Microenterprises of Bangladesh: The unsung growth engine of the economy – The Business Standard

Report on the Role of Microenterprises in Bangladesh’s Sustainable Development

Executive Summary

Microenterprises represent a foundational pillar of Bangladesh’s economy, serving as a critical engine for inclusive and sustainable growth. While often overshadowed by the ready-made garment (RMG) sector, these small-scale ventures are instrumental in advancing multiple Sustainable Development Goals (SDGs), particularly those related to poverty reduction, gender equality, decent work, and responsible production. This report analyzes the contribution of microenterprises to the national economy, their role in promoting a circular economy, the drivers behind their proliferation, and the systemic barriers hindering their potential. Strategic investment and policy support for this sector are imperative for Bangladesh to achieve its long-term development aspirations, including the 2030 Agenda for Sustainable Development.

Microenterprises as a Catalyst for Economic Growth and Decent Work (SDG 8)

The micro, small, and medium enterprise (MSME) sector is a dominant force in Bangladesh’s economy, directly contributing to the objectives of SDG 8 (Decent Work and Economic Growth).

• Economic Contribution: The MSME sector contributes an estimated 25% to the national GDP (FY22). The government aims to increase this contribution to 35% by 2030, aligning with national goals for sustained economic growth.
• Employment Generation: As the largest source of employment outside agriculture, the sector employs approximately 87% of the active labor force. Microenterprises alone account for 56% of these jobs, providing critical livelihoods and reducing unemployment.
• Sector Growth: The number of economic units classified as MSMEs grew from 7.8 million in 2013 to an estimated 11.8 million according to the Economic Census 2024, demonstrating the sector’s dynamism and resilience.

Fostering Social Inclusion, Poverty Reduction, and Gender Equality (SDG 1, SDG 5, SDG 10)

Microenterprises are a key vehicle for promoting social equity, directly addressing SDG 1 (No Poverty), SDG 5 (Gender Equality), and SDG 10 (Reduced Inequalities).

Empowerment of Women and Vulnerable Groups

• A significant portion of the microenterprise workforce consists of women and young people in rural areas, making the sector a primary driver of inclusive development.
• According to the Labour Force Survey 2022, women own 2.8 million SMEs (24.6% of the total), employing 8.4 million workers.
• Participation in microenterprises enhances women’s financial independence, decision-making power, and community leadership roles.

Financial Discipline and Poverty Alleviation

• Microenterprises exhibit high loan repayment rates, often surpassing those of larger corporate borrowers, which underscores their financial stability and reliability.
• Access to microfinance, pioneered by institutions like the Palli Karma-Sahayak Foundation (PKSF), provides essential seed capital to underprivileged individuals, enabling them to escape poverty through entrepreneurship.

Advancing a Circular Economy for Responsible Consumption and Production (SDG 12 & SDG 13)

Microenterprises are at the forefront of implementing circular economy principles in Bangladesh, contributing significantly to SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action).

1. Textiles and Clothing: Small workshops collect and process an estimated 577,000 metric tonnes of textile waste (jhut) from the RMG industry annually, transforming fabric scraps into new products and minimizing industrial waste.
2. Plastics and Packaging: A vast informal network of microenterprises, including waste pickers and scrap dealers, forms the backbone of plastic waste collection. Although only 37.2% of the 646 tonnes of plastic waste collected daily in Dhaka is recycled, these enterprises are crucial to the process, melting plastics into pellets for new manufacturing.
3. Agriculture: In the agricultural sector, microenterprises convert crop residues and animal manure into organic compost, reducing reliance on chemical fertilizers. Small-scale biogas plants also utilize manure to generate energy, cutting greenhouse gas (GHG) emissions and contributing to climate action.

Systemic Challenges and Barriers to Sustainable Scaling

Despite their proven contributions, microenterprises face significant hurdles that limit their ability to scale and formalize, thereby impeding progress toward the SDGs.

Key Obstacles

• Access to Formal Finance (The Paradox of Reliability): Despite high repayment rates, formal banks often overlook microenterprises due to a lack of traditional collateral and perceived high risk. Fewer than 6% of women entrepreneurs received formal bank credit under BDT 500,000 in 2024.
• Low Technology Adoption: Dependence on outdated tools and methods results in low productivity and inferior product quality, trapping enterprises in a cycle of limited profitability. This is a direct barrier to achieving SDG 9 (Industry, Innovation and Infrastructure).
• Lack of Value Addition: An overreliance on primary products constrains competitiveness and access to higher-value markets.
• Skill Gaps and Limited Market Reach: A lack of training in modern business management, digital literacy, and quality standards prevents many enterprises from accessing national and export markets.
• Behavioural Inertia: Resistance to adopting new practices, formalizing operations, and implementing sustainable methods compounds other structural challenges.

The Way Forward: A Policy Framework for Inclusive Growth

To harness the full potential of microenterprises in achieving the 2030 Agenda, a concerted effort is required from policymakers and development partners. Empowering this sector is fundamental to Bangladesh’s journey towards becoming an upper-middle-income country by 2031.

Recommendations

1. Enhance Financial Inclusion: Develop targeted financial products and de-risking mechanisms to improve access to formal credit for microenterprises, recognizing their proven creditworthiness.
2. Promote Technology and Innovation: Facilitate the adoption of modern technology and production methods through subsidies, training, and technical assistance to boost productivity and value addition (SDG 9).
3. Invest in Skills Development: Implement widespread training programs focused on business management, digital literacy, and quality standardization to bridge skill gaps.
4. Strengthen Market Linkages: Create platforms and policies that connect microenterprises with national retail chains and export markets.
5. Formalize and Support Circular Models: Provide institutional support to transform informal circular economy practices into a formal green economy, further advancing SDG 12.

