Business Leaders say Corruption Severely Impedes SME growth

13 September 2022

Press Release

Assessment Report Key Findings:

•    Business leaders, academics, and experts on SMEs acknowledge the pervasive nature of corruption in the economic sector in Bangladesh

•    Bangladesh has a vibrant Small and Medium Enterprise (SME) sector, which can be divided into 33 subsectors of products and services

•    SMEs represent a smaller percentage of total enterprises compared to India and Pakistan.

•    Available data shows that SMEs constitute 50.91 percent of the microeconomic sector and employ 35.41 percent of workers.

•    The SME sector’s contribution to GDP was 48.41 percent, and 47.63 percent of the total value added.

•    Despite pervasive corruption, national and regional trade bodies representing businesses and industries have not demonstrated concerted efforts and plans to combat corruption.

•    Business leaders, entrepreneurs, and experts in the SME sector acknowledge the deleterious impacts of corruption on the growth of SMEs and view bureaucratic roadblocks, the absence of accountability within the government, and the relative impunity enjoyed by perpetrators as conducive factors.

•    Existing laws, institutional mechanisms, and reporting systems regarding corruption are viewed as inadequate for curbing corruption.

The Center for Governance Studies (CGS), in partnership with the Center for International Business Enterprise (CIPE), has recently conducted a study into the current status of the SME sector of Bangladesh. The key findings of the study are detailed in an assessment report published on both the CGS and CIPE websites. The report contains a desk analysis of 152 publications from 10 national and regional trade organizations as well as information collected from 15 Key Informant Interviews of leaders of trade organizations, business support organizations, academics, and experts. In the interviews, trade body leaders acknowledged that corruption is a big problem hampering SME growth in Bangladesh. However, they also admitted that they lack a united platform for anti-corruption efforts from the private sector. The study also found a lack of documented anti-corruption activities in the publications published by the national and regional trade bodies. 

The findings of the assessment report corroborate the results of two large-scale surveys previously conducted by CGS investigating the effects of corruption on households and SMEs. 

As part of the assessment, CGS interviewed several key informants who hold leadership positions among the large regional trade organizations, as well as academics and civil society experts who deal with issues of SME and corruption. The informants unanimously admitted the absence of both private sector and government initiatives targeting rampant corruption in the SME sector. 

Many respondents expressed a sense of resignation, suggesting that civil society members can do little to root out corruption, as fundamental flaws in governance exacerbate such issues. “If the government does not come forward first and address the challenges, things are less likely to change,” stated a regional trade body leader under the condition of anonymity. The leader added, “Unfortunately, we don’t see the government coming forward and working with the collaboration of civil society in our country.” However, another respondent with an attachment to a political party said that civil society itself has become politicized, implying that partisan affiliations hinder such initiatives.

Adding nuance to the subject, interviewees highlighted that collusion between SMEs and various other actors is essential to these prevalent corrupt practices. One of the experts interviewed for the project noted that banks collude with businesses to fabricate the businesses’ compliance requirements. According to another respondent, such collusion also occurs in public contracting. The latter is considered a coping mechanism against corruption and a way to “remain competitive.” Several respondents stated that corruption, especially bribery of officials and government agencies, occurs partly due to lack of good internal governance among smaller firms.

Many participants suggested that the presence of corrupt practices on both the demand side and supply side creates a cycle of corruption. A leader of a regional trade body said, “If we pay bribes to get ahead in the competition in some ways, we create a demand for the bribes within the system itself.”

The full assessment report as well as several expert recommendations to tackle the issue, can be found on the website of CGS and CIPE.