Can SMEs power Bangladesh's next growth chapter?

Bangladesh's garments sector transformed the economy. The next chapter may depend on whether its small and medium enterprises can become more productive, innovative and connected to global value chains.

They rarely make headlines. Most operate quietly from factory sheds, workshops, office spaces and commercial buildings spread across the country. Some employ five people. Others employ fifty. A few have grown into sizable enterprises serving customers across Bangladesh and beyond.

Yet together, these businesses form one of the most important pillars of the economy.

From agro-processing plants in northern Bangladesh and light engineering workshops in Bogura to software firms in Dhaka and furniture manufacturers in Narayanganj, small and medium enterprises are woven into almost every part of the country's economic fabric. They create jobs, generate income, support larger industries and keep local economies moving.

The numbers tell part of the story. According to SME Foundation data, cottage, micro, small and medium enterprises account for nearly 99.92% of all economic units in Bangladesh. The sector employs around 23.6 million people, representing almost 78% of total employment, and contributes more than 31% of the country's GDP.

But perhaps the most important thing about SMEs is not how many there are.

It is what they represent.

In almost every successful economy, SMEs form the backbone of growth. They create opportunities where large industries cannot. They nurture entrepreneurship, spread economic activity beyond major cities and often become the breeding ground for innovation.

The world's most resilient economies understand this well.

Take Germany, Europe's largest economy.

Much of Germany's industrial strength rests on what is known as the Mittelstand, a vast network of small and medium-sized firms that collectively represent more than 99% of all businesses in the country.

"Access to finance remains one of the biggest obstacles for micro and cottage enterprises across Bangladesh. But young entrepreneurs need more than capital; they need guidance, financial literacy and an ecosystem that helps them build sustainable businesses."

Mohammad Mamdudur Rashid, managing director and CEO of United Commercial Bank PLC

Many of these companies are hardly known outside their industries. They are not consumer brands and rarely appear in newspaper headlines. Yet they manufacture highly specialised products that are sold around the world.

One company may produce a machine component used in industrial equipment and dominate a global niche market. Another may be a leader in precision engineering or specialised manufacturing tools. Together, they have helped turn Germany into one of the world's strongest exporting nations.

Their success did not happen overnight.

For decades, these businesses invested in skilled workers, apprenticeships, innovation and research. They focused on becoming exceptionally good at specific products rather than trying to be everything to everyone.

The result is an economy where thousands of SMEs compete successfully on the global stage.

Vietnam offers another lesson, and perhaps a more relevant one for Bangladesh.

Not very long ago, Vietnam faced many of the same challenges that developing economies struggle with today. It needed jobs, industrialisation and export growth. Rather than relying solely on large corporations, the country focused on building a broader business ecosystem.

Today, SMEs account for around 98% of Vietnamese businesses and contribute roughly 40-45% of GDP. More importantly, they are deeply connected to global supply chains.

When multinational companies such as Samsung, Intel and LG expanded their operations in Vietnam, local SMEs did not remain on the sidelines. They became suppliers, logistics providers, service contractors and manufacturing partners.

Thousands of domestic firms grew alongside these global companies.

That experience demonstrates something important. SMEs do not have to become multinational corporations themselves to transform an economy. Often, their biggest opportunity lies in becoming part of a larger ecosystem that creates jobs, develops skills and generates value across multiple sectors.

For Bangladesh, that lesson is worth paying attention to.

The country has no shortage of entrepreneurs. Across cities, towns and villages, people are building businesses, taking risks and creating employment. The challenge is helping those businesses move beyond survival and into sustained growth.

That has not been easy in recent years.

Business owners across sectors have had to contend with rising costs, high inflation and expensive borrowing. Many SMEs operate on thin margins, leaving little room for unexpected shocks.

According to SME Foundation research, entrepreneurs continue to face a range of obstacles, including limited access to finance, shortages of skilled workers, weak marketing channels, technology gaps and insufficient branding and promotion. Law and order concerns have also added to business uncertainty in some areas.

Access to finance remains one of the most frequently cited challenges.

While CMSME financing has grown steadily over the years, many entrepreneurs still struggle to secure loans, particularly during the early stages of their business journey. New ventures often lack collateral, formal financial records or the banking relationships needed to access funding.

Even established businesses have found expansion more difficult as borrowing costs have increased.

Women entrepreneurs face an additional hurdle.

Bangladesh has seen the rise of thousands of women-led enterprises over the past decade, from manufacturing and retail to services and technology. Yet women entrepreneurs continue to receive a disproportionately small share of formal financing. Data show that women received only about 7% of total CMSME loans disbursed in 2025.

For a country seeking more inclusive growth, that represents both a challenge and an untapped opportunity.

Regarding women's participation Rizwan Dawood Shams, Managing Director, IPDC Finance PLC said, "The rise of women entrepreneurs is one of the most encouraging developments in Bangladesh's SME ecosystem. They are demonstrating remarkable business acumen, innovation and resilience while making a significant contribution to economic empowerment. At IPDC, our commitment goes beyond providing capital—we are equally focused on building the ecosystem support needed to help women-led businesses achieve sustainable growth." 

Countries that have built strong SME sectors show that access to finance alone is not enough. Businesses also need better access to markets, skilled workers, technology and innovation. Just as importantly, they need a business environment that gives them the confidence and opportunity to grow.

Mohammad Mamdudur Rashid, Managing Director and CEO of United Commercial Bank PLC (UCB), echoed this view to TBS, "Access to finance remains one of the biggest obstacles for micro and cottage enterprises across Bangladesh. But young entrepreneurs need more than capital; they need guidance, financial literacy and an ecosystem that helps them build sustainable businesses. The next phase of MSME growth in Bangladesh will be driven by innovation, digital transformation and accessible financial services."

Bangladesh has already demonstrated its ability to build competitive industries when the right policies, infrastructure and entrepreneurial energy come together.

The SME sector could represent the next phase of that journey.

The opportunities are plentiful. Light engineering continues to expand. Agro-processing remains underdeveloped despite the country's agricultural strengths. Technology-enabled services are creating new business models. Demand for logistics, manufacturing support services and specialised suppliers is growing as the economy becomes more complex.

As Bangladesh moves towards a more competitive global environment, economic diversification will become increasingly important. No country can rely indefinitely on a handful of industries to drive growth. Sustainable development requires a broader base of productive enterprises capable of creating jobs, innovating and competing.

That is where SMEs come in.

They are already present in every district, every industrial cluster and almost every sector of the economy. They employ millions of people and support countless livelihoods.

What they need now is the opportunity to scale.

Germany's experience shows what can happen when SMEs become world-class innovators. Vietnam demonstrates how they can drive industrial transformation and integrate into global value chains.

Bangladesh's challenge is different, but the principle remains the same.

The country's future growth story may not be written by a few large corporations alone. It may be written by thousands of ambitious entrepreneurs building businesses one customer, one product and one innovation at a time.

And if those businesses are given the tools to grow, SMEs could become not just the backbone of Bangladesh's economy, but the driving force behind its next chapter of development.