To formalise the informal economy, Bangladesh must simplify business processes

Starting a business in Bangladesh remains a difficult and often discouraging journey. A significant number of entrepreneurial ideas fail at the ideation stage, long before they have a chance to develop into viable ventures.

At the same time, the job market is shrinking, prompting many young people to dream of becoming entrepreneurs rather than spending years searching for suitable employment. But unfortunately, most struggle to sustain their initiatives due to complex regulatory procedures, bureaucratic non-cooperation, and the absence of a central advisory body to guide and encourage new entrepreneurs.

In many countries, Entrepreneurship Development Programs (EDPs) have played a transformative role in nurturing new businesses. For example, in India, institutions like the National Institute for Entrepreneurship and Small Business Development (NIESBUD) have helped thousands of young entrepreneurs acquire practical skills, access finance, and receive mentorship, enabling many to establish successful ventures. While not all initiatives succeed, with proper dedication, some young entrepreneurs have even achieved global recognition.

Similarly, Malaysia's SME Corp initiatives provide one-stop support systems, including training, incubators, and regulatory guidance, enabling small firms to scale quickly. Rwanda's YouthConnekt program also combines entrepreneurial training with access to funding and digital tools, significantly improving the survival rates of youth-led businesses.

In Bangladesh, a number of institutions work to support entrepreneurs, such as BIDA, SME Foundation, Bangladesh Small and Cottage Industries Corporation (BSCIC), City Corporations, Bangladesh Bank, and various NGOs. However, their responsibilities often overlap, requiring entrepreneurs to register with multiple organisations. 

The services to be provided are not clearly defined, resulting in the need for numerous licenses, approvals, permissions, and no-objection certificates — sometimes 15–30 regulatory requirements for a single entrepreneur.

Multiple agencies, such as RJSC, Upazila and Union Parishads, DOE, BSTI, NBR, and others, each have their own processes and documentation. The lack of coordination among them leads to duplication, delays, higher costs, and confusion for entrepreneurs. Even in agriculture-related enterprises, ministries like Livestock, Fisheries, Women's Affairs, and Social Welfare act as sponsoring organisations providing registration for different purposes, but without clarity on the supportive measures or monitoring they provide for business sustainability.

Due to these unclear pathways, most enterprises remain informal, avoiding the costs, procedures, and time-consuming hassles of formal registration. As a result, they often remain unsustainable and unable to benefit from the policy incentives announced by the government specifically for small and new entrepreneurs.

Bangladesh's EDP initiatives have not delivered the expected outcomes. Challenges include fragmented programs run by multiple agencies, a shortage of skilled trainers, inadequate market-linkage support, and minimal follow-up after training. As a result, young entrepreneurs often feel lost after initial training, with no structured pathway for mentoring, financing, or navigating regulatory requirements.

A more coordinated, demand-driven, and institutionally supported EDP framework along with a truly functional one-stop advisory mechanism could significantly strengthen Bangladesh's entrepreneurial ecosystem. Empowering young innovators is no longer optional; it is essential for economic diversification, job creation, and long-term competitiveness. While a few start-ups, mostly in the tech sector, are performing well, regulatory constraints and limited financial support remain significant barriers.

Very recently, Bangladesh Bank announced a financial scheme to support both new and informal entrepreneurs, and this information should be widely publicised. Under the new CMSME refinancing policy, an entrepreneur will be considered "new" for four years after receiving their first credit. Informal entrepreneurs are identified as those using the Unified Business Identification Number (UBID), Digital Business Identification (DBID), or Personal Retail Account (PRA), as per Clause 1.9 of the circular. A credit limit of Tk 5 lakh has been set for these entrepreneurs. Cottage and micro entrepreneurs can also access this fund at the initial stage.

Among the initial regulatory requirements, the trade license remains the most essential document for starting a business in Bangladesh. Banks typically will not provide financial support without it. However, the monitoring system for trade license holders is unclear, and in many cases, issuing authorities do not maintain an updated database of active licenses.

