The MSME code: How banks are earning the trust of new entrepreneurs

Zarin Hossain didn't grow up in a family of business owners. But at 28, she's running a menstrual hygiene brand with biodegradable packaging, fuelled by a loan from a bank that initially wanted none of it. "They said I didn't have the history," she says. "But how do you have history if no one lets you start?"

Her story is one of hundreds playing out across Bangladesh, where young people with ideas are increasingly turning to the MSME ecosystem not just for capital, but for a shot. And as more banks shift from traditional lending to ecosystem building, something unexpected is happening: risk is becoming opportunity, and small is starting to look mighty.

The MSME backbone: Growing quietly, struggling loudly

The MSME sector isn't fringe; rather, it's foundational. This sector generate over 93 per cent of industrial output and employ nearly a third of the labour force in Bangladesh. Yet, paradoxically, only about 36 per cent of these businesses have access to formal credit – a financing gap estimated at nearly $2.8 billion.

"Despite its potential, the sector remains underutilised due to informality, limited access to finance, and structural constraints," says M. Khurshed Alam, Additional Managing Director of NCC Bank. "Banks can play a transformative role by offering tailored solutions, simplifying lending, and supporting capacity building."

And some banks are doing just that.

Beyond the form: Rethinking collateral and character

The most visible shift is the willingness to fund without the old crutches – collateral, extensive track records, or elite referrals.

BRAC Bank, a pioneer in this space, has disbursed over Tk 200,000 crore in SME loans since 2001. "More than 85 per cent of our small business loans are without any mortgage," says Tareq Refat Ullah Khan, current Managing Director and CEO. "We want to be the complete financial partner of grassroots entrepreneurs."

NCC Bank, meanwhile, has aligned its operations with government refinance schemes and offers open credit through a simplified documentation process, especially targeting micro and cottage industries. "We've reduced our loan turnaround time and introduced cluster-based lending to cater to informal businesses that typically fly under the radar," adds Alam.

Financial literacy: The hidden currency

A loan is only useful if you know how to use it.

Ali Reza Iftekhar underscores this point: "Entrepreneurs have low financial literacy, inadequate credit history and lack of business expertise… EBL has been hosting financial literacy programs all over Bangladesh for three years now to create awareness and understanding."

This is echoed across the industry. Dhaka Bank's Managing Director and CEO, Sheikh Mohammad Maroof, adds that many MSMEs "face a range of structural and operational challenges… Limited financial literacy often prevents these businesses from navigating complex loan procedures."

From BRAC's "TARA" women entrepreneur workshops to EBL's rural seminars and Dhaka Bank's digital platform "i-Samadhan," the idea is simple: demystify the system. That means training on accounting, proposal writing, inventory tracking, and even marketing.

For 25-year-old Rakin Zia, who runs a mushroom farming business outside Gazipur, one such workshop was a turning point. "I walked in with an idea and walked out with a pitch," he says. "The trainer explained how banks think in terms of risk, and that helped me reframe my application. I didn't change my business, just my language."

Policy as enabler: The road ahead

The consensus among banks is clear: policy must evolve alongside products. Credit guarantee schemes must be simplified. Tax benefits should incentivise banks to serve MSMEs. Digital infrastructure should be standardised for real-time data sharing.

As EBL MD and CEO Ali Reza Iftekhar suggests, "The government, in alliance with Bangladesh Bank, should establish new refinancing funds offering low-interest loans and partial credit guarantees to banks for lending to export-oriented MSMEs adopting eco-friendly technologies."

Rewriting the entrepreneurial narrative

If Bangladesh is to harness its demographic dividend, it must treat its young entrepreneurs not as fringe dreamers but as builders of a new economy. MSME loans are a start. But without education, digital access, gender sensitivity, and policy alignment, they risk becoming another tool that only the privileged few can wield.

For Zarin, the loan finally came after months of workshops, rewrites, and one very persistent mentor at a bank branch in Tejgaon. "It wasn't just about the money," she says. "It was that someone finally said, 'Yes, your idea has value.' That was the real breakthrough."

And sometimes, that's all a first-time entrepreneur needs.