Term Paper On

Role of the Capital Market in

economic development of Bangladesh
Term Paper On
Role of the Capital Market in economic development of
Bangladesh
The role of Financial Market in the Economic Development of Bangladesh
1
(This Internship Report Is Submitted For the artial Fulfillment of the Degree of
Bachelor of Business of !dministration "ith a Ma#or in Finance$
Submitted To
Tanbina Tabassum
Lecturer
Faculty of Business Studies
Premier University
Prepared By
Name: Anik Dey
Student ID# !1!11"#$
Semester: !
t%
Batc%:1!t%
Pro&ram: BBA
'a(or in finance
Su)mission Date:"#
t%
Decem)er*"1+

P,-'I-, UNI.-,SI/0*
12I//A34N3
The role of Financial Market in the Economic Development of Bangladesh
"
Letter of /ransmittal
Date: "#
t%
Decem)er* "1+
/o
/%e Su5ervisor
/an)ina /a)assum
Lecturer
Faculty of Business Studies
Premier University
1%itta&on&* Ban&lades%
Su)(ect: 6 Su)mission of /erm Pa5er on 7,ole of t%e 1a5ital 'arket in economic
develo5ment of Ban&lades%89
Dear 'adam
I %ave t%e &ratification to inform you t%at I %ave accom5lis%ed my term 5a5er on% 7,ole
of t%e 1a5ital 'arket in economic develo5ment of Ban&lades%89 I :ant to su)mit t%e
term 5a5er as 5artial fulfillment of t%e BBA de&ree re;uirement8 I am very muc% &rateful
to my su5ervisor for &ivin& me t%e sco5e8
I 5ray and %o5e t%at you :ould )e kind enou&% to acce5t t%is re5ort and o)li&e t%ere)y8
0ours sincerely*
< =
Name: Anik Dey
Student ID# !1!11"#$
Semester: !
t%
Batc%: 1!t%
Pro&ram: BBA
'a(or in finance
The role of Financial Market in the Economic Development of Bangladesh
+
ACKNOWLEDGEMENT
First of all I 5ay a s5ecial t%anks to my Almi&%ty* :%o made me a)le to com5lete t%is
re5ort8 It is very difficult to e>5ress my feelin&s t%at %el5ed me in com5letion of t%is
re5ort8 But I t%ink t%ere is no ot%er :ord e>ce5t t%anks* :%ic% can com5liment my
sentiments8

I 5ay &ratitude to t%e Su5ervisor of my re5ort* 'rs8 /an)ina /a)asum* lecture of faculty
of Business Studies* Premier University 1%itta&on&8
I am also &rateful to t%e officials of stock market :%ose su55ort %el5s me to com5lete t%e
re5ort8 Finally* I :ould like to t%ank my entire course teac%er of Finance De5artment for
t%eir 5ro5er &uidance and care to com5lete t%e re5ort8
The role of Financial Market in the Economic Development of Bangladesh
?
Executive Summary
1a5ital market is a market for securities <de)t or e;uity=* :%ere )usiness enter5rises
<com5anies= and &overnments can raise lon&6term funds8 It is defined as a market in
:%ic% money is 5rovided for 5eriods lon&er t%an a year* as t%e raisin& of s%ort6term funds
takes 5lace on ot%er markets <e8&8* t%e money market=8 /%e ca5ital market includes t%e
stock market <e;uity securities= and t%e )ond market <de)t=8 Financial re&ulators* suc% as
t%e Ban&lades% Financial Services Aut%ority or t%e Ban&lades% Securities and ->c%an&e
1ommission <S-1=* oversee t%e ca5ital markets in t%eir desi&nated (urisdictions to ensure
t%at investors are 5rotected a&ainst fraud* amon& ot%er duties8
/%e Ban&lades% ca5ital market till today is not )road or dee5 enou&%8 Issuers do not use
t%e full 5otential of t%e market for raisin& e;uity ca5ital )y issuin& s%ares or for
)orro:in& funds )y issuin& cor5orate )onds8 'oreover* savers feel uncomforta)le in
investin& in Ban&lades% ca5ital market instruments8 ,at%er* t%ey feel more comforta)le in
maintainin& t%eir savin&s :it% )anks as Fi>ed De5osit ,ecei5t <FD,s= and Savin&s
1ertificates8 It seems t%at re&ulators fail to ade;uately address t%e 5ro)lems faced )y )ot%
t%e issuers and t%e investors8 In t%is 5ers5ective* t%e follo:in& are needed in order to