Despite its importance, obtaining a trade license is widely recognised as a cumbersome process. Applicants often lack clear information about the time, cost, or steps required to secure this primary approval. Although Citizen Charters specify service timelines — such as 45 days for a factory license — actual approvals frequently take much longer due to administrative bottlenecks, reliance on manual and undocumented paperwork, and delays that often result in missed deadlines.

Policies and reform measures aimed at improving the ease of doing business are often inconsistently implemented at the operational level. Limited accountability and weak coordination among implementing agencies contribute to persistent gaps between policy intentions and actual practice.

Tax policies in Bangladesh are stringent, with confusing tax slabs and poorly defined HS codes that create additional complications. Frequent changes in tax rules and unclear interpretations further discourage new entrepreneurs. Obtaining utility connections — such as electricity, gas, and water — is another challenge, often involving long waiting periods and unofficial costs. Constraints in industrial land and infrastructure across many regions also increase setup expenses. 

A more coordinated, demand-driven, and institutionally supported EDP framework along with a truly functional one-stop advisory mechanism could significantly strengthen Bangladesh's entrepreneurial ecosystem. Empowering young innovators is no longer optional; it is essential for economic diversification, job creation, and long-term competitiveness. While a few start-ups, mostly in the tech sector, are performing well, regulatory constraints and limited financial support remain significant barriers.

According to a study by BUILD, starting a manufacturing business in Bangladesh typically requires around 23 different licenses.

Online systems, such as BIDA's One Stop Service portal, exist but remain only partially functional, often requiring physical follow-ups. Limited data integration among agencies further renders the process incomplete.

On the demand side, entrepreneurs — especially small and new entrants — frequently lack clear information on procedures, required documents, and costs. The absence of dedicated help desks or transparent guidelines compounds these difficulties.

Because of this complexity, many businesses choose to remain informal, which undermines transparency and discourages honest investors. Weak monitoring and the absence of performance evaluation have led to inefficiency among the agencies tasked with providing support services. Access to affordable finance is limited, and banks and financial institutions — often risk-averse — are constrained in supporting startups, venture capital, and angel investments, despite the sector's immense potential.

In Bangladesh, over 84% of workers and 86% of private businesses operate informally, resulting in poor worker protections and reduced enterprise competitiveness. A recent ILO validation workshop on informality in Bangladesh highlighted that globally, more than two billion people work informally. In the Asia-Pacific region, approximately 66% of total employment — around 1.3 billion workers — is informal, and more than eight in ten enterprises in the region operate informally (2024).

Without the formalisation of enterprises, employment formalisation is not possible. A survey conducted in Dhaka, Chittagong, Sylhet, and Khulna, with a total sample size of 384, sought to understand the state of informality in Bangladesh. The findings revealed that only 47% of respondents were fully registered, and just 9.6% of surveyed workers had written contracts. The most significant barrier to employment formalisation was a complex registration process, followed by a lack of benefits.

Comparisons with countries such as India, Nepal, Malaysia, the Philippines, and Vietnam show that various good practices have been adopted to address informality. Examples include India's UDYAM MSME Registration Portal, the Philippines' eGovPH Super-App, and Colombia's PILA (Planilla Integrada de Liquidación de Aportes), all designed to create a more business-friendly environment for SMEs.

The transition from informality to formalisation must pass through specific stages and phases, guided by an understanding of the current level of formality. It is also important to assess the contribution of the informal economy to GDP and to determine whether a low Tax-to-GDP ratio is one of the factors driving informality. 

At the post-LDC graduation stage, Bangladesh needs a fully digital, simplified business registration and licensing system accessible through a single platform. The goal is to reduce informality and strengthen the country's presence in global supply chains. 

Small and new entrepreneurs who often lack experience in starting a venture require clear guidance, streamlined procedures, and user-friendly services. Such support will encourage them to pursue entrepreneurship with confidence, gain proper recognition, and acquire the knowledge necessary for long-term sustainability.

Sketch: TBS

Ferdaus Ara Begum is the CEO at BUILD, a public private dialogue platform which works for private sector development.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.