Financing of Small-Scale Industries with Special Reference to Rajshahi and Bogra Districts in Bangladesh

Abstract

The economy of Bangladesh is agricultural and rural. Nearly 80 percent of the population is dependent on agriculture as their primary source of living. The agriculture sector is almost saturated and there is little scope for absorption of additional labor force. The establishment of large-scale industries to offer large-scale employment is not considered to be feasible option at the moment because of resource constraint and other socio-economic reasons. Bangladesh is a densely populated country with a narrow natural resource base, limited per capita arable land and very low purchasing power of the population. Small-scale industries occupy a unique position in the economy of Bangladesh. This industry sector can play a significant role in terms of raising income, generating employment opportunities, contributing to gross national products and raising standards of living as well. The significant contribution of small industry sector to the economic development of the country has been realized by the governments of different times and attempts have been made to formulate favorable policies for the growth and development of this sector. Small industries in Bangladesh have weak capital structure. They do not have recourse to the organized capital market as well as money market. Consequently, they have to depend upon non-institutional sources of finance like money lenders, friends, relatives etc. at exorbitant rate of interest. The present study is an empirical research based on survey method. This study is conducted with a view to analyze the nature of growth and development of small-scale industries in Bangladesh; study the government policy towards financing of small-scale industries; investigate into the policies, procedures and operations of different financial and non-financial assistance schemes: study asset and financial structures and sources of finance of small-scale industries and examine critically the problems of financing of small-scale industries. The present study is confined to two districts namely Rajshahi and Bogra in Rajshahi division. The major categories of industries have been classified into 6 sub-sectors on the basis of nature of product such as: Food and Allied, Textiles, Paper and Printing, Wood and Allied. Chemical and Pharmaceuticals and Engineering. It is based on both primary and secondary data. For collection of primary data a set of pre-designed questionnaire was used for the entrepreneurs. The reliability and validity of the questionnaire was judged through pilot study. Executives and officials of financial institutions, promotional agencies and trade associations were personally interviewed. Total sample size of the study was 192 small industrial units - 95 from Bogra and 97 from Rajshahi. In order to analyze and interpret the data simple statistical tools were used. The basic descriptive statistics such as frequencies, means, percentages, ratio analysis, common statement and the like had been used. Chi-square test of association was applied to determine the significance of the relationship between different characteristics of samples and the financial and asset structures and sources of finance of the units under study. It was found from the results of the chi-square tests that assets and financial structures of the sample units of the both the districts were not significantly affected by the nature, form, age, investment size and location of industrial units. In case of sources of finance also the study did not find significant association between sources of finance and the nature, form, age, investment size, level of education of entrepreneurs and location or industrial units. Equity was the vital source of finance in all categories of industries of both the districts. Commercial banks played the dominant role in providing institutional finance to all industry groups. With respect to the pattern of profit utilization it was found from the study that in most of the cases when the small industrial enterprises were the only source of income, the entrepreneurs had utilized major portion of their profit for personal family expenditures. Rapid and direction oriented development of small-scale industry sector is a must to ensure sustainable economic development in Bangladesh. Sincere efforts are needed for tackling financial problems encountered by small-scale industries. It is expected that the growth and development of small-scale industries in the respective districts would be accelerated through proper implementation of suggested remedial measures.