ena)le t%e ca5ital market to 5lay its due role in creatin& a friendly investment climate in
Ban&lades%: kno:in& t%e )ank6)ased financin& systems* e>aminin& t%e structure of
or&ani@ed ca5ital market* sortin& out and addressin& t%e 5ro)lems of issuers and
investors8 /%is study aims to address t%ese issues :it% a vie: to creatin& a %ealt%y
investment climate in Ban&lades%8
The role of Financial Market in the Economic Development of Bangladesh
A
Chapter: 1
Intr!uctin
The role of Financial Market in the Economic Development of Bangladesh
#
1.1 Introduction
The !eve"pment # ecnmy # any cuntry !epen!$ m$t"y n the e$ta%"i$hment #
$un!& e##ective an! e##icient #inancia" $y$tem in that cuntry' A (e"")!eve"pe! #inancia"
$y$tem p"ay$ an imprtant r"e in acce"eratin* ecnmic *r(th %y m%i"i+in* $avin*$
an! #aci"itatin* inve$tment in an e##icient manner ,Mu& -../0' 1inancia" mar2et i$
cmp$e! # !i##erent mar2et$) Mney Mar2et& Capita" Mar2et& Derivative Mar2et etc' A""
the mar2et$ p"ay an interactive r"e #r the !eve"pment # ecnmy %y #rmatin #
capita" thru*h m%i"i+in* #un!$& in!u$tria"i+atin # ecnmy thru*h $upp"yin* a!e3uate
#un!$& prvi!in* $ervice$& "in2in* inve$tr$ t the in!u$tria" entrepreneur$ etc' 4e$i!e$&
thi$ re3uire$ $un! re*u"atry #rame(r2& $un! an! inve$tment $en$itive a!mini$trative
in#ra$tructure& #i$ca" $upprt$ #r ma2in* their r"e e##ective #r ecnmic !eve"pment'
The #inancia" $ectr # 4an*"a!e$h i$ characteri+e! %y the !minatin* pre$ence #
cmmercia" %an2$& e$pecia""y the Natina"i+e! Cmmercia" 4an2$ ,NC4$0' A"thu*h& a
para!i*m $hi#t in the !e*ree # !minance ha$ %een %$erve! # "ate (ith the emer*ence
# private cmmercia" %an2$)tra!itina" an! $hariah %a$e! %an2in*' 4an2in* $ectr
accunte! #r a%ut /5 percent # the tta" #inancia" $y$tem' M$t # the avai"a%"e #un!$
* t the NC4$ in the #rm # !ep$it$ an! channe"e! int "en!in*' 6(ever& the NC4$
ha! $u%$tantia" nnper#rmin* "an ,N7L0 prt#"i$' 4th in$urance an! mutua" #un!$
in!u$trie$ are very $ma""'
18" o)(ectives and sco5e of t%e study:
/o 5rovide a useful )asis for )uildin& a sustaina)le ca5ital market :it% a vie: to
creatin& a %ealt%y investment climate in Ban&lades%8
/o analy@e limitations and e>amine o55ortunities of t%e ca5ital market of
Ban&lades% coverin& )ot% e;uity and de)t markets in creatin& a con&enial
investment climate8
/o sort out t%e 5ro)lems associated :it% our ca5ital market8
/o su&&est some 5ractica)le solutions to t%ese 5ro)lems8
The role of Financial Market in the Economic Development of Bangladesh
$

1.3Methodology of the stdy
/o 5re5are t%e re5ort of interns%i5* I %ave collected all kinds of related data from t%e
5rimary and secondary sources8
! Primary data:
/%ere are several :ays to collect 5rimary data8 Amon& ot%ers im5ortant one is
intervie:8 For collectin& 5rimary data I did follo: intervie: met%od8
/%ere are several ty5es of intervie: met%od8 I used only 5ersonal intervie: met%od8
1 /%e 5rimary data :ere collected t%rou&% face6to6face intervie: :it% t%e DS-
officials8
" /%e 5rimary data :ee collected t%rou&% 5artici5ation and discussion durin& t%e
tradin& session8
+ I %ad also collected information t%rou&% intervie: :it% t%e DS- mem)ers8
? I %ad collected information t%rou&% intervie: )y t%e ;uestionnaire :it% t%e
investors )y visitin& various )rokera&e firms8
!"econdary data: t%e study also used secondary data8 For t%is 5ur5ose :e collect
information from various sources suc% as various 5u)lications of DS-8
1 .arious 5u)lications of D%aka stock e>c%an&e and 1%itta&on& Stock e>c%an&e88
" /rade (ournal8
+ ,esearc% re5orts connected :it% t%e stock e>c%an&e8
? Different :e) site8
The role of Financial Market in the Economic Development of Bangladesh
!
