This study presents the results of a research programme carried out on small and medium sized enterprises (SME) of manufacturing industrial capital machinery in Bangladesh. The study is intended to establish the market potential of industrial capital machinery (ICM), barriers to growth and government policy support issues towards the development of ICM manufacturing SMEs. This research involved the study of manufacturing industries, case studies on the manufacture of capital machinery and designing a postal survey questionnaire which was mailed to industries, government departments and raw material suppliers in Bangladesh. The questionnaire was designed with an aim to collect, information on opportunities, barriers to manufacturing, strategy of procurement and sales of ICM, use of locally available industrial indigenous resources, strength of AMT, size and performance of the SMEs and the impact of government policy on the growth of ICM manufacturing SMEs. Based on the result of the study, a number of models have been developed for ICM in Bangladesh in terms of demand, market growth, factors affecting the manufacturing cost, government policies, contribution of the national engineering sector to the manufacturing industries and barriers to the growth. The key findings of the study show that the locally available industrial resources based strategic plan for industrial development and government policies are the dominant factors for the growth of ICM manufacturing SMEs through which engineering industries could contribute to the economy of the developing countries in general and Bangladesh in particular. The work concludes with recommendations to overcome the barriers and constraints to the growth of ICM manufacturing SMEs.