Bangladesh's small and medium enterprises (SMEs) are failing to realise their vast potential amid severe funding challenges, as banks remain unwilling to engage with the sector, Finance Adviser Salehuddin Ahmed said yesterday.

"Bankers don't think about SMEs. They prefer giving large loans of Tk 10 crore or more and don't care whether it's recovered. Bankers and policymakers must change this mindset," he said while speaking at the SME Foundation–ERF Media Award ceremony at the Economic Reporters' Forum (ERF) office in Purana Paltan.

The adviser noted that Bangladesh's economic growth still largely depends on the SME sector, which also generates the highest employment. "SMEs are the real backbone of our economy. There are many narratives about Bangladesh's growth, but the foundation is still SMEs."

He also pointed out that the sector's contribution to GDP remains low compared to global peers.

"SMEs contribute only 26 percent to our GDP, whereas in many countries it is as high as 60 percent. People say industries in developed countries are all big, but that's not true. Japan's SMEs are world-famous and even produce luxury items like Rolex watches," Salehuddin said.

Underscoring the need for technological advancement in the sector, he added, "The days of hammer and chisel are over. Though some SMEs have already embraced technology, this needs to grow much further."

He also highlighted the SME sector's potential in empowering women. "SMEs play a major role in creating opportunities for women. Increasing women's participation means not just talking about it but ensuring they have real work opportunities. That is happening through SMEs."

The finance adviser mentioned that Bangladesh Bank has refinance schemes for SMEs, which could be expanded with ministry support.

"The finance ministry will support it. We are giving Tk 60,000–62,000 crore in subsidies for fuel. Why not provide some subsidies for SMEs as well?" he questioned.

He also recommended developing a digital database for the SME sector, which is now being demanded by foreign investors. "If necessary, the finance ministry is ready to finance the creation of a digital SME information hub."

Salehuddin suggested strengthening the SME Foundation's financing capacity, similar to the Palli Karma-Sahayak Foundation (PKSF).

"Take good projects, recruit capable people. PKSF gets funding from the World Bank, IFAD, and others. PKSF is now a world-class institution because of its transparency and sound financial management. There must be no compromise in financial governance," he said.

Emphasising the importance of connecting SMEs to international markets, he added, "We must integrate the SME sector with both domestic and global markets to diversify exports. We can't rely on just one product anymore."

The adviser also announced that further reforms will be introduced in the banking sector by December.

"Some financial sector reforms will begin by December under the current interim government. I don't know about political reforms, but there will be changes in the banking sector. Depositors' money will be protected, and budget allocations have been made for this. We will start the process and hope the next government continues it," he said.

Meanwhile, presiding over the event, Md Mushfiqur Rahman, chairperson of SME Foundation, said the foundation struggles with limited capacity and resources.

"Although there are around 1.18 crore SME entrepreneurs in Bangladesh, the foundation has been able to finance only 11,000 so far. Yet the loan recovery rate in the SME sector exceeds 99 percent," he said, urging the finance adviser to help increase the foundation's funds.

Anwar Hossain Chowdhury, managing director of SME Foundation, said the foundation started in 2006 with an initial fund of Tk 200 crore, which was later raised to Tk 500 crore.

"So far, we have disbursed loans to 11,000 entrepreneurs under various refinancing schemes. Without advancing the SME sector, the country's economic growth targets will be difficult to achieve," he said.

Chowdhury stressed the need for a permanent office, incubation centre, training facilities, and an exhibition centre for the foundation.

"A dedicated space would greatly benefit the SME Foundation," he said, seeking support from the former central bank governor.

ERF President Daulat Akter Mala, Md Jahangir Hossain, general manager of SME Foundation, and Abul Kashem, general secretary of ERF, also spoke at the event, which concluded with awards to 21 journalists for outstanding reporting on the SME sector.