1.5Limitations of the study
Maximum e##rt (a$ *iven t ma2e the $tu!y a $ucce$$#u" ne& %ut it $u##er$ #rm $me
"imitatin th$e (ere apparent"y unavi!a%"y' The ma8r ne$ (ere:
Shortage of time period: The ma8r "imitatin #ace! t carry ut thi$ pr8ect (a$
main"y time cn$traint$' It hin!ere! the cur$e # va$t area an! time #r preparin* a reprt
(ithin the mentine! peri! i$ rea""y !i##icu"t'
Secrecy of Management: The authrity # the r*ani+atin$ !i! nt !i$c"$e much
in#rmatin #r 2eepin* the r*ani+atin cn#i!entia"' S& $me !ata cu"! nt %een
c""ecte! #r cn#i!entia"ity r $ecrecy # mana*ement'
Busy working environment: The ##icia"$ ha! $me time$ %een una%"e t prvi!e
in#rmatin %ecau$e # their hu*e rutine (r2' S& I cu"! nt *ather va$t 2n("e!*e'
The role of Financial Market in the Economic Development of Bangladesh
B
Chapter: #
$iteratre revie%
The role of Financial Market in the Economic Development of Bangladesh
1
&inancial market
Financial market is created to satisfy 5articular 5references of market 5artici5ants8
Financial markets transfer funds from t%ose :%o %ave e>cess funs to t%ose :%o need
funds8 /%at is t%ey facilitate t%e transfer of funds from srpls nit to deficit nit8
Because fundin& needs vary amon& deficit units* various financial markets %ave )een
esta)lis%ed8 /%e 5rimary market allo:s for t%e issuance of ne: securities* :%ile t%e
secondary market allo:s for t%e sale of s%ort term securities* :%ile ca5ital markets
facilitate t%e sale of lon& term securities8
/%e main 5artici5ants of financial market can )e classified as %ouse%olds* )usinesses and
&overnment a&encies8 /%ose 5artici5ants :%o 5rovide funds to t%e financial markets are
called srpls nit8 2ouse%olds are t%e main ty5e of sur5lus unit8 Partici5ants :%o use
financial markets to o)tain t%e funds are called t%e deficit nit8
Financial market can be classified into two categories they are given below-
Financial market

'oney market
1a5ital market
Ideas a)out t%ese t:o markets are as follo:s
Money market:
The role of Financial Market in the Economic Development of Bangladesh
11
'oney market an inte&ral 5art of t%e financial market of a country8 It 5rovides a medium
for t%e redistri)ution of s%ort term loan a)le funds amon& financial institutions* :%ic%
5erform t%is function )y sellin& de5osits of various ty5es* certificate of de5osits and
discountin& of )ills* treasury )ills etc8 /%e 5artici5ants in t%e money market are: t%e
central )ank* commercial )anks* t%e &overnment* finance com5anies* contractual savin&
institutions like t%e 5ension funds* insurance com5anies* savin&s and loan associations
etc8 /%e instruments t%at are &enerally traded in t%e money market constitute: treasury
)ills* s%ort6term central )ank and &overnment )onds* ne&otia)le certificates of de5osits*
)ankers acce5tances and commercial 5a5ers like t%e )ills of e>c%an&e and 5romissory
notes* mutual funds etc8
apital market:
1a5ital 'arket t%e market* or realistically* t%e &rou5 of interrelated markets* in :%ic%
ca5ital in financial form is lent or )orro:ed for medium and lon& term and* in cases suc%
as e;uities* for uns5ecified 5eriods8
/%e ca5ital markets* in distinction from ot%er 5arts of t%e financial market t%at is* t%e
money markets* are t%ose for lon&6term &overnment securities* cor5orate )onds* stocks*
munici5al )onds issued )y state and local &overnment units* and mort&a&es8 Industry and
commerce as :ell as &overnment and local aut%orities raise ca5ital from t%e ca5ital
