Discussions on the constraints to small and medium enterprise (SME) growth generally highlight their financially-related predicaments. This is for the valid reason that restricted SME access to sources of capital and credit is the most severe operational constraint facing these enterprises. However, at the same time, it is also equally true that many non-financial barriers comprising legal, regulatory, and administrative bindings work as strong disincentives to new business creation, development of innovative SME entrepreneurship and growth of a dynamic SME sector in Bangladesh.
The overall regulatory framework impacting on the growth of new businesses and determining the performance of the existing one is quite comprehensive as well as cumbersome. To name a few important ones, these constitute procurement of trade license, boiler license, fire license, tax/ value added tax or VAT registration, environmental, clearance, quality and standard certification from Bangladesh Standard & Testing Institution (BSTI), and patenting through the Department of Patent, Design & Trademark (DPDT) etc. Not only this is a long list, the cumbersome bureaucratic process and the costs (official and unofficial) involved in obtaining them is also frighteningly painful and frustrating enough to scare away the potential new small business investors and their “captive” counterparts languishing in despair while running their enterprises.
True, there have been some improvements through the on-going reform process that were earlier initiated through the activities and efforts undertaken by the Better Business Forum and the Regulatory Reform Commission, both of which currently stand dissolved. The prevailing situation in these contexts has not changed much and a lot more remains to be done to create a truly enabling environment for encouraging new industrial investments and facilitating growth and dynamism of the SME sector.
In the developing countries such as Bangladesh, the issue of regulatory barriers appears to be generally complex. For the SMEs especially, having access to “business opportunities” is always a long and arduous process to the extent that at times it appears unattainable to them because of their scale barriers. Information and opinions were collected from selected entrepreneurs and concerned stakeholders through the courtesy of the SME Foundation to highlight the important regulatory barriers and challenges facing the sector and suggest recommendations to tackle them.
Based on the perceptions and opinions of the respondents and the International Finance Corporation (IFC) impressions and observations. The challenges and outcomes confronted and the corrective actions needed to deal with the them are being discussed here briefly.
Licensing and Registration: At start, the SME entrepreneurs have to grapple with severe impediments affecting procurement of trade license, fire license and boiler licenses which are important prerequisites for starting new businesses in the formal sectors. Besides undue delay and bureaucratic complexities involved in processing the documents, excessive costs incurred for paying bribes (varying between Tk. 3000 and Tk. 4000 on average) and frequent visits needed to collect licenses cause suffering and harassments. Fire license that to required before obtaining trade license and vice versa further aggravates the complex procedures. All business documents and factory lay-out plans have to be submitted to get fire license. While trade license is required to obtain fire license, the City Corporation does not issue trade license without fire license. This creates dual complications and unnecessary harassment to the entrepreneurs. Renewal of trade licenses is also equally difficult and time consuming.
The solutions to these problems offered by the entrepreneurs include introduction of “one stop service” facilities and decentralization of authority to the Ward Commissioners for issuing these licenses. Similarly, duplication of authority between City Corporation and Fire Service Department needs to be resolved to minimize sufferings of the entrepreneurs.
Similar difficulties are encountered while obtaining certificates for boilers for water treatment. As the boiler inspectors do not visit the factories timely, unnecessary documentation is demanded and unofficial payments have to be made. The SME entrepreneurs feel that the government may bear part of the certification costs and provide waiver facilities to the tiny enterprises. Needless to emphasize, the extensive paper requirements, longer processing time, and prohibitive costs etc., make establishment of new businesses exceedingly difficult and dampen entrepreneurial initiatives required to facilitate growth of “birthright economy” and flourishing private sector-centric industrial development.
The writer is Professor of Economics, Dhaka University. He can be reached at
email: [email protected]
