Bangladesh must prioritise technological adaptation, digital market access and blended finance to pull cottage, micro, small and medium enterprises out of the low-productivity trap and turn it into a major engine of employment-led economic growth, said Palli Karma-Sahayak Foundation managing director Fazlul Kader Chowdhury.
In an interview with New Age, Kader highlighted that millions of small entrepreneurs remain trapped in a cycle of low productivity, low income, and low profitability, despite making up the majority of the country’s businesses and workforce.
To break this cycle, he argued that technology must become the central driver for transforming cottage and micro enterprises, improving production efficiency, cutting costs, expanding market access, and enabling data-driven business decisions.
Technology is already in the hands of people. The challenge is how to use it productively for CMSMEs,’ Fazlul Kader said.
He said that digital tools had reached most parts of Bangladesh, including rural areas, creating opportunities that were not available to earlier generations.
The task now, he said, is to connect these technologies with production, finance, marketing, and business planning and value-chain development.
‘Our main task is to determine how this technology can be put to good use for CMSMEs,’ he said.
According to him, Bangladesh has more than one crore CMSMEs, while cottage and micro enterprises account for more than 92 per cent of the total.
PKSF mainly works with cottage and micro enterprises, which currently have around 2.25 crore clients across the country, including nearly 40 lakh small entrepreneurs.
Although CMSMEs account for around 54 per cent of employment, their contribution to gross domestic product is estimated at only about 25 per cent, he added.
‘This means that the income generated per worker remains far below the national average. The quality of employment is still low,’ he said.
Fazlul Kader described the situation as a ‘low-level equilibrium trap’, where entrepreneurs remain unable to increase productivity, accumulate capital, invest in better machinery or move into higher-value business activities.
He said that the challenge was not merely to create more enterprises but to improve the quality of employment, increase productivity and connect small entrepreneurs with higher-value markets.
He also stressed that cottage and micro enterprises should not be treated as small and medium enterprises.
‘They are two different segments. Their characteristics, scale of operation, financing needs and growth trajectories are different. They should be separated,’ he said.
He said that Bangladesh’s policy framework had unfortunately placed cottage, micro, small and medium enterprises under the same umbrella despite their different business models.
Kader said that one of the most important barriers to CMSME growth was the lack of proper backward and forward market linkages.
Backward linkage refers to access to quality raw materials, machinery, inputs, technical support and production services, while forward linkage includes access to buyers, markets, branding, transport, export opportunities and marketing channels.
If there is inefficiency in either backward or forward linkage, the entire business system becomes weak, he said.
Micro and cottage entrepreneurs often buy raw materials at higher prices because they lack market information, and often sell finished products at lower prices because they remain dependent on informal intermediaries.
‘Middlemen are doing business because they know the market. Entrepreneurs often do not know where demand exists, what price buyers are willing to pay or how the market works,’ he said.
He said that this information gap prevented entrepreneurs from receiving the desired return from their businesses and restricted their ability to reinvest.
Using handloom and footwear as examples, he said that producers often faced manipulation in input markets while lacking direct access to buyers who could pay premium prices for quality products.
As a result, production costs increase while profit margins remain low, preventing entrepreneurs from accumulating enough capital to modernise, adopt technology or expand their businesses.
Technology can help overcome many of these barriers, he said.
Digital platforms can provide real-time information on market prices, product demand, buyer preferences, export opportunities, supply conditions and potential customers.
He called for the development of a universal digital platform that would offer market research, demand forecasts, product-specific information, export opportunities and access to relevant databases.
Such a platform would help entrepreneurs decide what to produce, where to sell and how to obtain better prices.
PKSF has already undertaken initiatives to bring modern technological innovation to economically disadvantaged people in fisheries, agriculture, poultry and other sectors.
The organisation is introducing market-based, sensor-connected and mobile-connected production technologies to improve productivity and reduce risks.
Such technologies can help farmers and small entrepreneurs monitor production conditions, improve resource use, reduce waste and make faster business decisions, he said.
He said that many cottage and micro enterprises still relied on manual methods, limiting their production capacity and competitiveness.
‘They need to upgrade their working pattern through technology and move gradually towards semi-automatic production. Otherwise, they will not grow,’ he said.
In some sectors, entrepreneurs need access to highly technical machinery to improve production efficiency, maintain product quality and compete in larger markets.
However, such investment cannot be financed through conventional short-term loans alone, he said.
Fazlul Kader said that Bangladesh must move beyond a loan-centred financing system and adopt blended finance for CMSMEs.
‘If we want to bring this sector out of the low-equilibrium trap, we have to move towards blended financing,’ he said.