market :%ic% 5erforms several im5ortant functions in t%e 5rocess of economic
develo5ment8 'ost im5ortant amon& t%em are t%e 5romotion of savin&s and investment
and efficient allocation of funds amon& com5etin& uses8 Partici5ants in t%e ca5ital
markets are many8 /%ey include t%e commercial )anks* savin& and loan associations*
credit unions* mutual savin& )anks* finance %ouses* finance com5anies* merc%ant
)ankers* discount %ouses* venture ca5ital com5anies* leasin& com5anies* investment
)anks* investment com5anies* investment clu)s* 5ension funds* stock e>c%an&es* security
com5anies* under:riters* 5ortfolio6mana&ers* and insurance com5anies8
Role financial market in economic development:
Role of depository instittions:
A ma(or ty5e of financial intermediary is t%e de5ository institutions* :%ic% acce5ts
de5osits from sur5lus units and 5rovides credit to deficit units t%rou&% loans and
5urc%ases of securities8 De5ository institutions are 5o5ular financial institutions for t%e
follo:in& reasons:

The role of Financial Market in the Economic Development of Bangladesh
1"
/%ey offer de5osit accounts t%at can accommodate t%e amount and li;uidity
c%aracteristics desired )y most sur5lus units8
/%ey re5acka&e funds received from de5osits to 5rovide loans of t%e si@e and
maturity desired )y t%e deficit units8
/%ey acce5t t%e risk on loan 5rovided8
/%ey %ave more e>5ertise t%an individual sur5lus units in evaluatin& t%e
credit:ort%iness of deficit units8
/%ey diversify t%eir loans amon& numerous deficit units and t%erefore can a)sor)
defaulted loans )etter t%an individual sur5lus units could8
/%e de5ository institutions and t%ere roles are &iven )elo:
Bank:
/%e financial system of Ban&lades% consists of Ban&lades% Bank <BB=* t%e central )ank*
? nationali@ed commercial )anks <N1B=* A &overnment o:ned s5eciali@ed )anks* +
domestic 5rivate )anks* 1 forei&n )anks and "! non6)ank financial institutions8 /%e
financial system also includes insurance com5anies* stock e>c%an&es and co6o5erative
)anks8 As t%e central )ank* Ban&lades% Bank %as le&al aut%ority to su5ervise and re&ulate
all t%e )anks8 Alt%ou&% t%e financial system includes ot%er 5layers like insurance
com5anies* stock e>c%an&es and co6o5erative )anks* )ut Ban&lades% Bank doesnCt
re&ulate t%ese institutions8 -ac% of t%e institution is re&ulated )y different aut%orities8 /%e
insurance com5anies are re&ulated )y 'inistry of 1ommerceD Stock e>c%an&es are
re&ulated )y Securities and ->c%an&e 1ommission <S-1= and 1oo5erative )anks are
re&ulated )y 'inistry of Local 3overnment* ,ural Develo5ment and 1o6o5eratives8
Financial markets allo: t%e transformation of claims on multi6year illi;uid investment
5ro(ects into li;uid trada)le securities8 Financial institutions ac;uire and 5rocess
The role of Financial Market in the Economic Development of Bangladesh
1+
Ban&lades% Bank
Banks
Nationali@ed commercial
)anks
E Private )anks
E Forei&n )anks
E S5eciali@ed )anks
information a)out investment 5ro(ects on )e%alf of t%eir de5ositors* :%ile 5rices in
financial markets reflect different information and o5inions on ne: ideas and 5ro(ects8
F%ile market 5artici5ants %ave develo5ed tec%ni;ues to overcome market frictions* t%e
&overnment %as an active role to 5lay in 5rovidin& t%e 7infrastructure9 for financial
service 5rovision* i8e8 t%e rules :it%in :%ic% firms and %ouse%old contract :it% eac%
ot%er and 5erform financial transactions8
1%a5ter: +
The role of Financial Market in the Economic Development of Bangladesh
1?
