Formalizing businesses in Bangladesh: How women entrepreneurs see the trade licensing process

• by Ayushi Misra and Kunal Sharma
• Nov 13, 2024
• 6 min

Amina wants to transform her home-based craft business into a thriving enterprise in Dhaka. She is talented and pours her heart into every piece of her intricate, handcrafted jewelry. However, she has failed to expand her business as she cannot access credit because she lacks a trade license. The lack of trade licenses significantly hinders […]

Amina wants to transform her home-based craft business into a thriving enterprise in Dhaka. She is talented and pours her heart into every piece of her intricate, handcrafted jewelry. However, she has failed to expand her business as she cannot access credit because she lacks a trade license.

The lack of trade licenses significantly hinders the formalization of Bangladesh’s cottage, micro, small, and medium enterprises (CMSMEs). Women in Bangladesh have a majority ownership of only 1.7% of formal firms in Bangladesh, a stark contrast to the global and regional averages of 14.5% and 9.6%, respectively. More than 90% of Bangladesh’s 7.8 million businesses are informal, primarily due to the absence of trade licenses. Informal operation restricts access to formal finance and business development services, which limits growth potential, especially for women entrepreneurs.

Although the regulator allows small-scale traders to open bank accounts without trade licenses, businesses cannot obtain credit from banks without a trade license. Their choices become limited to their informal network or the higher-priced MFI loans. The acquisition of trade licenses typically requires significant time, cost, and effort and involves several steps, which include the submission of the necessary documentation to the local city corporation or municipal authority. Moreover, the license must be renewed annually. Only since September 2023 has Dhaka South City Corporation started to issue five-year business licenses. The government expects to roll out a similar program countrywide soon.

We conducted a comprehensive study of CMSMEs through the Women Business Diaries project, supported by the Bill & Melinda Gates Foundation. This research identified several demand- and supply-side barriers that hinder women’s access to formal credit. Among these, the lack of a trade license was a significant obstacle for women entrepreneurs. Only 48% of entrepreneurs from our sample of 413 female and 76 male entrepreneurs had ever possessed a trade license. However, this proportion varies significantly between male and female entrepreneurs, as male entrepreneurs are more likely to have a trade license (p=0.000).

However, gender is not the only factor that affects a woman entrepreneur’s ability to obtain a trade license. Our research examined factors, such as business location, type of premises (home-based or separate), business scale, owner’s education level and age category, type of business, and engagement in activities, such as securing bank loans or conducting sales beyond the local market. We employed a statistical comparison of proportions with Bonferroni correction for this analysis.

Our analysis revealed that location, type of premises, and type of business were not statistically significant factors that affect women entrepreneurs’ possession of a trade license.

However, several other factors showed statistically significant differences in their association with the possession of a trade license, as listed below.

1. Business owners’ education level: Graduate or postgraduate women entrepreneurs are more likely to have a trade license than those who lack formal education (p=0.004) or have attained primary-level (p=0.004) or secondary-level education (p=0.044). Moreover, female business owners who lack formal education are significantly less aware of the trade application process than those who have received some education.
2. Business owner’s age: Younger women entrepreneurs are less likely to have a trade license than those in the middle age (p=0.020) or older age categories (p=0.000). This could be because they realize the benefits of a trade license as they gain business experience. Moreover, a trade license becomes essential when owners want to scale their business and avail of credit and other formal support.
3. Engagement in sales outside the local market: Women entrepreneurs who engage in sales outside their local market are more likely to have a trade license than those who only cater to their local market (p=0.016).
4. The scale of business: Women entrepreneurs with average monthly revenue of more than BDT 100,000 (USD 837) are more likely to have a trade license than those with average monthly revenues that range from BDT 25,000 (USD 209) or below (p=0.000), 25,001 to 50,000 (USD 209 to USD 418) (p=0.000), and BDT 50,001 to 100,000 (USD 418 to USD 837) (p=0.001). This can, in part, be because women entrepreneurs with smaller businesses that generate monthly average revenue up to BDT 25,000 (USD 209) were more likely to report being unaware of the requirement for a trade license.
5. Location of business: Similarly, female business owners in rural areas are more likely to be unaware of the trade license requirements than those in urban areas (p=0.009).

In our sample, 82% of the 43% of women entrepreneurs who have obtained a trade license currently have active or renewed licenses, and 86% have licenses registered in their names. Among the 51% who never applied, 59% expressed uncertainty about the need for a trade license, while 27% cited the burdensome paperwork as a deterrent. The following figure outlines other reasons for non-application:

Additionally, we found several ecosystem-level complexities. The annual renewal process often requires multiple visits to licensing offices, which can be difficult for women who lack their family’s support or must travel to urban areas to apply for the license. Further, the acquisition of a trade license often involves registration fees, renewal fees, and other administrative costs. It may often also involve bribes to intermediaries. These costs present a significant barrier. Such challenges highlight the need for more accessible and streamlined licensing procedures that accommodate the unique circumstances of women entrepreneurs in Bangladesh. The section below outlines four recommendations for stakeholders to ease the process of issuing trade licenses for women entrepreneurs.

1. Simplified processes to issue trade licenses: Countries, such as Singapore, New Zealand, the UK, and Australia, issue digital trade licenses in one to three steps. On the other hand, the acquisition of a trade license in Bangladesh requires seven to eight steps. Bangladesh may also consider the use of its national identity cards to issue trade licenses as several other countries currently do. The reduction of the steps to get a trade license will enable more businesses to move toward formalization.
2. Extended channels: The use of existing channels, such as NGOs, mobile financial service (MFS) agents, and banking agents, to support women in the trade license application process could improve access for women entrepreneurs. Additionally, the establishment  of centers in rural areas could help women in underserved regions obtain and renew their licenses without traveling long distances to urban centers. This combined strategy will guide them throughout the application process and significantly enhance convenience and accessibility for women in business.
3. Subsidized application and renewal fees: Fees for trade licenses in Bangladesh range from BDT 100 to BDT 40,000 (USD 0.84 to USD 335). Relevant incentives, for example, discounted rates for timely renewals, could reduce financial barriers for women entrepreneurs and encourage more businesses to formalize their operations. Additionally, nudges, such as free renewals before the license expiry, will encourage more small businesses to opt for a trade license. Kenya has adopted a similar approach to push the formalization of its small businesses.
4. Awareness campaigns: Educational and outreach efforts can effectively inform women entrepreneurs about the benefits of obtaining a trade license, such as access to financial services, increased credibility, and legal protection. These efforts can feature success stories to demonstrate the advantages of formalized businesses, which would inspire others to follow suit. Additionally, the use of social media to guide women through the application process can create a supportive community for aspiring entrepreneurs.This approach promotes formalization and keeps women updated on developments, such as the government’s initiative to extend trade license validity.

This blog underscores that the trade license policy and approach must be reformed to promote women’s entrepreneurship in Bangladesh. The government can address the existing barriers and implement measures to facilitate greater participation of women in the formal economy. This would empower women and contribute to the broader economic growth and the successful graduation of Bangladesh from the Least Developed Country (LDC) status.