Under a blended-finance framework, entrepreneurs could receive a combination of loans, grants, equity, quasi-equity, technical assistance, risk-mitigation support and business-failure insurance.
Working-capital loans would remain necessary for purchasing raw materials, maintaining inventories, paying wages and managing day-to-day operations.
But long-term business expansion, technological upgrading, branding, skill development and market diversification require other forms of financing, he said.
Training, branding support, workforce development and market expansion initiatives should be supported through grants because small entrepreneurs often lack the resources to finance such investments.
He said that high-interest loans offered by many microfinance institutions often failed to support capital formation among micro entrepreneurs.
Small businesses face high risks, while entrepreneurs remain reluctant to invest in ventures with higher profit potential because they fear failure and the burden of immediate loan repayment.
Equity participation, quasi-equity arrangements and business insurance can reduce that risk, allowing entrepreneurs to pursue more ambitious ventures, he said.
‘A micro entrepreneur should be able to take calculated risks in ventures with high profit potential without being placed under the immediate pressure of repaying a loan,’ he said.
PKSF has already piloted elements of blended finance in several business clusters using limited resources.
Although equity financing remains difficult to implement, the pilots demonstrated that an integrated support model could significantly improve business performance, he said.
PKSF has completed seven projects with the World Bank and the International Fund for Agricultural Development and another seven with the Asian Development Bank.
These projects helped the organisation develop practical experience in blended finance, value-chain development and technology-based interventions, he said.
PKSF now plans to streamline the model as a continuous programme for around 40 lakh entrepreneurs through its partner organisations.
The organisation expects to receive Tk 5,000 crore from Bangladesh Bank and may also receive a special government grant of Tk 500 crore.
The funds would be blended with PKSF’s experience from earlier interventions to expand support for entrepreneurs across the country.
‘We want to transform this into a continuous programme rather than isolated projects,’ he said.
PKSF plans to gradually incorporate risk mitigation, insurance and grants into the financing package while experimenting with loan-and-equity arrangements.
Technology-based lending will also be a major part of the future programme.
PKSF is working on an app-based and artificial intelligence-driven lending system that could make finance more accessible to micro entrepreneurs.
The long-term vision, Fazlul Kader said, is a system described as ‘My Device, My Office; I Approve My Loan’.
Under this model, entrepreneurs would be able to use their digital financial history and automated credit scoring to check their loan eligibility instantly.
If eligible, they could receive funds directly into digital wallets and repay loans seamlessly, reducing transaction costs and minimising interest burdens.
He said that Bangladesh must provide all kinds of modern technology facilities to rural areas so that entrepreneurs outside major cities could participate in the digital economy.
Greater competition among small businesses improves efficiency and weakens monopolies, said Kader.
When more entrepreneurs access market data, tech, and finance, wealth distribution becomes decentralised rather than concentrated in a few hands.
‘When profits are distributed among many entrepreneurs, growth becomes more inclusive and social inequality declines,’ he said, noting this shift also strengthens domestic demand and lowers prices for consumers.
He said that Bangladesh should pursue ‘growth with employment’ by strengthening CMSMEs.
He cited South Korea as an example of a country that successfully developed a strong CMSME base.
According to him, more than 90 per cent of South Korea’s GDP comes from the sector.
Bangladesh and South Korea were in similar economic positions in the 1970s, but South Korea addressed many of its structural weaknesses in about three decades, he said.
Bangladesh must develop policies based on its own conditions rather than copying models from countries with different resources and institutions.
He also called for a change in bureaucratic mindset and greater specialisation in public administration.
‘We need a results-based bureaucracy. We cannot achieve this through a bureaucracy based only on procedural compliance,’ he said.
Public institutions must become more capable of coordinating business growth, removing market barriers and supporting entrepreneurs with specialised services, he said.
He also pointed at the lack of quality data on employment generated by cottage and micro enterprises compared with SMEs.
Proper data is needed to develop an effective strategy for the sector, he added.
Bangladesh possesses immense underused comparative advantages, but small entrepreneurs often lack the information, technology, finance, and market connections to capitalise them, said Fazlul.
To break this ‘low-equilibrium trap,’ Kader called for a comprehensive shift to help small businesses become more skilled, productive, and market-focused.
‘Technology should not be seen only as a tool for large companies, but as a practical means for small businesses to improve daily operations and reach wider markets,’ Kader said.
Over the next decade, he said, he wanted to see CMSME entrepreneurs become more diversified, respected and economically empowered, supported by an education system that produces confident and skilled graduates.