/%e )ankin& system at inde5endence consisted of t:o )ranc% offices of t%e former State
Bank of Pakistan and seventeen lar&e commercial )anks* t:o of :%ic% :ere controlled
)y Ban&lades%i interests and t%ree )y forei&ners ot%er t%an Fest Pakistanis8 /%ere :ere
fourteen smaller commercial )anks8 .irtually all )ankin& services :ere concentrated in
ur)an areas8 /%e ne:ly inde5endent &overnment immediately desi&nated t%e D%aka
)ranc% of t%e State Bank of Pakistan as t%e central )ank and renamed it t%e Ban&lades%
Bank8 /%e )ank :as res5onsi)le for re&ulatin& currency* controllin& credit and monetary
5olicy* and administerin& e>c%an&e control and t%e official forei&n e>c%an&e reserves8
/%e Ban&lades% &overnment initially nationali@ed t%e entire domestic )ankin& system
and 5roceeded to reor&ani@e and rename t%e various )anks8 Forei&n6o:ned )anks :ere
5ermitted to continue doin& )usiness in Ban&lades%8 /%e insurance )usiness :as also
nationali@ed and )ecame a source of 5otential investment funds8 1oo5erative credit
systems and 5ostal savin&s offices %andled service to small individual and rural accounts8
/%e ne: )ankin& system succeeded in esta)lis%in& reasona)ly efficient 5rocedures for
mana&in& credit and forei&n e>c%an&e8 /%e 5rimary function of t%e credit system
t%rou&%out t%e 1B$s :as to finance trade and t%e 5u)lic sector* :%ic% to&et%er a)sor)ed
$A 5ercent of total advances8
/%e &overnmentGs encoura&ement durin& t%e late 1B$s and early 1B!s of a&ricultural
develo5ment and 5rivate industry )rou&%t c%an&es in lendin& strate&ies8 'ana&ed )y t%e
Ban&lades% Hris%i Bank* a s5eciali@ed a&ricultural )ankin& institution* lendin& to farmers
and fis%ermen dramatically e>5anded8 /%e num)er of rural )ank )ranc%es dou)led
)et:een 1B$$ and 1B!A* to more t%an +*++8 Denationali@ation and 5rivate industrial
&ro:t% led t%e Ban&lades% Bank and t%e Forld Bank to focus t%eir lendin& on t%e
emer&in& 5rivate manufacturin& sector8 Sc%eduled )ank advances to 5rivate a&riculture*
as a 5ercenta&e of sectoral 3DP* rose from " 5ercent in F0 1B$B to 11 5ercent in F0
1B!$* :%ile advances to 5rivate manufacturin& rose from 1+ 5ercent to A+ 5ercent8
$ist of 'anks in Bangladesh:
/%e commercial )ankin& system dominates Ban&lades%Gs financial sector8 Ban&lades%
Bank is t%e 1entral Bank of Ban&lades% and t%e c%ief re&ulatory aut%ority in t%e sector8
/%e )ankin& system consists of four nationali@ed commercial Banks* around forty 5rivate
commercial )anks* nine forei&n multinational )anks and some s5eciali@ed )anks8 /%e
No)el65ri@e :innin& 3rameen Bank is a s5eciali@ed micro6finance institution* :%ic%
revolutioni@ed t%e conce5t of micro6credit and contri)uted &reatly to:ards 5overty
reduction and t%e em5o:erment of :omen in Ban&lades%8
The role of Financial Market in the Economic Development of Bangladesh
1A
1entral Bank
Nationali@ed 1ommercial Banks
Private 1ommercial Banks
Forei&n Banks
S5eciali@ed Banks
,eferences
->ternal links

entral Bank: Bangladesh Bank
Persuant to Ban&lades% Bank 4rder* 1B$" t%e 3overnment of Ban&lades% reor&ani@ed t%e
D%aka )ranc% of t%e State Bank of Pakistan as t%e central )ank of t%e country* and named
it Ban&lades% Bank :it% retros5ective effect from 1# Decem)er* 1B$18
!ationali"ed ommercial Banks:
/%e )ankin& system of Ban&lades% is dominated )y t%e ? Nationali@ed 1ommercial
Banks * :%ic% to&et%er controlled more t%an A?I of de5osits and o5erated ++!! )ranc%es
<A?I of t%e total= as of Decem)er +1* "?J1K8 /%e nationali@ed commercial )anks are:
Sonali Bank
Lanata Bank
A&rani Bank
,u5ali Bank
Private ommercial Banks:
Private )anks are t%e %i&%est &ro:t% sector due to t%e dismal 5erformances of
