracy:
Wang (1995) observed that the inadequate government supports are top ranking constraints for SMEs. Unnecessary layers of Bureaucracy and red-taps reduce the competitiveness of SME and raising the cost of transactions and operations. * Absence of transparent legal system:
The absence of an effective and transparent legal system discourages SMEs in exploring into risky ventures of business. There are a number of unnecessary formal requirements to start and run business that create high compliance costs and become barriers to SME development, growth and market entry.
Lack of commitment to innovation and customer satisfaction:
Ernesto (2005) stated that to keep in pace with international competition, firms of all size are challenged to improve and innovate their products processes constantly. But in Bangladesh SMEs are still not relating the importance of satisfying and retaining customers by offering novel and desired benefits. * Lack of quality assurance:
Govt. has failed to frame a national quality policy, provide adequate support systems and establish a national quality certification authority. As a consequence SME of Bangladesh has failed to ensure the quality of their products and services both in local and international market. * Lack of research and development facilities:
It is observed that investment in R&D is still negligible in. * Fierce competition with the cheaper foreign goods:
Fierce competition with the cheaper goods of China, Taiwan, Korea, India, and Thailand also pose threat to SME in Bangladesh.

Suggestions OF limitations

In order to overcome the above mentioned problems the following suggestions are recommended; * Government must have to take adequate measures to ensure the uninterrupted supply of raw materials for SME. Government needs to take appropriate measures to fix the minimum salary/wages of the employees of SME. That will help to minimize the employee turnover. * Government and financial institution may provide adequate finance for modernization and technological advancement. * Development of infrastructure is essential for the optimum growth of SME. So government of Bangladesh needs to take appropriate policy strategy for the infrastructure development of Bangladesh. * Government, financial institutions and Non Government Organizations (NGOs) may take necessary steps to ensure uninterrupted financial support to the prospective SMEs in Bangladesh. * Due to the absence of uniform definition the policy formulation and implementations are not possible. Government should take initiative to develop a uniform definition of each category of SMEs. * Govt. of Bangladesh should take the initiative to develop web pages exclusively for SME and an integrated SME database. It will reduce the barriers to SME access to global market. * In order to ensure the retention of skilled workforce the government should make the entrepreneurial career attractive by minimizing the uncertainty. * In order to encourage women entrepreneurship govt. may; involve women entrepreneurs in policy formulation and implementation. Arrange funds for women entrepreneurs. Provide necessary training to women entrepreneurs in rural and urban area of Bangladesh. * SME foundation may take appropriate marketing tools to popularize their products. * For minimizing red tapes and accelerating the growth of SME government may provide one roof service under the SME foundation. * Appropriate legal framework is necessary to ensure the development of SME of Bangladesh. * In this era of intense competition continuous planning and quality improvement act as a prerequisite for the survival of SMEs. In order to improve the quality SMEs can follow the Just in Time (JIT) philosophy and use Total Quality Management (TQM) and can ensure the improvement of quality and productivity at a time. * Government should establish a credible certification authority especially for SMEs. So that this sector can obtain a technical evaluation of the quality of their products within a shortest possible time. The certification of the authority should be world wide accepted. * Govt. may also provide assistance to SMEs during the certification process and promote the importance of product certification for international acceptance among the SMEs.

* Research and Development (R&D) is must for the development and growth of SME. So government must have to invest in R&D for ensuring the intensification of SME of Bangladesh.

* Restriction may be imposed on import of SMEs’ products which are available in Bangladesh.

Conclusion

Small and medium enterprises (SMEs) act as a vital player for the economic growth, poverty alleviation and rapid industrialization of the developing countries like Bangladesh. SMEs are significant in underlying country’s economic growth, employment generation and accelerated industrialization. Government of Bangladesh has highlighted the importance of SME in the Industrial Policy-2005. SME has identified by the Ministry of Industries as a ‘thrust sector’. As the SME sector is labor intensive, it can create more employment opportunities. For this reason government of Bangladesh has recognized SME as a poverty alleviation tool. SME also foster the development of entrepreneurial skills and innovation. Along with poverty alleviation SME can reduce the urban migration and increased cash flow in rural areas. As a result it will enhance the standard of living in rural areas. Performance of SMEs in Bangladesh is significantly found below the level of international standard. Although government of Bangladesh has taken some initiative to ensure the growth of SME but those steps are not enough at all. But government shows its positive attitude towards this sector. Bangladesh government should continue to give more focuses on some areas, such as arrangement of finance, provide infrastructure facilities, frame appropriate legal framework, establish national quality policy etc.

Recommendation

Process improvement
The processes an SME has in place at start-up are unlikely to serve it adequately when it is in a rapid growth phase, and will certainly not be appropriate by the time it becomes a high-volume company or at the point of transformation into a gazelle.
SMEs need to monitor the ways in which they control processes. In early phases of growth, the company itself and the volume of business may be small enough for the control to be people and paper-based. In later phases, some processes may need to be automated. As a precondition for automation, however, companies should analyses their processes to see how they can be carried out more efficiently and effectively, and to evaluate where automation will bring the most cost-benefit

Recommended practices:

* Develop flexible processes that enable you to adapt quickly. Although processes should be defined, they should not be ‘written in stone’. It should be possible to make changes to processes easily in response to new market conditions, changes in technology, or increased sales volumes. * Re-engineer legacy processes to take into account Internet processes. For example, the existing process for taking orders should be integrated with the process for taking orders over the Internet so that you have a seamless view of all customers, regardless of the channel they have used to approach the company. * Automate processes within the company using Intranet technology. The Internet and web can be used internally to publish corporate information, share work, implement workflow, update external web site content. * Automate processes to deliver value-added services. Build intelligence into your support systems so that they ‘know’ about your customers and can automatically offer them new services, special offers, product updates. One such value-added example is a system that ‘knows’ when a new customer registers for a service: it triggers the company’s call centre function, and an expert on the service calls the customer to ask whether they need help in installing/using it. * Automate the online ordering process. This is your customer’s most important window into your company, so it is vital that the process goes smoothly.

* Make sure all totals are calculated in real-time, and that they reflect any special discounts, local currencies, delivery charges, local taxes. * Customers like to know the correct total before they commit to paying: springing surprises on them as a result of exchange rate movements, or additional tax/delivery payments, ca destroy the customer relationship

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