Microfinance for Entrepreneurs in Bangladesh

INTRODUCTION

With access to microcredit, local small entrepreneurs can now produce and market a range of affordable sanitation options for households. Many households in Bangladesh are under pressure to move from very low-cost to very high-cost sanitation technology options with a significant debt burden. Bangladesh is a developing country situated in south Asian region. Per capita national income is US$ 621 and it is far below in case of rural areas (BER, 2009). About 50% of the population falls below income poverty line (based on US$1.25 per day per person) and it is the second highest percentage among south Asian countries. The Global Gender Gap Index (GGI) is 0.621 which secured third position among South Asia Association for Regional Cooperation (SAARC) countries (UNDP, 2010). It is well recognized that poverty and gender discrimination cannot be mitigated without active participation of women in the economic mainstream. Women can be involved in entrepreneurship or business activities where they can directly contribute to their family and the economy. A woman entrepreneur is defined as a woman who has alone or with one or more partners started or inherited a business, and is eager to take financial, administrative, and social risks and responsibilities, and participate in the day-to-day management activities (UNDP, 2004). In fact, women entrepreneurship development is a challenging phenomenon in Bangladesh as women are lagged behind (economically and socially) compared to men. Generally, women are more victimized as because of their illiteracy, unawareness, unorganized, powerless or less political representation, deprivation, rigid social customs, religious constrains and injustice by their counter partners particularly in rural areas.

They potentially have been restrained from creating level playing field in nation development process. For instance, the net employment rate for female and male is 93 and 96%, respectively while self-employment rate is only 16% for female and 50% for male. Women earned income (women US$830 and men US$1633) is about half compared to their counter partners (BBS, 2009). It is worth to note that despite many barriers, a new women's entrepreneur class has risen in the country taking on the challenge to work in a male-dominated, competitive and complex economic and business environment. Women entrepreneurs have improved their living conditions and earned more respect in the family and the society

DEFINITION AND CLASSIFICATION OF MICRO, SMALL AND MEDIUM ENTERPRISES

Micro, small and medium enterprises (MSMEs) is considered as a thrust sector in many developing countries with growing importance from all walks of life. It is generally recognized that MSMEs have a significant role in employment generation, poverty reduction, and overall economic growth, especially for a developing economy like Bangladesh. Rightly, government of Bangladesh has given priority to develop MSME sector. It is noted that there should have clear definition of Micro, Small and Medium Enterprise. The government of Bangladesh provides an official definition of small and medium enterprise (SME) while there is a lack of official definition of microenterprise. Hence, the microfinance industry applies the following working definition for microenterprise: an enterprise that has capital (that is, total investment, including fixed assets and working capital) between Tk. 30,000 and 1 million ($430 and 14,300) and has less than 10 workers. Microenterprises generally have a single owner-operator structure, although some are structured as partnerships (MIFA, 2009). On the other hand, small businesses in the manufacturing industry are defined as those having fixed assets valued at less than Tk. 15 million (US$220,000), excluding the value of land. Nonmanufacturing businesses with fewer than 25 workers are also considered small businesses. Medium enterprise in the manufacturing industry are defined as having fixed capital value between Tk. 15 and 100 million (US$220,000 and 1.4 million), excluding the value of any land or buildings. Non-manufacturing medium-sized businesses are defined as employing between 25 and 100 workers (BB, 2010).

According to the UN's Capital Development Fund: "Comprehensive impact studies have demonstrated that:

                  i.   Microfinance helps very poor households meet basic needs and protect against risks.

                ii.   The use of financial services by low-income households is associated with improvements in household economic welfare and enterprise stability or growth.

              iii.   By supporting women's economic participation, microfinance helps to empower women, thus promoting gender-equity and improving household well-being.

Table 1: Summary of micro, small and medium enterprise definition in Bangladesh.

Types of enterprise	Types of industry	Employees	Capital	Loan size
Microenterprise	Commerce and service, manufacturing, transportation and construction etc.	Mainly family members	Less than Tk. 1 million	Av. bank loans- Tk.408, 081, and MFIs Tk. 38,250
Small enterprise	Commerce and service, manufacturing, transportation and construction etc.	Less than 25 workers	Less than Tk. 15 million	Tk. 50,000 to 5 million
Medium enterprise	Commerce and service, manufacturing, transportation and construction etc.	25 to 100 workers	Tk. 15 to 100 million	-

*** Source: Bangladesh Bank (2010), MIFA (2009).

A GLIMPSE OF WOMEN ENTREPRENEURSHIP SCENARIO IN BANGLADESH

Bangladesh is an overpopulated country with limited resources and higher social stratification. Economic, political and social recognition are determined on the basis of gender, class and location (WED, 2001). The urban areas have greater opportunities for business development while rural areas lag behind. Nearly half of the populations are women (sex ratio 106). The enormous potentiality of the population has been unutilized as few women participate in the mainstream of economic activities. For instance, only 16% of women are self-employed out of 66% self-employed citizen (based on entrepreneurship status). Encouragingly, there is a rising of a new class in rural Bangladesh, they are the women entrepreneurs who have accepted the challenges of life and have emerged as leaders in the socio-economic development, thus earning for themselves and for their families and contributing towards the socio-political upliftment of women. Consequently, entrepreneurship has become an important profession among women in both rural and urban areas. Women in rural areas are being self-employed through the agricultural and nonagricultural sector, as entrepreneurs. These activities are cropping, livestock and poultry rearing, fish farming, nursery and tree planting, tool making, handcrafting, food processing, tailoring, rice processing, etc.

