Finance and Banking
The financial sector in Bangladesh is continuously evolving towards a more modern and efficient system of finance which is supportive of greater investment and inclusive economic growth. The financial system of Bangladesh consists of The Bangladesh Bank, scheduled banks, non-bank financial institutions, micro finance institutions, insurance companies, co-operative banks, credit rating agencies and stock exchange.
An Overview of Financial Sector in Bangladesh
The Foreign Investment Act of 1980 guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees. Foreign firms are able to repatriate funds without much difficulty, provided the appropriate documentation is in order.
Economic Freedom in Bangladesh
Bangladesh’s economic freedom score is 53.0, making its economy the 137th freest in the 2010 Index. Its overall score is 3.6 points higher than last year, mainly reflecting improvements in trade freedom and investment freedom. Bangladesh is ranked 29th out of 41 countries in the Asia–Pacific region. Bangladesh has enjoyed impressive economic growth of around 6 percent per year over the past five years, driven mainly by its limited but growing services and industrial sectors
Comparison on economic freedom
in Asia Pacific region………
Investment Corporation of Bangladesh (ICB)
The Investment Corporation of Bangladesh was established in 1976
with the objective of encouraging and broadening the base of industrial investment. ICB underwrites issues of securities, provides substantial bridge financing programmers’, and maintains investment accounts, floats and manages closed-end & open-end mutual funds & closed-end unit funds to ensure supply of securities as well as generate demand for securities. ICB also operates in the DSE and CSE as dealers
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) was established on 8th June, 1993 under the Securities and Exchange Commission Act, 1993. The Chairman and Members of the Commission are appointed by the government and have overall responsibility to administer securities legislation. The Commission is a statutory body and attached to the Ministry of Finance.
Chittagong Stock Exchange (generally known as CSE)-the first automated and modern trading bourse in the country. The Chittagong Stock Exchange began its journey in 10th October of 1995 from Chittagong city through the cry-out trading system with the promise to create a state-of-the art bourse in the country. Introduction of automated trading system in June 1998 replacing the practice and culture of age-old manual cry-out system of trading in the stock market of Bangladesh was a revolutionary step made by the Chittagong Stock Exchange in the history of the country’s capital market. At the end of March 2010, issued capital increased by 29% compare to June 2009, reached to the amount of $2,539m. In addition, total market capital had a growth of 93% at March 2010, compare to June 2009, reached to the amount of $26,894m. Moreover, share index reached to 12,194 at the end of March 2010, with an increment of 54% compared to the index of June, 2009.
Dhaka Stock Exchange (generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel- the heart of the Dhaka city and its central business district. It was incorporated in 1954. Dhaka Stock Exchange is the first stock exchange of the country. At the end of March 2010, the amount of all issued capitalize securities and debenture was $8,179m which is 23% greater than the value of June 2009 ($6,611m). During 30th June 2009, the price of all securities of Dhaka Stock Exchange was $18,951m, which has increased by 73% at the end of March 2010 where the value was $32,850m. The share indices of DSE increased by 85%, where the value was $434m on June 2009 and reached to $805m at the end of March 2010.
Dhaka Stock Exchange is a public limited company. It is formed and managed under the Companies Act 1994, Security and Exchange Commission Act 1993, Security and Exchange Commission Regulation 1994, and Security Exchange (inside trading) regulation 1994. According to stock market rule, only members can participate in the floor and can buy shares for himself or his clients. At present it has 238 members.
- Foreign investment or joint venture investment in the Export Processing Zones (EPZs) or outside EPZs (with the exception of the five industries mentioned earlier).
- Portfolio investment by purchasing shares in publicly listed companies through the stock exchange.
- Investment in infrastructure projects such as power generation (private power generation policy announced); oil, gas and mineral exploration, telecommunication, ports, roads and highways.
- Outright purchase or purchase of shares of state-owned enterprises, which are under process of privatization.
- Investment in private EPZ (Private EPZ Act recently passed).
- Foreign Private Investment (Promotion and Protection) Act, 1980 ensures legal protection to foreign investment.
- Bangladesh is a member of Multi-Lateral Investment Guarantee Agency (MIGA), Overseas Private Investment Corporation (OPIC) of USA and International Centre for Settlement of Industrial Disputes (ICSID)
- Member of World Intellectual Property Organization (WIPO) and World Association of Investment Promotion Agencies (WAIPA).
