Bangladesh Microfinance & SME Development Analysis

Bangladesh solved the hardest problem in development finance, lending profitably to the

poor at scale, and then stopped at the firm that wants to grow. The country runs 724

MRA-licensed MFIs serving 32.17 million active borrowers, with Tk 1,59,410 crore

outstanding as of June 2024 (MRA Annual Statistics, June 2024). That same year the sector

disbursed Tk 2,61,524 crore. Yet the IFC puts the unmet MSME financing gap at US$2.8

billion, and its 2017 SME Finance Gap Study found 55 percent of MSMEs at least partially

credit-constrained, of which 39 percent fully constrained (IFC, 2017). The diagnosis is not

access to a first loan; it is the absence of a second, larger one. The recommendations

below target that missing rung directly rather than expanding microcredit volume the market

already supplies.

The microfinance base is deep, concentrated, and tilted to agriculture

The disbursement mix tells the structural story. About 50 percent of FY2023-24

disbursement went to agriculture (MRA Annual Statistics, June 2024), funding seasonal

working capital rather than fixed investment that builds enterprise scale. The market is

also concentrated: ten large MFIs plus Grameen Bank hold 81 percent of sector outstanding

loans and 87 percent of sector savings (Bangladesh Bank, MFI Activity page). The mechanism

matters more than the headline: where a handful of lenders dominate a district, a borrower

who has outgrown the standard group loan has no competing lender to underwrite a larger,

differently structured one, so the price and the product both stay fixed.

The implication is that scale alone has stopped producing graduation. A market of 32.17

million borrowers that still routes half its lending into agricultural micro-tickets is not

short of capital; it is short of a product designed for the firm crossing from subsistence

into employment-generating production.

The binding constraint is the SME gap, not the microcredit supply

The US$2.8 billion unmet financing gap is the headline constraint on Bangladesh's

enterprise base (IFC), and the depth of the constraint is what stands out: 55 percent of

MSMEs report being at least partially credit-constrained, and 39 percent are fully

constrained (IFC, 2017). Women-owned enterprises face the largest deficit (IFC, World

Bank). This is the missing middle: firms above the microloan ceiling but below the

threshold at which a commercial bank will underwrite them without audited accounts and

fixed-asset collateral. The Seventh Five Year Plan already named credit availability as one

of the most important factors for SME development (Government of Bangladesh, Seventh Five

Year Plan), so the policy intent is not new; the delivery channel is what is missing.

The implication is that closing the gap requires building the rung between microfinance and

banking, not adding more microcredit to a base that is already the densest in the world.

Regulation is now pulling toward SMEs, but the targets need teeth

Bangladesh Bank's master circular of March 17, 2025 sets a hard direction: 25 percent of

bank credit to CMSMEs by end-2025, rising to a 27 percent floor by 2029 at no less than 0.5

percentage points a year, with coverage extended to informal, cottage, and micro

enterprises (including f-commerce and e-commerce traders eligible for up to Tk 5 lakh) and

a dedicated 10 percent cluster-financing allocation (Bangladesh Bank, March 17, 2025). The

risk is concrete: a credit target without verification becomes a relabeling exercise, in

which banks reclassify existing exposures to firms that already hold credit rather than

reaching the 39 percent that hold none.

The implication is that the 25 percent target only bites if it is paired with a verifiable

graduation channel and with consequences for missing it.

Recommendations

**1. Bangladesh Bank and PKSF should open a graduation-lending window for borrowers exiting

microfinance.** Owner: Bangladesh Bank SME and Special Programmes Department, with PKSF as

wholesale lender. Target the firm that has cleared multiple MFI cycles and needs a loan

above any MFI ceiling but below a bank minimum, using documented repayment history as the

primary underwriting input in place of fixed-asset collateral. Expected effect: a defined

path for the 39 percent of MSMEs now fully credit-constrained. Success signal: a measurable

volume of graduation-window loans disbursed and a published first-year repayment rate within

two percentage points of standard MFI portfolios.

**2. Bangladesh Bank should make the 25 percent end-2025 CMSME target enforceable, not

indicative.** Owner: Bangladesh Bank SME Department and off-site supervision. Require

quarterly bank-level disclosure of new-to-credit CMSME borrowers, so the target measures

reach rather than relabeling, and tie shortfalls to supervisory follow-up. Success signal:

the move from 25 percent (2025) to the 27 percent floor (2029) is matched by a rising count

of first-time formal borrowers, not just a rising CMSME loan share.

**3. Ring-fence the 10 percent cluster-financing allocation for women-owned enterprises in

priority clusters.** Owner: Bangladesh Bank, scheme banks, and SME Foundation for cluster

selection. Women-owned SMEs carry the largest access deficit (IFC, World Bank), and the

cluster allocation in the March 2025 circular is the natural instrument to close it. Success

signal: women-owned firms reach a majority of cluster-window disbursement in the designated

priority clusters.

**4. Reduce MFI concentration in underserved districts through differentiated licensing and

refinancing.** Owner: MRA, with PKSF refinancing. With eleven lenders holding 81 percent of

outstanding loans (Bangladesh Bank), prioritize new licenses and refinancing for MFIs

operating in low-coverage districts. Success signal: a rising share of sector outstanding

loans held outside the top eleven, tracked against the MRA division-and-district tables.

What would change this view

The case rests on the June 2024 MRA vintage and the IFC gap estimate. Two developments

would revise it. First, if the MRA's next annual statistics show the disbursement mix

shifting materially away from agriculture toward fixed-investment SME tickets, the missing

middle may be closing through market channels and the graduation window becomes less urgent.

Second, if Bangladesh Bank's quarterly CMSME data show banks adding genuinely

new-to-credit borrowers at the pace implied by the 25 percent target, the binding

constraint moves from supply to absorption, and policy attention should shift to firm

capacity rather than credit availability.