&overnment )anks <a)ove=8 /%ey tend to offer )etter service and 5roducts8
AB Bank Limited
B,A1 Bank Limited
-astern Bank Limited
Dutc% Ban&la Bank Limited
D%aka Bank Limited
Islami Bank Ban&lades% Ltd
Pu)ali Bank Limited
Uttara Bank Limited
IFI1 Bank Limited
National Bank Limited
The role of Financial Market in the Economic Development of Bangladesh
1#
/%e 1ity Bank Limited
United 1ommercial Bank Limited
N11 Bank Limited
Prime Bank Limited
Sout%-ast Bank Limited
Al6Arafa% Islami Bank Limited
Social Investment Bank Limited
Standard Bank Limited
4ne Bank Limited
->im Bank Limited
'ercantile Bank Limited
Ban&lades% 1ommerce Bank Limited
'utual /rust Bank Limited
First Security Bank Limited
/%e Premier Bank Limited
Bank Asia Limited
/rust Bank Limited
S%a%(alal Bank Limited
Lamuna Bank Limited
Forei&n Banks
1iti&rou5
2SB1
Standard 1%artered Bank
1ommercial Bank of 1eylon
State Bank of India
2a)i) Bank
National Bank of Pakistan
Foori Bank
Bank Alfala%
I1B Islami Bank
Speciali"ed Banks:
4ut of t%e s5eciali@ed )anks* t:o <Ban&lades% Hris%i Bank and ,a(s%a%i Hris%i Unnayan
Bank= :ere created to meet t%e credit needs of t%e a&ricultural sector :%ile t%e ot%er t:o
< Ban&lades% S%il5a Bank <BSB= M Ban&lades% S%il5a ,in San&t%a <BS,S= are for
e>tendin& term loans to t%e industrial sectorJ1K8 /%e S5eciali@ed )anks are:
3rameen Bank
Ban&lades% Hris%i Bank
Ban&lades% S%il5a Bank
The role of Financial Market in the Economic Development of Bangladesh
1$
,a(s%a%i Hris%i Unnayan Bank
Ban&lades% S%il5a ,in San&st%a
Basic Bank Ltd <Bank of Small Industries and 1ommerce=
Ban&lades% Somo)ay Bank Limited<1oo5erative Bank=
/%e D%aka 'ercantile 1o6o5
/%e financial market in Ban&lades% is mainly of follo:in& ty5es:
18 Money Market : /%e 5rimary money market is com5rised of )anks* FIs and
5rimary dealers as intermediaries and savin&s M lendin& instruments* treasury
)ills as instruments8 /%ere are currently 1A 5rimary dealers <1" )anks and + FIs=
in Ban&lades%8 /%e only active secondary market is overni&%t call money market
:%ic% is 5artici5ated )y t%e sc%eduled )anks and FIs8 /%e money market in
Ban&lades% is re&ulated )y Ban&lades% Bank <BB=* t%e 1entral Bank of
Ban&lades%8
"8 Capital market: /%e 5rimary se&ment of ca5ital market is o5erated t%rou&%
5rivate and 5u)lic offerin& of e;uity and )ond instruments8 /%e secondary
se&ment of ca5ital market is institutionali@ed )y t:o <"= stock e>c%an&es6D%aka
Stock ->c%an&e and 1%itta&on& Stock ->c%an&e8 /%e instruments in t%ese
e>c%an&es are e;uity securities <s%ares=* de)entures* cor5orate )onds and treasury
)onds8 /%e ca5ital market in Ban&lades% is &overned )y Securities and
1ommission <S-1=8
+8 &oreign ()change Market : /o:ards li)erali@ation of forei&n e>c%an&e
transactions* a num)er of measures :ere ado5ted since 1BBs8 Ban&lades%i
currency* t%e taka* :as declared converti)le on current account transactions <as on
"? 'arc% 1BB?=* in terms of Article .III of I'F Article of A&reement <1BB?=8 As
/aka is not converti)le in ca5ital account* resident o:ned ca5ital is not freely
transfera)le a)road8 ,e5atriation of 5rofits or disinvestment 5roceeds on non6
resident FDI and 5ortfolio investment inflo:s are 5ermitted freely8 Direct
investments of non6residents in t%e industrial sector and 5ortfolio investments of
non6residents t%rou&% stock e>c%an&es are re5atria)le a)road* as also are ca5ital
&ains and 5rofitsNdividends t%ereon8 Investment a)road of resident6o:ned ca5ital
is su)(ect to 5rior Ban&lades% Bank a55roval* :%ic% is allo:ed only s5arin&ly8
The role of Financial Market in the Economic Development of Bangladesh
1!