The contribution from manufacturing enterprises was the highest with 50%, then agriculture with 18%, followed by wholesale retail trade with 15%, then hotels restaurants with 8%.

Why Target Women?

Many different rationales can be offered for placing a priority on increasing women’s access to microfinance services.

ü  Gender and Development

ü  Women Are the Poorest of the Poor

ü  Women Spend More of Their Income on Their Families

ü  Efficiency and Sustainability

ü  Women's Rights Perspective

ü  Empowering Women

SUPPORT SERVICES FOR WOMEN ENTREPRENEURSHIP DEVELOPMENT

Different types of organizations provide either direct or indirect supports to women entrepreneurs besides the government. Among various supporting organizations, the financial institutions are considered most important. A list of supporting organizations is given subsequently but only government policy supports and financial institution’s supports are illustrated broadly.

a)     Bangladesh Small and Cottage Industries Corporation (BSCIC)

b)     Bangladesh Bank

c)      State and private commercial banks

d)     Financial institutions

e)     Bangladesh Rural Development Board (BRDB)

f)       Bangladesh Management Development Institute (BMDI)

g)     Directorate of Women Affairs (DWA)

h)     Development of Youth Development (DYD)

i)       Bangladesh Manpower Training Bureau (BMTB)

j)       Micro-industries Development and Assistance Services (MIDAS)

k)     Job Opportunities and Business Support (JOBS)

l)       NGO-MFIs MSME program

Table 2: Distribution of ownership by gender of owner within SMEs.

Particulars	Percent of all SMEs	Average no. of workers	Percent of SME employment
Women	6	2.3	2
Men	94	15.5	96
Co-ownership by men	1	7.6	1
Total	100	5.2	100

***Source: Daniels (2003)

Government supports

In the Millennium Development Goals (MDGs), goal 3 has distinctly mentioned to promote gender equality and empowering women in respect to education, employment and political representation. Meanwhile, the importance of women entrepreneurs in the national development process has been legalized by the constitutions. Poverty Reduction Strategy Paper (PRSP) focuses on reducing gender discrimination at significant level within 2015. Furthermore, National Action Plan (NAP) has distinctly provided some guidelines to strengthening women entrepreneurship development.

The distinct strategies of National Action Plan (NAP) are:

a)     Adoption of a comprehensive sustainable industrial policy that will promote equity for women and men

b)     Increase the number of women entrepreneurs

c)      Ensure women’s easy access to markets

d)     Develop entrepreneurial skills of the women

e)     Provide infrastructure facilities for women entrepreneurs

f)       Upgrade technical “know-how” of women and develop technology suitable for women

Responding to the issue, the government of Bangladesh has given due importance to this SME sector by recognizing it as a thrust sector in the Industrial Policy 2005, formulating a separate SME policy strategy 2005 and establishing SME Foundation. Bangladesh Bank has already introduced several schemes and programs to flourish and expand MSME sector with prioritize women entrepreneurs. Bangladesh bank has taken some crucial steps in stepping up the process of enhancing access to finance by the SME sector development in 2009 by creating a separate department named "SME and Special Programs Department (SPD)" and announcing specific guidelines and directives for the financial sector. Recently, SME and SPD went further by forming help desk from which SME clients can get advice and guidelines about getting SME loans, submit their objections against any obstacle faced by them while approaching for SME loans and suggest ideas regarding identifying and developing clusters. The following specific guidelines formulated for compliance of the banks and financial institutions for the development of SME sector are enumerated as follows:

a.       Based on “area approach method” banks/financial institutions should try to attain their indicative targets separately by dividing it into branch wise, region wise and sector wise.

b.      Each bank/financial institution should follow a separate business strategy in financing SME loan with least formalities in executing documentation to ensure easy and speedy loan sanction and disbursement process.

c.       Priority should be given to small entrepreneurs; particularly, priority should have to be given to potential women entrepreneurs in respect of SME credit disbursement.

d.      For small entrepreneurs credit limit will be ranged from Tk. 50,000 to 5 million.

e.       Banks and financial institutions should put highest priority in receiving loan application from small and medium women entrepreneurs.

f.        Each bank and financial institution should establish a separate ‘Women Entrepreneurs’ Dedicated Desk’ with necessary and suitable manpower, provide them training on SME financing and suitably appoint a lady officer as chief of the dedicated desk.

g.       Branch wise list of ‘Women Entrepreneurs Dedicated Desk’ should be sent to SME and Special Programs.

h.      Banks and financial institutions may sanction up to Tk. 2500000 to women entrepreneurs against personal guarantee. In that case, group security/social security may be considered.

i.         The success in SME loan disbursement will be considered as a yardstick for further approval of new branches of the concerned bank.

j.         Each bank/financial institution should fix the interest rate on SME loan sector/sub-sector wise.

k.       Bank/financial institution should inform Bangladesh Bank sector/sub-sector wise rate of interest immediately and ensure disbursement of refinanced fund to the clients (women entrepreneurs) at bank rate +5% interests.

l.         Training programs shall be arranged for the entrepreneurs.

