In Bangladesh, many small businesses are busy throughout the year, but only few are growing. These small and medium enterprises are often referred to as the very backbone of the country’s economy. Not only do they create employment opportunities, but they also supply domestic markets and provide entry points into entrepreneurship for countless individuals.
Various small businesses, be it neighbourhood manufacturers, service providers, or even retail operations, are all deeply embedded in the everyday economic life in Bangladesh.
However, despite the fact that there is always a consistent demand for goods and services, there never seems to be signs of consistent growth. An overwhelming majority of these firms remain mostly stagnant in terms of size -- operating at roughly the same scale year after year.
Now while some may think that this stagnation is fueled by a lack of ambition or risk appetite, that is not always the case. In reality, many small businesses come face to face with various structural and operational constraints that not only make scaling difficult, but also actively risky.
As is anyone’s first guess, it is access to finance which is one of the most common and persistent barriers when talking about the growth of a firm. Although credit disbursement to the SME sector has gone up in recent years, formal financing still remains out of reach for many firms.
A large portion of small businesses are unable to take bank loans due to high collateral requirements, rigid lending criteria and limited credit histories. It is almost as if a business is being set up for a long struggle before they can find a good footing.
Such difficulties mean that entrepreneurs end up relying on personal savings, family support and informal borrowing to start and fund operations. Now while these sources may be sufficient to run a business, they rarely provide the capital needed for a business to expand and modernize through long term-planning.
If financing is available, there is a whole heap of other issues to deal with. Growth requires investment not only in physical assets, but also in systems. Many small businesses are founded by individuals with strong technical or trade expertise, but with very little exposure to formal management practices.
As operations scale, a different set of challenges are introduced. Issues related to accounting, workforce management, inventory control, and regulatory compliance become increasingly complex. If the correct manpower and structured systems are not in place, then expansion can increase vulnerability instead of profitability.
Moreover, most of the small businesses in Bangladesh operate outside of the formal economy and this further complicates the growth trajectory. While the informality is attractive for small firms as it reduces short-term costs and the administrative burden, it also does have its fair share of cons.
This is because the same informality restricts access to institutional finance, government support programs, and corporate supply chains. As a result, firms that continue to operate in the informal economy certainly cannot secure large contracts, participate in export markets, or build long term relationships with esteemed names and established companies. So, in the context of Bangladeshi SMEs, staying small is more of a defensive strategy rather than a deliberate business decision.
Market dynamics also play a significant role. In many sectors, these small businesses compete with larger firms which benefit from economies of scale, established distribution networks, and strong bargaining power.
So, when the small businesses engage in price competition in the market, their profit margin is compressed, which in turn leaves little for reinvestment. Growth requires that a firm differentiates their product on multiple aspects, be it through quality, specialization, branding, or even service. However, developing these capabilities demands resources that small firms often lack.
The regulatory complexity for running any sort of formal business in Bangladesh adds yet another layer of difficulty. Navigating licensing requirements, being tax compliant, and traversing regulatory procedures is not only costly for small enterprises but is also very time consuming due to a hugely inefficient system.
So, for a business with limited administrative capacity, it is only natural if the uncertainty surrounding enforcement and policy changes can discourage formal expansion. The perceived risks of scaling sometimes outweigh the perceived benefits.
As a result of such barriers, many small businesses tread with extreme caution, prioritizing stability and survival over growth. The mentality of business owners cannot be blamed. In an environment where scaling can expose firms to various challenges, remaining small can feel like the safer option.
In addition, the conversation must move beyond access to markets alone if small businesses are expected to play a central role in driving long term economic growth and employment.
At the end of the day, scaling is a question of capability. Entrepreneurs of the modern day and age need support in a number of different avenues, such as building managerial skills, adopting digital tools, and implementing systems that allow growth without losing control.
Advanced training in financial planning, cost management, and strategic decision making under pressure is almost as important as access to credit. If these skills are not possessed and sharpened properly, then there is no use of having access to credit as that credit would not be put to efficient use.
Moreover, large firms and important financial institutions also have a significant role to play when it comes to helping SMEs grow. Integrating SMEs into formal supply chains, offering mentorship, and designing financing products tailored to the realities of small enterprises can create mutually beneficial outcomes.
Large firms in Bangladesh are often reluctant to engage in such activities as they do not want to invite competitors and give new entrants even the slightest sniff that they are welcome in the market. This mindset has to change if there is a desire for change in other sectors.
Bangladesh’s small businesses have shown commendable resilience in the face of prolonged economic uncertainty. But resilience alone does not guarantee upward mobility. If these enterprises are to move from survival to sustainable growth, structural constraints must be acknowledged and addressed.
Scaling should not be an exceptional achievement in the time we live in. It should be a viable, supported pathway for businesses that are ready to grow.
Arvin Shazareel Mahmud is a student at Stony Brook University with an academic interest in economics, business, and public policy.
