Developing a virtual business ecosystem for CMSMEs

Cottage, micro, small, and medium sized enterprises (CMSMEs) serve as a backbone for developing economies like India, Indonesia, and Vietnam, acting as a backward linkage sourcing hub for large-scale industries. They also play a significant role in promoting entrepreneurship, creating employment opportunities, reducing poverty, and narrowing the economic disparity between rural and urban economies, and accelerating sustainable economic development.

CMSMEs are more human resource-intensive and community-engaging by nature. According to the Economic Census-2013 by Bangladesh Bureau of Statistics (BBS), around 7.8 million CMSMEs are operational in Bangladesh constituting 90% of total industrial units, employing 80% of industrial employment, and accounting for 45% of manufacturing value addition.

However, recently, in a conference, a paper presented by Bangladesh Institute of Development Studies (BIDS) has claimed that the number has climbed to 13 million within the last couple of years.

Bangladeshi CMSMEs must go to the next level to attract sizable foreign direct investment that can support technology transfer, create market access abroad and employment opportunities at home. Photo: Bloomberg.

Comparing these two numbers, it is voicing towards preparing a national level sectoral database of CMSMEs that would be beneficial for checking the health of the specific business-domain following a regular time interval, designing government VAT, Tax, Stimulus-Incentive packages and policies accordingly.

Evidently, the capability of small enterprises is much lower compared to medium scale enterprises and large enterprises in terms of entrepreneurial capacity, product diversification, access to the skilled workforce, access to market, secure financing from banks, product quality, adjust to market ups-downs, quality raw material sourcing, etc.

But, besides all these factors, technological adoption has started outweighing all other factors around the world when large enterprises have already accumulated wealth to adopt newer technologies where CMSMEs are lagging-behind. Therefore, market neutrality is often hampered and taking a biased shape towards large corporates.

Indicatively, particularly at this point, to enable all to take up newer technologies for increasing productivity and improving service quality, government interventions are extremely required.

Due to the Covid-19 havoc, CMSMEs have been heavily affected as the entire supply chain almost got shattered for three to four months and for this issue, raw materials sourcing could not be done then. Bangladesh does not have a globally connected and widely promoted B2B+B2C platform like Alibaba supported by own logistic and cashless payment processing systems.

As a result, the raw materials sourcing activity was affected, and finding customers/clients for intermediary and tertiary products was halted.

This critical situation leaves us with unique learning for tapping new export market opportunities equipped with a diversified export basket as stated in the 'Export Policy 2018-2021'. Bangladeshi CMSMEs must go to the next level to attract sizeable foreign direct investments in this sector that can support technology transfer, create market access abroad and employment opportunities at home.

It is envisioned in the 'Perspective Plan of Bangladesh (2021-2041): Making Vision 2041 a Reality'. To realise the vision the following recommendations are required to be weighed with high importance and implement accordingly.

National sectoral database comprising all CMSMEs

It is high time to create a nationally available and virtually accessible database of CMSMEs that will retain information of every single business. The database should include the entity name, contact details of the representative, types of products/services offered in internationally recognised HS Code and Service Code system, number of employees, postal address of the head office, telephone and mobile numbers, email addresses, website address, etc.

For example, in 2020, Turkey has developed and introduced an online portal, https://listofcompany.com. The portal consists 7,000 companies offering 10,000 products from 50 sectors, and made all related information available that is intended to promote trade and business domestically and internationally, also aimed at matching businesses virtually. Turkey is looking forward to enlisting all of its active business entities now.

In Bangladesh, the National Database comprising all CMSMEs should be made in a way that can be revised in real-time, and an annual inspective survey can be held by the government in cooperation with the district-level trade and industry chambers, and sectoral associations for validating the changes.

This national database of all CMSMEs will assist trade bodies to conduct in-depth research works in revealing sectoral competitiveness time-to-time when, especially the country is looking forward to reaching preferential/free trade agreements with some reciprocally beneficial economies.

It will also help the government to design appropriate policies for different sectors, ensure collection of VAT and other forms of taxes, taking up capacity building projects or programmes by understanding the pulses of businesses on regular basis. Besides, the platform will facilitate promoting businesses nationally, internationally, and highlighting industry potentials to the angel investors and venture capitalists.