Bangladesh Bank monthly report (September, 2011) data shows that the total SME loans increased by 27.89% (Tk.1582.01 to 7254.03 billion) at the end of June, 2011; compared to Tk. 5672.02 billion at the end of June, 2010. Institutional category-wise SME loans increased at the end of June, 2011 in specialized banks (43.46%), private banks (34.21%), financial institutions (46.52%), foreign banks (10.02%) and state owned banks (14.80%) as compared to June, 2010 (BB Monthly Report September, 2011 ).

CHALLENGES OF ENTREPRENEURSHIP DEVELOPMENT IN BANGLADESH

Despite some visible achievements toward women/men entrepreneurship development, there are still many challenges ahead for smooth development of MSMEs entrepreneurs particularly women/men entrepreneurs. These include:

Financial problem

Inadequate starting capital is one of the main problems for the women entrepreneurs in Bangladesh. Generally, women start their business with limited capital accumulated from family savings and the relatives and other sources. For bank loans women need to put collateral except those loans coming from MFIs. Unfortunately, they do not have enough fixed capital to put as collateral or a guarantor to get a small loan from the bank. Hence, government has to take some risk of distributing collateral free bank loan to the SME entrepreneurs particularly for women entrepreneurs. On the other hand, bank charges around 13% for SMEs loans and 10% for women entrepreneurs which is higher compared to neighboring countries (India charges 5 to 7%), thus making it difficult for the sustainability of MSMEs in a competitive global market. It is suggested to have single digit bank interest rate for MSMEs.

Lack of market information

Lack of market information is also one of the major problems of women entrepreneurs. They lack of information on where, what price and when the product should be sold. They do not know how to get domestic, as well as export market access. Even they lack knowledge of using market promotion activities. Thus, government should take the lead in promoting MSME products at home and abroad.

Poor infrastructure and utility supply

Infrastructure facility is miserable in most rural areas of Bangladesh. The supply of electricity and gas are not available in many rural and even sub-urban areas. Hence, existing MSMEs are suffering badly due to load shedding of electricity and gas. So, government should improve the infrastructure and utility services in considering the need of MSME sector.

Traditional technology

SME owners generally use local technologies to produce goods but these are not productive enough to fulfill market demand, produce quality/ beautiful products to compete with the international products available in the local market. As a result, SME entrepreneurs are losing their livelihood due to poor technical know-how. Immediate actions should be taken for replicating global success stories in SME sector of Bangladesh.

Lack of skilled/trained manpower

There are no agencies, even not a single special institution in Bangladesh to produce qualified graduates or trained manpower that can serve as entrepreneurs. Basically to create entrepreneurs no hard and fast facility is required; but for an effective entrepreneurship generation, entrepreneurship education is necessary. The statistics proves that Bangladeshi labors are low productive. So, training for the existing manpower is essential for greater output.

Complicated bureaucratic procedures

Starting a manufacturing plant needs a series of license, registrations and clearances. For example to start an SME requires: (a) Trade license issued by the local government office (UP Chairman, City Corporation office), (b) trademark registration register by the Office of Patent, Design and Trademark Register under the Ministry of Industry, (c) Tax Identification Number (TIN) from NBR or Income tax office under Ministry of Finance, (d) value added tax (VAT) registration from the same authority, (e) Membership of any trade body (district chamber or sectorial association), (f) import registration certificate from Ministry of Commerce, (g) environment clearance from the Ministry of Environment, (h) fire clearance from the Fire Bridget and many more. Completing all these formality is not so easy and every desk needs bribe for proper passing on of the file. This time consuming and corruption promoting system should be made easier.

SME support centers

Recently, banks and financial institutions opened SME branch or support centers but this is not enough considering the growing need. A few consulting firms are providing consultation services but with high charges. There should have more SME support centers to give advice to the potential entrepreneurs on preparing project proposal, formulating marketing strategy, designing products, upgrading products quality for the SMEs.

CONCLUSIONS

Microfinance programs have the potential to transform power relations and empower the poor—both men and women. In well-run microfinance programs, there is a relationship of respect between the provider and the client that is inherently empowering. As a consequence, microfinance has become a central component of many donor agencies’ and national governments’ gender, poverty alleviation, and community development strategies. Several studies and the experiences of a number of MFIs have shown, however, that simply putting financial resources in the hands of poor women is not enough to bring about empowerment and improved welfare.