By investing in its microenterprises, Bangladesh invests in a resilient, equitable, and sustainable future where economic prosperity is shared by all citizens, ensuring that no one is left behind in its national development journey.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

SDG 8: Decent Work and Economic Growth

• The article’s central theme is the role of microenterprises as Bangladesh’s “unsung growth engine.” It highlights their significant contribution to the national GDP (25%) and their function as the “largest source of employment outside agriculture,” directly aligning with the goal of promoting sustained, inclusive, and sustainable economic growth and productive employment.

SDG 5: Gender Equality

• The article explicitly discusses women’s empowerment through microenterprises. It notes that “women-owned microenterprises not only contribute to household income but also reshape community dynamics by promoting financial independence, decision-making power, and leadership.” It also points out the challenges women face, such as limited access to formal credit, which is a key area of focus for SDG 5.

SDG 12: Responsible Consumption and Production

• The section on the “Circular economy” directly addresses this goal. It details how microenterprises are involved in sustainable practices by turning waste into resources. Specific examples include recycling textile scraps (“jhut”), collecting and recycling plastic waste, and converting agricultural waste into organic compost, all of which contribute to ensuring sustainable consumption and production patterns.

SDG 9: Industry, Innovation and Infrastructure

• The article discusses the challenges faced by microenterprises, including the “paradox of reliability” where they have limited access to formal credit despite high repayment rates. It also mentions the “low-technology trap” and the need for infrastructure investment. These issues are directly related to building resilient infrastructure, promoting inclusive industrialization, and fostering innovation, particularly by increasing the access of small-scale enterprises to financial services.

SDG 1: No Poverty

• By providing employment and income opportunities, especially for “women and young people in rural areas,” microenterprises are a critical tool for poverty alleviation. The article’s focus on the “microfinance revolution” and providing financial services to “underprivileged people” directly connects to the goal of ending poverty in all its forms.

SDG 10: Reduced Inequalities

• The article emphasizes that microenterprises are a “critical driver of inclusive development” by employing a significant share of women and young people in rural areas. This focus on empowering marginalized groups and fostering economic inclusion aligns with the goal of reducing inequality within and among countries.

SDG 13: Climate Action

• The article mentions that microenterprises in the agricultural sector utilize small-scale biogas plants, which “help cut greenhouse gas (GHG) emissions—around 20% of which result from manure.” This is a specific example of a grassroots climate action initiative that contributes to mitigating climate change.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 8.3 (under SDG 8)

   “Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services.”

   • The entire article advocates for supporting microenterprises, which are described as the “nation’s true backbone.” It discusses their role in job creation (employing 87% of the active labour force) and the challenges they face in accessing formal credit, directly linking to the core elements of this target.

2. Target 9.3 (under SDG 9)

   “Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets.”

   • The article highlights the “paradox of reliability,” where microenterprises are overlooked by formal banks despite strong repayment histories. It also points to “limited market reach” as a key hurdle, making this target highly relevant to the challenges described.

3. Target 5.a (under SDG 5)

   “Undertake reforms to give women equal rights to economic resources, as well as access to… financial services…”

   • The article discusses how microfinance institutions have provided financial services “especially [to] women” and notes that despite progress, “fewer than 6% of women entrepreneurs received formal bank credit.” This directly addresses the theme of women’s access to financial services.

4. Target 12.5 (under SDG 12)

   “By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse.”

   • The article provides concrete examples of microenterprises contributing to this target: recycling 577,000 metric tonnes of textile waste, forming the “backbone of the collection and recycling chain” for plastics, and converting agricultural waste into compost.

5. Target 1.4 (under SDG 1)

   “By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to… financial services, including microfinance.”

   • The section on the “microfinance revolution” describes how institutions like PKSF provide “financial services to underprivileged people,” which is a direct implementation of this target.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article provides several quantitative and qualitative indicators that can be used to measure progress.

1. Indicators for Economic Contribution and Growth (SDG 8 & 9)

   • Contribution to GDP: The MSME sector’s contribution is currently “an estimated 25% to national GDP (FY22),” with a government target to raise it to “35% by 2030.” This serves as a clear indicator of economic growth.
   • Employment Rate: The article states that “Microenterprises alone account for 56% of jobs, while the CMSME sector as a whole employs around 87% of the active labour force.” These percentages are direct indicators of employment generation.
   • Number of Enterprises: The growth from “7.8 million in 2013” to “an estimated 11.8 million economic units” in 2024 indicates the expansion of the sector.

2. Indicators for Gender Equality (SDG 5)

   • Proportion of Women-Owned Businesses: The article specifies that “women own 2.8 million SMEs—around 24.6% of the total.” This is a direct indicator of women’s entrepreneurship.
   • Access to Finance for Women: The statistic that “fewer than 6% of women entrepreneurs received formal bank credit under BDT 500,000 in 2024” is a critical indicator of the financial inclusion gap for women.

3. Indicators for Responsible Consumption and Production (SDG 12)

   • Waste Generation Volume: The article mentions that “25,000–30,000 tonnes of solid waste are generated each day” and “577,000 metric tonnes of textile waste are produced by factories annually.” These figures serve as a baseline for measuring waste reduction.
   • Recycling Rate: For plastics in Dhaka, the article states that “only 37.2% is recycled” out of 646 tonnes collected daily. This percentage is a direct indicator of recycling efficiency.

4. Indicators for Climate Action (SDG 13)

   • Source of GHG Emissions: The article implies an indicator by stating that small-scale biogas plants help reduce GHG emissions, “around 20% of which result from manure.” Progress could be measured by the reduction in this percentage through the adoption of such technologies.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: tbsnews.net