E-Trade Licensing

Online trade license application, approval, verification, and renewal procedure should be implemented by all city corporations, union parishads, municipalities, upazila, and zila parishads of Bangladesh under the supervision of the Local Government Division in close association with all district trade chambers for reducing costs and efforts.

Indeed, the systematic procedure would ease the business process for CMSMEs. Currently, E-Trade Licensing system is implemented only by Dhaka South City Corporation, and Cumilla City Corporation.

E-B2B sourcing platform

An E-B2B sourcing platform like Alibaba, and Amazon is needed to be set up covering all CMSMEs to showcase their products in front of the world. There are some initiatives like anondomela.shop, ekshop.gov.bd, oikko.com.bd, foodfornation.gov.bd, digitalhaat.net, merchantbay.com, etc. which can be seen as scattered efforts put by the government and private sector to deal with narrowed-down and particular types of products or a specific group of the community.

Perhaps, to a business client, it is cumbersome to browse dozens of websites just to source his or her desired products or raw materials. Addressing this matter, the government may consider taking a synched effort for establishing a wide-range end-to-end E-B2B sourcing platform supported with an in-built E-Cash settlement system.

Trade discounting virtual platform

An alternative financing opportunity like Trade Discounting Platform can be created as it ensures real-time circulation of cash-flow for the CMSMEs. This online platform will make selling and transactions transparent. The platform will play an imperative role in assuring cash-inflow minimising the 'receivables' near to zero during the time of the Covid-19 pandemic when CMSMEs are experiencing a crunch in cash-flow.

Cluster-based online circular-refinancing scheme

It is required to create a cluster-based scheme to support new and existing entrepreneurs for expanding their businesses. At least, Tk8,000 crore circular fund is needed to support the scheme. Under the conventional banking system, it is challenging and time-consuming for applying for a business loan and often credit-line facility is not accessible by CMSMEs due to the misinterpretation of the central bank circulars by the banks at the branch-level.

The hurdles for receiving credits are reflected in the 'Ease of Doing Business Report 2020' under the parameter 'Getting Credit' where Bangladesh ranks at 119, even Nepal in South Asia ranks at 37 is far ahead of Bangladesh. Bangladesh also ranked at 92 out of 141 economies in the 'Global Competitiveness Report 2019' beneath the parameter 'Financing of SMEs'.

As Bangladesh currently has 177 clusters spread throughout the country – the cluster-based online circular-refinancing scheme can be formed focusing on unique natures of respective clusters monitored directly by Bangladesh Bank in association with leading commerce and industry chambers as implementing partners to review applications virtually and disburse the credit-line directly to the beneficiaries' accounts.

The scheme shall disburse credits to the CMSMEs at zero interest for first two years and from the 3rd year they can be charged with an interest rate of 5%, and the time period for the full repayment of credit plus interest needs to be set at least 10 years, as Covid-19 has upshot the existing constraints and hardships of underprivileged CMSMEs further worsening access to finance and access to market constraints.

Despite taking so many steps to develop the CMSME sector of Bangladesh by the present Prime Minister Sheikh Hasina led government, compared to large enterprises, still, CMSMEs are facing challenges to afloat their businesses and are actually underperforming in Bangladesh lagging-behind to fully utilise its potential.

The contribution of CMSMEs to GDP is 25 percent in Bangladesh whereas it is 60 percent in China, 52 percent Sri Lanka, 40 percent in Vietnam, 35 percent in the Philippines, and 30 percent in Pakistan.

The proposed government interventions have been made addressing the Goal 8 :Decent Work and Economic Growth and Goal 9: Industry, Innovation, and Infrastructure to expedite the implementation process of SDG-2030 that can assure scaled-up productivity and business performances of CMSMEs in line with peer countries and spur business growth.

Enamul Hafiz Latifee is the deputy secretary, Trade Facilitation and SME Development, Dhaka Chamber of Commerce and Industry (DCCI). Email: [email protected]. Website: www.ehlatifee.com.

Mohammad Musleh Uddin is the Deputy Secretary, Research & Development and SME Development, DCCI. Email: [email protected].