MAY 12, 2016: FINANCIAL EXPRESS
The human being always run after money, wealth, power and fame. This unending race is universal and started from the very beginning of human civilization. But in this fast changing electronic civilization the modern capitalism made the people desperate in maximization of capital, wealth and property by any means. In a capitalistic society people are very much self-centered. They always think for the wellbeing of their own. Charity, helping others and sacrificing own interests are the old fashioned secondary matters for them.
According to the recent research works conducted by Credit Suisse, Oxfam and the Washington Post the global inequality is growing fast and half of the world’s wealth now in the hands of just 1% of the population. About 3.4 billion people – just over 70% of the global adult population – have wealth of less than $10,000. A further 1billion – a fifth of the world’s population – are in the $10,000-$100,000 range. Oxfam published a startling report showing that the richest 85 people in the world are worth more than the poorest 3.5 billion.
The middle classes have been squeezed at the expense of the very rich, according to research by Credit Suisse, which also finds that for the first time, there are more individuals in the middle classes in China – 109m – than the 92m in the US. Tidjane Thiam, the chief executive of Credit Suisse, said: “Middle class wealth has grown at a slower pace than wealth at the top end. This has reversed the pre-crisis trend which saw the share of middle-class wealth remaining fairly stable over time.”
According to the Washington Post the amount of money that was given out in bonuses on Wall Street last year is twice the amount all minimum-wage workers earned in the USA combined. In a study of 34 developed countries, the United States had the second highest level of income inequality, after Chile.
Inequality brings some unwanted consequences in the society. It increases crime as studies always establish a positive relationship between income inequality and crime. According to a survey of research conducted between 1968 and 2000, most researchers point to evidence economically unequal societies have higher crime rates.
Inequality also decreases health as the access to quality health care and healthy food is sometimes limited or unavailable for poor individuals. Economic inequality increases political inequality. When wealth distribution becomes concentrated in a small number of hands, political power and all sorts of facilities tends to become skewed in favor of that small wealthy group. Inequality also decreases education. Nations with a high degree of economic equality and a relatively small low-income population tend to have a substantially higher level of education.
Inequality is the great concern of our age. So why do we tolerate rapacious, unjust tax havens? The rich and the fortunate are being provided with more facilities in dong business in the name of incentive, tax heaven facilities with the offshore banking system and many more. Recently, a huge leak of docs from a Panamanian law firm, Mossack Fonseca, has thrown new light on how the rich and powerful hide their wealth. It has also brought renewed attention on Panama itself, one of the world’s best known tax-heaven.
Most of the entrepreneurs and enterprises in a country are under the category of Small and Medium Enterprises (SMEs). The path of getting financial assistance from the financial institutions is not so smooth. But the reality is that without the assistance of financial institutions it is not possible to be an entrepreneur or an industrialist. Financial institutions are also very much interested to financing the established business and influential industrialists. Therefore, the rich are becoming richer day by day.
But during the last few years in financing SME and small entrepreneurs the financial institutions are showing very much interest. Because, the risk is very much limited in this sector. Financing SME is also not keeping all eggs in a single basket.
Financing SME could contribute a lot in reducing wealth inequality in the society. There are many entrepreneurs in the society who have no strong capital base but have business talent and they can not keep growing lack of sufficient capital. In this way by boasting SME sector poverty and regional disparity shall also be reduced, millions of middle-class people should be emerged in the society, growth of GDP will be accelerated. Consequently the wealth inequality will be reduced, consumer society will be enlarged and above all the economy will be flourished.
We know that SME have some criteria. Service, business and industrial sector that have fixed asset other than land and building ranges from 50000 to 2 crore and employed manpower ranges from 25 to 150. These criteria slightly vary from country to country.
