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Dear Friends and Patrons,
Bangladesh’s economic promise depends on how well we capitalize on our demographic dividend. According to the World Bank, around 2 million young people enter the workforce each year. Creating economic opportunities for them remains central to continued growth, social and political stability. This demographic advantage will not remain open indefinitely, making it imperative to act now.
Two challenges stand in our way. The first is the persistent skills gap across industry and services. Employers complain about a lack of qualified candidates, while young people struggle to find entry-level opportunities. The reliance on foreign professionals for some senior management and technical positions also raises questions about how effectively we are developing local talent.
The second is the limited availability of productive jobs for semi-skilled and unskilled workers. Agriculture accounts for roughly 45% of employment but contributes only around 11% of GDP. This imbalance points to a substantial productivity gap and the need to create better-paying opportunities across the economy.
East Asian economies, including China, South Korea and Taiwan, became more affluent as workers moved from agriculture into manufacturing and services. This transition increased workers’ earning potential and helped raise productivity and incomes in agriculture.
Bangladesh’s experience shows how difficult that transition can be. ILO calculations using BBS Labour Force Survey data show that employment in apparel increased by just 5.6%, from 33.15 lakh in 2016–17 to around 35 lakh in 2023. Comparing the corresponding fiscal years, apparel export earnings increased by approximately 35.5%. Export growth has therefore substantially outpaced employment growth. Productivity improvements, including automation, may explain part of this difference, although these figures alone cannot establish the causes.
With manufacturing generating jobs at this pace, how can we absorb the incoming workforce? Overseas employment provides one avenue. Around 11.33 lakh Bangladeshis secured employment abroad in 2025. However, geopolitical uncertainty and changing demand in destination countries make it difficult to rely on migration alone.
How can we generate more opportunities for workers staying within the country? Growth in small businesses will be pivotal to the government’s ambition of creating 10 million jobs over five years.
Bangladesh Bank estimates that cottage, micro, small and medium enterprises (CMSMEs) contribute around 25–30% of GDP. Reported contributions exceed 40% in Vietnam and reach around 61% in Indonesia. Bangladesh’s 2024 Economic Census records around 2.39 crore people engaged in CMSMEs. These businesses already support a substantial share of livelihoods, and their growth could create many more productive jobs.
Our recent study for The Asia Foundation, highlights the barriers to accessing finance. The research covered 329 MSMEs, alongside 19 key informant interviews, 12 in-depth interviews and four focus group discussions. Among surveyed businesses, 95.2% reported financing shortages, but only 58% had formally applied for loans. Just 11.55% had accessed digitally enabled credit, despite widespread use of mobile financial services. These findings suggest that the challenge begins well before a loan application reaches a bank.
The FY2026–27 budget speech outlined BDT 7,000 crore in financing support: BDT 5,000 crore for CMSMEs within Bangladesh Bank’s stimulus package and a further BDT 2,000 crore proposed for lending on easy terms through IDCOL, BIFFL and SME Foundation. The challenge now is to translate these commitments into accessible financing for businesses that need it.
Commercial banks face practical obstacles when lending to smaller enterprises. Limited financial records, insufficient collateral and the cost of assessing and servicing small loans can make these borrowers difficult to reach. Under the BDT 5,000 crore CMSME working-capital refinance scheme, the borrower interest rate is capped at 9%, while participating lenders receive funds at 4%. Whether this arrangement encourages lending will depend on operating costs, credit risk and how effectively the scheme is implemented.
How can we address this predicament? Strengthening existing credit guarantee schemes and deploying first-loss capital could encourage banks to lend to underserved SMEs. Blended finance can help share risks and attract additional funding. Receivables financing through banks and non-bank financial institutions could also help SMEs manage cash flow while waiting for customers to pay.
Digital lending offers another opportunity. Partnerships among banks, fintech companies and MFS providers could use transaction histories to assess borrowers who lack conventional financial records. Digital banks may further widen access as they become operational. To be useful, these products must offer loan sizes and repayment periods suited to business needs.
Finance alone will not resolve weak demand, skills shortages or other barriers to business growth. But better access to finance can give viable businesses the room to invest, hire and expand.
Growing our small businesses is central to broadening the economic base, diversifying exports and creating more productive jobs. Turning financing commitments into loans that businesses can actually access will be an important step towards realizing Bangladesh’s economic promise.
This article was authored by Zahedul Amin, Managing Director at LightCastle Partners. For further clarification, please contact: [email protected].
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