Financial Distress in Small and Medium Enterprises (SMES) of Bangladesh: Determinants and Remedial Measures

Financial distress in SMEs is a common phenomenon across the world, which has been a subject matter of academicians, professionals and government. Although SMEs are contributing to the economy in the form of employment, supply of products and services by using indigenous technologies, social entrepreneurship, income generating activities etc. SMEs are found most vulnerable to the macro-economic as well as internal management crises. Consequently, they fall into financial distress. In view of this, the present study has been undertaken aiming at identifying the causes of financial distress in SMEs of Bangladesh. The study has employed both financial and statistical techniques for analyzing the data collected for the study. The study has identified some potential problem areas related to financial distress such as rate adequacy, sales trends, indebtedness, management capability, financial planning, etc. The study has also identified some most important causes of financial distress such as fund management & resource crunch, poor accounting system, poor financial control, poor productivity and profitability and management succession. The study has finally come out some strategic and policy related measures for both viable and financially distressed SMEs for preventing them from the exposition to financial and operating risk.