Focus Writing: Role of Commercial Bank in SME

Focus Writing
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Focus Writing: Role of Commercial Bank in SME (Combined 3 Bank SO – 2018)

Small and medium enterprises (SME) are essential for economic growth, poverty alleviation, generation of employment, and promotion of a more pluralistic society. SME rely on commercial banks for a variety of reasons that make it convenient to do business and grow a company.

With the supports of the commercial bank, SMEs start and expand their businesses which creates new entrepreneurs in competitive markets.

The key roles of commercial banks in SME are described as:

Loan: Though the provision of the loan depends on different types of criteria like sales growth, assets, and some reasonable sales projections, the commercial bank offers a variety of interest rates and loan lengths for SME.

According to the wall street journal, the role of commercial banks in SME has become progressively more personal and relationship-oriented. There are about 69,902 SME enterprises employing approximately 1,937,809 workforces in the SME clusters of Bangladesh. Their annual turnover is about BDT 573,510 million per year.

Investment Services: To earn additional revenue and growth in SME, invest the profit is a secure way where investment department guides in the selection of stocks, bonds, money market accounts, and real estate.

Corporate Credit Cards: By getting credit cards in the name of the enterprise from a commercial bank can help to keep track of all business purchases because that will all be on one statement.

Bookkeeping: Commercial banks have the scope of giving bookkeeping facilities To SMEs. Bank statements with categorizing expenses, profit-and-loss statements, financial reports, and other essentials records for their companies are the major bookkeeping facilities from the commercial banks for SME.

These essential records include tax documents that show the deductible expenses, taxable income, and exempt income for a small and medium business.

Risk Reduction: SME reduces risk by the financial and economic assistance from a commercial bank. Commercial banks provide a platform where different SMEs work with each other for business proliferation.

Contribution and significance of SMEs in Bangladesh

About 85 percent of Bangladeshi formal business enterprises are SMEs (ADB Institute, 2016). They constitute about 75 percent of non-agricultural employment and contribute about 25 percent to the national GDP.

This 25 percent is contributed by only the manufacturing SMEs. However, this amount could, and the fact is much higher if the contribution of service sector SMEs could be calculated.

Till now there has been little data available on service sector SMEs in Bangladesh, even though this sector contributes around 56.34 percent to the GDP, making it the largest contributor.

The significance of SMEs can be clearly observed if we take a look at the contribution of SME in some select Asian countries. For example, about 97.3 percent of enterprises in China, 97.3 percent in Malaysia (2017)

In conclusion, the role of a commercial bank is inevitable in the sector of SME. The commercial bank should come forward to improving its terms and conditions which seems to be kindlier and amicable for SME.

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