Dr Mustafizur Rahman: SME funding welcome, but business reforms are now crucial

The government's decision to allocate dedicated funding for Bangladesh's small and medium enterprise (SME) sector is a positive step, but money alone will not be enough to unlock its full potential, says Dr Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD).

He said the sector's long-term growth will depend just as much on easier access to finance, a more business-friendly regulatory environment, sector-specific policy support, and greater incentives for women and export-oriented entrepreneurs.

"The SME sector is one of the main pillars of Bangladesh's economy," he said. "It plays a vital role in creating jobs, supporting supply chains for large industries, boosting local production and driving economic activity across the country."

Banks often ask for collateral, but many small entrepreneurs simply do not have assets to offer as security. As a result, they are excluded before they even have a chance to access finance.

According to him, building a stronger SME sector is essential if Bangladesh is to achieve sustainable industrialisation and create quality employment.

"The competitiveness of large industries depends heavily on SMEs. Thousands of small and medium enterprises are linked to industrial supply chains. Strengthening them ultimately strengthens the country's entire industrial base," he said.

Budget allocation is encouraging, but not enough

Under the proposed budget, the government plans to channel Tk2,000 crore in SME loans through three specialised institutions—the SME Foundation, Infrastructure Development Company Limited (IDCOL) and Bangladesh Infrastructure Finance Fund Limited (BIFFL). Bangladesh Bank will also provide more than Tk7,000 crore in financing support, including Tk5,000 crore under its refinancing scheme for the CMSME sector.

Dr Mustafizur welcomed these initiatives but said the allocation remains modest compared to the sector's actual needs.

"It is encouraging that the government has recognised the importance of SMEs," he said. "But the sector requires much greater support than this. The government alone cannot meet all financing needs. Alongside funding, we need to build a business environment where SMEs can grow."

Access to finance remains the biggest hurdle

According to Dr Mustafizur, the biggest challenge for many SMEs is not the lack of financing schemes, but the difficulty of actually obtaining loans.

Most SMEs in Bangladesh still operate informally, making it difficult for them to meet banks' lending requirements.

"Banks often ask for collateral, but many small entrepreneurs simply do not have assets to offer as security. As a result, they are excluded before they even have a chance to access finance," he said.

He believes lending decisions should rely less on collateral and more on the actual performance of a business.

"Today, most business transactions are carried out digitally. Mobile financial services, bank accounts and digital payment records can provide a reliable picture of an entrepreneur's business performance. If these are taken into account during loan assessments, many more small businesses will be able to access financing," he said.

Entrepreneurs need a hassle-free business environment

Dr Mustafizur also highlighted bureaucratic hurdles as one of the biggest obstacles facing SME entrepreneurs.

"Obtaining business licences, registrations, renewals and other government services often costs entrepreneurs significant time and money. Reducing these administrative hassles could, in many cases, be even more valuable than financial support itself," he said.

Ensuring that entrepreneurs can run their businesses with minimum hassle should now be a priority, he added.

One policy cannot serve every SME

The SME sector is no longer limited to manufacturing, Dr Mustafizur said. Today, thousands of entrepreneurs are working in information technology, freelancing, e-commerce, digital services, logistics and other service industries.

"The needs of service-sector SMEs are very different," he said. "Reliable internet, affordable digital infrastructure and technological capability are critical for these businesses. That is why a single policy framework cannot effectively serve every SME."

Instead, he argued for more sector-specific and demand-driven support programmes to ensure government funding delivers better results.

Implementation will determine success

Dr Mustafizur stressed that announcing budget allocations is only the first step.

"In Bangladesh, we often see funds being allocated, but they do not always reach the intended beneficiaries. That is why effective implementation is just as important as the allocation itself," he said.

He called for a stronger SME Foundation, improved capacity within banks, and more effective monitoring of financing programmes to ensure that support reaches the businesses that need it most.

More support for women and export-oriented SMEs

Dr Mustafizur also urged policymakers to place greater emphasis on women entrepreneurs and SMEs with export potential.

"A large number of women entrepreneurs are already contributing to the SME sector, while many small and medium enterprises are trying to expand into international markets," he said.

"Women-led and export-oriented SMEs require dedicated support. They need easier access to finance, stronger market linkages and programmes that help build their capacity."

He added that although SMEs account for a significant share of global trade, Bangladeshi SMEs remain only loosely connected to international markets.

"Expanding those global linkages would not only help diversify exports but also create more employment opportunities," he said.

Dr Mustafizur believes the government's renewed focus on the SME sector sends a positive signal. However, he emphasised that sustainable growth will depend on far more than financial allocations. Creating a supportive business environment, improving access to finance, reducing bureaucratic obstacles and implementing entrepreneur-friendly policies will be just as important in unlocking the sector's full potential.