Policies and regulations for both banks and non-banks need to be improved to accelerate financial inclusion as it will lead to private sector investment in the industry and enhance the credit worthiness of small businesses, according to experts.

"We are emphasising on the development of small businesses as part of our plans for full financial inclusion. Our economy is moving very fast and that is why we should address some of the problems faced by small businesses," said Md Ashadul Islam, senior secretary of the finance division.

Islam made the comments during the keynote session of the "Action-framing conference: transforming financial market for small businesses". The event, held at the Radisson Blu Water Garden hotel in Dhaka yesterday, was organised as part of the Business Finance for the Poor in Bangladesh (BFP-B) programme.

The BFP-B, a financial sector reform programme funded by the UKAid and managed by Nathan Associates London Ltd, aims to create Economic opportunities for small businesses in Bangladesh.

Nathan Associates previously worked with the government, regulators, commercial financial institutions, and technology companies on a number of occasions in Bangladesh.

Small-scale entrepreneurs do not know how to manage their finances despite having a good scope to expand businesses, said Islam.

During his presentation, BFP-B team leader Feisal Hussain said that the programme plays a vital role in assisting policy and regulation reforms.

It also triggers investments to finance micro, small and medium businesses, he added.

According to Hussain, about 75 per cent of small businesses in Bangladesh are yet to enjoy services from the formal financial sector.

However, financial institutions have little incentives to serve small businesses as capital constraints, conservative boards and a harsh regulatory environment discourage investment in the high-risk sector.

In some cases, small businesses do not choose formal financial services as they are not well-informed, Hussain said.

The BFP-B invested 25 million pounds in Bangladesh throughout the last seven years to create economic opportunities for small businesses by changing the behaviour of market influencers in the financial sector, said Eamon Cassidy, managing director of Nathan Associates.

The total number of small to medium enterprises (SME) in the country is estimated to be about eight million. SMEs account for 25 per cent of Bangladesh's GDP and employ over 50 per cent of the working population, said Ahmed Jamal, a deputy governor of the Bangladesh Bank.

The central bank has taken a number of initiatives to facilitate the growth of SMEs through special funding schemes and the expansion of SME-focused institutions, he added.