If we look into the global scenario we will find that the SME sector is the backbone of the economy in high-income countries, but is less developed in low-income countries. The Organization for Economic Co-operation and Development (OECD) reports that more than 95% of enterprises in the OECD area are SMEs. These enterprises account for almost 60% of private sector employment, make a large contribution to innovation, and support regional development and social cohesion. Also in low-income countries, the SME sector makes a critical contribution to GDP and employment.
A recent study, conducted by the Bangladesh Institute of Development Studies (BIDS) finds some constraints faced by SMEs of the country. Those are- lack of freehold land in setting up new enterprises, deficient infrastructure and utility services, deficient legal and regulatory framework, inadequate access to finance, deficiency in entrepreneurial, managerial and technical skill and insufficient business support services.
BIDS also focused that among the many compelling reasons why SMEs fail to realize their full potential, inadequate access to finance is prominent and most commonly cited. With limited capital base of their own and little or no access to institutional financing they rely on inefficient financing service traditionally from informal sources, which eventually proves unsustainable let alone stimulate growth.
The INSPIRED SME survey also reveals that 68.6 percent of small enterprises and 44.7 percent of medium enterprises identified access to finance as a major constraint. High interest rate is mentioned as a hindrance as well. The surveyed SMEs were lent at an interest rate of 15.6 percent in 2012.
Having said that- there was a government directive that 5 per cent of Bank’s loan portfolio be set-aside for SME financing. A separate bank, namely, the Bank for Small Industries and Commerce (BASIC) was also set up in 1988 with the objective of financing the small and medium enterprises. The central bank, on the other hand, issued directives to both public and private commercial banks regarding working capital loans, use of standardized documentation procedure and time limits for credit sanctioning and loan disbursement.
Notwithstanding, one of the main factors that have hampered flow of institutional finance into small and medium enterprises is banks’ pre-occupation with collateral based lending. Traditionally banks have used fixed asset ownership particularly land ownership as the basis for judging credit-worthiness. This puts small and medium enterprises at relative disadvantage as they often cannot put up such collateral for loan.
Moreover, in spite of directives from the central bank to follow standardized procedure, the loan application process has still remained lengthy, costly and cumbersome. On the other hand loan processing, particularly in the case of public sector banks, involves high transaction costs for borrowers in terms of time and visits needed and unofficial payments made.
Another major weakness of business financing in Bangladesh is lack of its modernization for purposes of e-commerce. In the context of an evolving globalized trading system the importance of e-commerce can hardly be overemphasized.
Whatever the reality is -in order to overcome all of those obstacles in SME financing the concerned authority and the stake holders should undertake some pragmatic steps as follows:
- First of all it should make more obligatory for the commercial banks and other financial institutions to disburse SME credit according to the target set by Bangladesh Bank and send disbursement report to Bangladesh Bank.
- Banks and other non-bank financial institutions should be comparatively flexible in maintaining collateral security keeping the rate of return at a single digit.
- Productive employment should be created in the manufacturing and organized service sector and withdrawal of labor force out of the low skilled and low return agricultural sector and informal activities.
- Micro, small and medium enterprise activities should be enhanced in the rural and backward regions that might be helpful for rural development and reduction of poverty and regional disparity.
- Following the guidelines of Bangladesh bank, area and cluster approach is to be adopted in SME credit disbursement that could help SMEs to survive in a highly competitive market.
- The financial institutions should develop exclusive loan products that relate better to specific type of credit needed in SMEs.
- Proper training of bank officials and setting up of SME cells for identifying potential borrowers, loan disbursement, monitoring use of credit and collection of loan.
- Differentiated and hassle free indirect tax system has to be adopted by NBR favoring SMEs.
- In the scarcity of skilled manpower for SMEs the system of technical and vocational education in the country needs to be revamped.
Only then we could make a significant advancement in ensuring equitable distribution of wealth in the society where the wealth inequality would remain at a reasonable level and consequently it might obviously be helpful to create a peaceful, tolerant and well-educated society.
© Copyright: Reserved by the writer (Noore Alam Siddiqui)