Non-Bank Financial Institutions (NBFI)
Non-bank financial institutions are an important part of financial system in Bangladesh, operations are regulated under the Financial Institutions Act, 1993. The non-bank financial institutions consist of investment, finance, leasing companies etc. There were 29 financial institutions operating in Bangladesh as of 31 December 2006. Of these one is government owned, 15 are local (private) and the other 13 are established under joint venture with foreign participation. Bangladesh Bank has introduced a policy for loan and lease classification and provisioning for non-bank financial institutions from December 2000 on a half-yearly basis. Among the 29 financial institutions, 12 have been listed in the stock exchanges up to 31 December 2006 to strengthen financial capability and the rest are under process to be listed in due course.
The insurance sector is regulated by the Insurance Act, 1938 with regulatory oversight provided by the controller of insurance on authority under the Ministry of Commerce. A separate insurance regulatory authority is being established. A total of 62 insurance companies have been operating in Bangladesh, of which 18 provide life insurance and 44 are in the general insurance field. Among the life insurance companies, except the state-owned Jiban Bima Corporation foreign owned American Life Insurance Company, and the rest are private. Among the general insurance companies, state-owned Shadharan Bima Corporation is the most active in the insurance sector. A total of 31 insurance companies are listed in the capital market, of which eight offer life insurances.
Micro Finance Institutions (MFI)
Micro fiance institutions in Bangladesh were left unregulated for a long time since their inception. The government, with the close cooperation of Bangladesh Bank, undertook efforts to establish a regulatory framework which culminated in the enactment of the Micro credit Regulatory Authority Act, 2006. An executive board consisting of eight members is responsible for executing the general and administrative tasks of the management. The board consists of the Governor of Bangladesh Bank as ex-officio chairman, six government officials nominated by the government and one executive vice-president who serves as the member secretary of the board. The main responsibilities of the authority include issuance and cancellation of the license for micro credit, overseeing, supervising and facilitating the entire activities of micro finance institutions.
Recent developments in the financial sector
The stock market grew by 82% in 2009 compared to the year 2008, representing a total capitalisation of $275m. In order to encourage corporate houses with good fundamentals to come forward with new Initial Public Offerings (IPOs), the regulatory body introduced the ‘book building mechanism’. In the year 2009, the Securities and Exchange Commission also asked Dhaka Stock Exchange to open Order Confirmation Transaction (OCT) market to facilitate trading of de-listed companies from the floor. Moreover, preparations are afoot to set up Bangladesh Institute of Capital Market to work for its expansion. The scheduled banks in Bangladesh will be able to get credit reports of their clients online from the Credit Information Bureau from mid 2010. BRAC bank plans to open exchange houses in Malaysia, Singapore and Italy, in order to attract more remittances through its own channel.
The Asian Development Bank (ADB) has signed deals with 12 local private commercial banks for expansion of its trade finance facilitation programme in Bangladesh. Under the agreement, the banks will be able to offer more trade financing support to their clients particularly exporters and importers through international banks. The banks are Bank Asia Ltd., BASIC Bank Ltd., Dhaka Bank Ltd., Dutch Bangla Bank Ltd., Eastern Bank Ltd., Export Import Bank of Bangladesh Ltd., National Bank Ltd., Premier Bank Ltd., Prime Bank Ltd., Southeast Bank Ltd., Standard Bank Ltd., and United Commercial Bank Ltd.
Quick facts relating to the financial sector in Bangladesh
- Bangladesh has applied for membership of Egmont Group to operate its newly-established financial intelligence unit in line with international standard.
- Bangladesh Post Office is going to introduce postal cash card (e-money order) system through which people, across the country even in the remotest areas, will be able to send and receive money through mobile phone.
- The central bank has raised the ceiling of foreign currency for Bangladesh nationals allowing them to spend more while traveling abroad.
- The Bangladesh Bank launched the automation project of its Credit Information Bureau aiming at providing credit information in a faster and efficient way.
- Bangladesh Bank has once again lowered different banking charges, fees and commissions to provide assistance to businessmen hurt by falling exports.
Economic data relating to the financial sector of Bangladesh
* As of February, 2011
* As of March, 2011