The 2026 edition of the SME Policy Index comes at a critical juncture for the Western Balkans and Türkiye. Over the past decade, governments in the region have made sustained efforts to strengthen SME policy frameworks and align them with European standards. Yet, the context in which these policies operate has fundamentally changed, shaped by successive global shocks, accelerating green and digital transitions and rising geopolitical uncertainty.
Beyond these immediate pressures, a deeper shift is underway. Uncertainty has become structural, while the systems traditionally used to manage it are under strain. In this context, the challenge is no longer primarily to design better SME policies, but to ensure that the existing frameworks deliver.
SMEs remain central to economic growth in Bosnia and Herzegovina, accounting for approximately 71% of employment and 69% of value added. Against this backdrop, the economy has made progress across several areas key to SME development since the previous assessment cycle:
Improvements in operational environment have further facilitated SMEs’ ability to interact efficiently with public administrations. The strategic basis for digital service delivery has strengthened: FBiH and Brčko District adopted a revised Public Administration Reform Action Plan in September 2025, while the Open Government Partnership Action Plan 2025-2027 and a new EU-aligned state-level Open Data Portal are beginning to embed open data practices. On business registration, both entities have made legal and technical strides toward electronic procedures: the FBiH introduced a single identification number and established an e-registration portal (bizreg.ba), while RS has operated an integrated registration portal since 2021. Taxation has eased in parallel, with 2023 VAT amendments doubling the registration threshold and exempting more low-turnover firms from the associated obligations.
The support ecosystem for innovative SMEs has continued to mature, underpinned by stronger policy and growing institutional capacity. Both entities have embedded well-defined innovation measures within their respective SME strategies, alongside broader efforts to expand the services and financing available to firms. Progress toward the establishment of Innovation Funds is advancing in both entities: Republika Srpska (RS) has secured a legal basis under the July 2025 Law on Innovation Activity, while draft legislation in the Federation of Bosnia and Herzegovina (FBiH) foresees the creation of a comparable fund. Physical infrastructure has expanded modestly, with 19 business incubators operational in 2025. Business-research collaboration has also strengthened, supported by an applied research and development co-operative call in the FBiH and the 2024 establishment of Bosnia and Herzegovina's first science and technology park in RS.
Clear efforts are underway to address SME skills shortages at both the policy and provision levels. Dedicated measures on strengthening the skills intelligence framework feature in both entities’ SME strategies, with a shared emphasis on measuring and assessing skills gaps and, in turn, building the evidence base needed to target support effectively. Employer surveys remain the key tool; data has been harmonised across entities, and a consolidated report is underway to support more consistent, economy-wide analysis. On the provision side, broad-based training delivered largely through the chambers of commerce spans priority areas, helping keep relevant upskilling and reskilling opportunities accessible to firms.
However, despite these achievements, several challenges remain that hamper the ability of SMEs in Bosnia and Herzegovina to drive EU convergence:
Digital transformation remains shallow, held back by structural barriers on both the demand and supply sides. Digitalisation features as a priority in entity-level strategies, but these vary in scope and depth, and few government-led instruments offer dedicated, SME-targeted support. As a result, while 94% of surveyed SMEs use at least one digital tool, adoption stays concentrated in basic technologies, such as websites and social media platforms. One of the most immediate obstacles is firm-level skills: around 17% of SMEs cite insufficient digital capabilities as a barrier, consistent with only 30% of adults possessing at least basic digital skills, against an EU average of 55.6%.
Weak policy and financial support for SME greening risks holding back both firm-level competitiveness and the economy's wider sustainability transition. At the state level, the absence of an Energy and Climate Plan—essential for steering climate- and energy-related measures and guiding budget allocations across the economy—leaves greening efforts without an overarching direction. Policy attention is clearer at the entity level, where each has its own SME strategy, although implementation is either uneven (in Republika Srpska, where only 34% of allocated greening funds were realised in 2022-23) or too poorly reported to track (as in the Federation). In both entities, systematic evaluation and impact assessment are largely absent, making it difficult to gauge what instruments work and to refine them accordingly. Direct support to SMEs faces similar limits: while grants are available through environmental protection funds and development banks, the wider expansion of green finance remains slow, with such products accounting for less than 2% of total financial offerings.
Constrained access to finance limits the capacity of firms to invest and expand. SMEs depend heavily on bank credit, yet lenders typically require collateral valued at 100-200% of the loan. Meeting this requirement is challenging from many small businesses, as registration of assets remains incomplete, with the cadastre only partly digitalised in both entities. Credit guarantee schemes could help ease these demands, but at a cumulative EUR 30 million in 2024 (0.12% of GDP), they remain too modest to have a meaningful effect. Capital markets offer little alternative: market capitalisation is low by European standards, at roughly 22.0% of GDP for the Sarajevo Stock Exchange and 30.6% for the Banja Luka Stock Exchange in 2024, against more than 60% in the EU. The absence of any dedicated SME or small-capitalisation segment on either exchange further disadvantages smaller firms, leaving them without a tailored route to equity finance.
Going forward, the capacity of Bosnia and Herzegovina’s SMEs to support growth and economic convergence will hinge on sustained progress in addressing these constraints.