Small and Medium Enterprises (SMEs) generally occupy the space between micro-enterprises and large corporations. An often ill-defined space, definitions of what constitutes an SME vary greatly across industries, governments and financial institutions. In Bangladesh, as defined by Bangladesh Bank, Small and Medium Enterprises (SMEs) include those enterprises which are not public limited companies, whose fixed asset other than land and building is between BDT 50,000 to 200,000,000 and employed manpower is between 25 to 150.
Debt financing provided by Financial Institutions (FIs) represent the primary source of institutional capital for SMEs in Bangladesh. Still, SMEs are underserved by these FIs, due to several reasons. First, financial institutions require borrowers to pledge as collateral, fixed assets such as land, which most SMEs are unable to provide. Second, SMEs, particularly those in the services sector, are perceived to be higher risk by FIs. Third, SMEs may require long-term growth capital, but often have access only to short-term working capitals. Fourth, the repayment terms of the financing often do not match the cash flow profile of the business: growing SMEs are often unable to meet the significant debt service requirements at the outset.
In SEAF’s experience investment in SMEs supports sustainable economic development. By providing risk capital and business assistance we can overcome the barriers that were hampering the growth of our investee companies. This growth also produces higher socioeconomic benefits for the local and even countrywide communities and markets; along with production of higher value-added products or services.