Efficiency of SMEs Financed under Conventional and Islamic Banks : Bangladesh Perspective 1 Mohammad Masuduzzaman 2 , Mahfuza Akther 3 , Shamim Ara 4 Abstract SMEs in Bangladesh have been giving priority in lending in their crucial contribution to the country’s GDP. However, Bangladesh Bank, the central bank, conducted a field survey in 2012 to find out the impact of huge expansion of loans in 2010. Results of that survey show small sized and/or manufacturing enterprises contribute the most in produc- tivity and employment generation. However, while considering efficien- cies of SMEs with a distinction between financing from conventional or Islamic banks through Data Envelopment Analysis (DEA) with a sub sample of 283 enterprises from that survey data for the period 2009- 2011 and one output variable (sales) and four input variables (capital, loans, expenditure and manpower), we find that almost the same techni- cal efficiencies of SMEs financing under two types of banks- conventional (0.241) and Islamic (0.243). However, some slight differ- ences of efficiencies of SMEs financed under two types of banks are observed while considering the size, sector and region where they are producing. These slight differences come from the concessional lending, access to finance and monitoring and supervision. Key words : Data Envelopment Analysis (DEA), SMEs, Constant Return to Scale (CRS), Conventional Banks, and Islamic Banks, Bangladesh 1. INTRODUCTION High growth in industrial loans was one of the concerns in monitoring credit situation of Bangladesh in 2010. It was then widespread that SME loans disbursed to industries had been diverting to unproductive sectors because investment in stock market and housing sector was also growing at that time. On that background, in 2012 Bangladesh Bank (BB) 1. The views expressed in this paper are those of the authors' own and do not necessarily reflect those of Bangladesh Bank. 2. Bangladesh Bank 3. Bangladesh Bank 4. Bangladesh Bank