The recently published Bangladesh Development Update by the World Bank delivers a cautionary message about the country’s current economic challenges. Bangladesh has been grappling with economic slowdown and a rise in poverty over the past three years, exacerbated by external shocks. Projections indicate a decline in GDP growth to 3.9 percent by the end of FY2026, with persistent inflation rates exceeding eight percent. Additionally, the non-performing loan ratio surged to 30.6 percent in December 2025, while the national poverty rate increased to 21.4 percent in 2025 from 18.7 percent in 2022. Global supply chain disruptions, currency fluctuations, and external factors from conflicts in the Middle East have heightened energy costs, inflation, and hindered poverty reduction efforts for major exporters.
Amidst these challenges, the cottage, micro, small, and medium enterprises (CMSME) sector plays a crucial role in supporting the country’s economy. However, the current setup demands numerous permits and certifications for establishing small businesses, posing significant hurdles such as administrative complexities, VAT issues, and high regulatory expenses for CMSMEs. It is imperative for Bangladesh to shift from a subsidy-oriented system to deregulation and reforms that promote entrepreneurship and innovation within the sector.
Efforts are underway to address these issues. The Bangladesh Investment Development Authority (BIDA), in collaboration with the Japan International Cooperation Agency (JICA), recently introduced BanglaBiz Phase 2, a digital platform streamlining the business establishment process in the country. This initiative offers a business starter package facilitating the acquisition of five essential permits: name clearance, temporary bank account opening, company incorporation, e-TIN, and trade license, enabling entrepreneurs to launch their ventures within three days.
Similarly, the National Board of Revenue (NBR) implemented the Bangladesh Single Window (BSW) system in January 2025, mandating the submission of import and export certificates, licenses, and permits through this platform. By consolidating 19 government agencies under the BSW system, streamlining backend integration, and adopting risk-based approaches, significant reductions in clearance times can be achieved. Introducing a “compliance holiday” for two to three years could incentivize innovative enterprises, following the model of the successful SME Houses in Azerbaijan, known for simplifying business processes.
Enhancing industrial clusters and local supply chains can reduce import dependency and boost competitiveness. Encouraging a circular economy, leveraging waste from large factories as raw materials for small enterprises, can cut production costs, reduce imports, and save foreign currency. Shifting from traditional collateral-based lending to digital credit scoring and cash-flow-based methods is crucial. To support CMSMEs, Bangladesh Bank reduced the mandatory provisioning requirement for short-term agricultural and CMSME loans to 0.50 percent until December 31, 2026, promoting inclusive growth and employment generation.
In response to energy supply challenges, decentralized renewable energy sources are gaining traction. New net metering guidelines approved in 2025 allow for 100 percent of sanctioned load for net-metered rooftop solar and extend eligibility to single-phase consumers, promoting more reliable operations and cost savings. Viewing the CMSME sector as a potent economic ecosystem capable of driving inclusive growth and job creation beyond traditional industries like RMG, the country is moving towards smart deregulation with initiatives like BanglaBiz and BSW platforms and the new rooftop solar policy. Swift implementation, full digitalization, and banking system stabilization are crucial to sustaining this progress.
The World Bank’s 2026 assessment underscores the urgency of policy and institutional reforms to boost employment and foster inclusive growth in Bangladesh. Restoring macroeconomic stability, enhancing revenues, fortifying the financial sector, and improving the business environment are paramount. Leveraging single window systems, integrated hubs, digital finance, decentralized energy sources, and circularity can help the country transition from fragility to resilience. Early signals from the new government regarding business environment improvements are promising, indicating the potential for the CMSME sector to drive a robust economy.
