Over 98 per cent of the Bhutanese private sector consists of small and medium enterprises (SMEs) and it is invariably believed that they would play a central role in fostering entrepreneurship development, providing employment and reducing poverty. However, there are several difficult challenges facing Bhutanese SMEs. This article analyses the constraints on SMEs in Bhutan by conducting interviews and a nationwide questionnaire survey of 168 micro and small firms. The findings indicate that the biggest constraints are related to restrictive business regulations, finance and infrastructure. Additionally, significant differences in the severity level of constraints between urban and rural districts are observed with regards to size, sector and ownership. Even within the SMEs, the segregation approach generated an altogether different portrayal of their distinctive needs. Our findings clearly suggest lack of government support to the SMEs. The article concludes that the Royal Government of Bhutan needs to promote the growth of SMEs through demand-driven and specifically targeted policies for urban and rural districts, based on their idiosyncratic needs.
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