Unlocking SME finance can power Bangladesh's next wave of growth

For Rozina Begum, a small food business started from her kitchen in Tangail. Five years later, it employs 14 people and supplies several shops in the district. Orders are growing, but she cannot raise production because she lacks the financing to buy new machinery.

Rozina needs around Tk20 lakh, but her loan application has run into a familiar obstacle: collateral. Although she has regular sales and believes she can repay the loan, she does not own enough land or fixed assets to meet the bank's requirements.

"Orders are there and the market is there. But I cannot increase production without the machinery. The bank wants collateral, but I do not have much property in my name," she said.

Her experience reflects both the potential and challenge facing Bangladesh's small and medium enterprise (SME) sector. SMEs support a large share of employment and economic activity, but many entrepreneurs struggle to access formal financing.

Former Bangladesh Bank SME Department director Nazrul Islam said SMEs are a major pillar of the private economy, spanning food processing, retail, transport, handicrafts, agriculture and technology.

Small businesses often begin with personal savings, family money or informal borrowing. As they expand, they need working capital for raw materials, workers, machinery and new outlets. This is where formal financing becomes crucial.

Yet banks often find smaller businesses harder to assess than large companies because many lack audited financial statements, formal records and sufficient collateral.

Making finance work for smaller businesses

For banks, processing a Tk5 lakh or Tk10 lakh loan can require almost the same assessment as a much larger loan, while returns are comparatively low. Weak bookkeeping, irregular transactions and insufficient documentation add to the difficulty.

Ibadat, a small manufacturer in Bhola, started with two workers in 2022 and now employs 11. He receives regular orders from larger manufacturers in Dhaka and sought a Tk10 lakh loan to expand production.

"My business has sales and regular orders, but the bank wants property documents. My business itself is my biggest asset," he said.

Experts say collateral should not be the only measure of creditworthiness. Regular sales, cash flow and business performance can also demonstrate repayment capacity.

Bringing more women into formal finance

Women entrepreneurs face additional barriers. Many operate from home or on a small scale and often lack land or fixed assets in their names.

Bangladesh Bank has introduced dedicated officers and refinancing schemes for women entrepreneurs, with some loans carrying interest rates starting at 5%, compared with around 9% for regular commercial lending.

Yet women received only around 4-6% of total SME lending between FY2020-21 and FY2022-23, against a policy target of 15%. The latest figure puts their share at 7.28%.

The latest data show SME loans at Tk2.98 lakh crore, or 15.87% of total bank loans, while classified loans account for 26%.

In the January-March quarter this year, banks disbursed around Tk52,000 crore in SME loans, down 25.74% from Tk70,000 crore in the previous quarter.

NRB Bank official Salma Begum said dedicated loan programmes need to be accompanied by business training, financial management, digital bookkeeping and market links.

"An entrepreneur may need Tk5 lakh today but Tk20 lakh three years later. Financing needs to support the entire journey of a growing business," she said.

Taking SME finance beyond major cities

SMEs outside Dhaka and Chattogram are equally important to local economies. Agriculture processing, rice mills, food production, small factories, transport and handicrafts support thousands of rural jobs.

But entrepreneurs in districts often struggle with documentation, accounting, tax records and knowledge of formal borrowing.

Fakhruddin Mia, an agricultural processor in Bhola, needs working capital during harvest seasons to buy raw materials. If financing arrives late, the opportunity is lost.

"Our business depends on timing. If we receive the money after the season ends, we cannot use it to buy raw materials," he said.

Building a stronger financing ecosystem

Bangladesh Bank has introduced eight CMSME financing schemes worth Tk35,000 crore, with lending rates ranging from 4% to 9%. Banks have so far disbursed around Tk13,800 crore.

The central bank also launched a Tk500 crore startup fund in July 2025, offering eligible startups loans at up to 4% interest, with limits ranging from Tk2 crore to Tk8 crore depending on the business stage.

Experts say Bangladesh can unlock more SME growth by moving gradually from collateral-based lending towards cash-flow and information-based financing. Digital transactions, sales records and payment histories can help banks assess a business's actual financial strength.

Credit guarantee schemes could encourage lending to entrepreneurs with limited collateral, while women and rural businesses may benefit from specialised products and flexible repayment terms.

Entrepreneurs, meanwhile, need to maintain proper accounts, separate personal and business transactions, keep tax documents updated and build formal credit histories.

For businesses like Rozina's, the opportunity is already there. Better access to finance could turn rising demand into higher production, investment and jobs.