Ban&lades% ado5ted Floatin& ->c%an&e ,ate re&ime since +1 'ay "+8 Under
t%e re&ime* BB does not interfere in t%e determination of e>c%an&e rate* )ut
o5erates t%e monetary 5olicy 5rudently for minimi@in& e>treme s:in&s in
e>c%an&e rate to avoid adverse re5ercussion on t%e domestic economy8 /%e
e>c%an&e rate is )ein& determined in t%e market on t%e )asis of market demand
and su55ly forces of t%e res5ective currencies8 In t%e fore> market )anks are free
to )uy and sale forei&n currency in t%e s5ot and also in t%e for:ard markets8
2o:ever* to avoid any unusual volatility in t%e e>c%an&e rate* Ban&lades% Bank*
t%e re&ulator of forei&n e>c%an&e market remains vi&ilant over t%e develo5ments
in t%e forei&n e>c%an&e market and intervenes )y )uyin& and sellin& forei&n
currencies :%enever it deems necessary to maintain sta)ility in t%e forei&n
e>c%an&e market8
Roles of the Reglatory instittions in the Capital Market of Bangladesh:
In order to stimulate ra5id economic &ro:t% of a country 5articularly t%rou&%
industriali@ation and mo)ili@ation of domestic savin&s* a55ro5riate institutions in t%e
ca5ital market are essential8 /%e ca5ital market in Ban&lades% is &overned )y t%e
follo:in& institutions8
The "ecrity and ()change Commission *"(C+: Security and ->c%an&e 1ommission
<S-1= :as formed to su5ervise t%e securities market of Ban&lades% in Lune B* 1BB+8
S-1 is a dynamic )ody re&ulatin& t%e activities of ca5ital market on t%e )asis of
introducin& re&ulatory measures from time to time8 S-1 %as )een set u5 not only to
control t%e ca5ital market )ut also to &ive 5rotection to investors8 1a5ital market is
re&ulated )y t%e Security and ->c%an&e or&ani@ation Act 1BB+ and 1om5anies Act 1BB?
and rules and re&ulation trade t%ere under8
The ma,or &nction and Responsi'ilities of the "(C are:
,e&ulatin& t%e )usiness of stock market determination and re&ulation of t%e
)usiness of )rokers* su)6)rokers* s%are6transfer a&ents* and mana&erN)rokers to
t%e issues* under:riters* 5ortfolio mana&ers* investment consultants and ot%er
middlemen related to security dealin&s8
,e&istration* control and mana&ement of mutual funds of (oint fund sc%emes8
The role of Financial Market in the Economic Development of Bangladesh
1B
Develo5ment monitorin& and control of self re&ulated )odies related to security
dealin&s8
Pro%i)ition of insiderCs fraudulent deals treated to securities of security markets8
Pro%i)ition of unaut%ori@ed tradin&8
/akeovers and mana&ement of com5anies and s%ares or stock8
S5readin& investment education
1allin& information from and ins5ection* investi&ation or audit of security issues*
stock e>c%an&es and related 5arties8
1arryin& out researc% into and 5u)lication of information on security related
matters8
"tock ()change:
#haka Stock $%change &#S$': D%aka Stock ->c%an&e <DS-=* t%e first )ourse of t%e
country :as esta)lis%ed in 1BA?8 It is re&ulations and run )y its o:n Board com5risin& of
nine elected councilors and t%ree councilors nominated )y t%e &overnment8
The Ma(or Functions of #S$:
Providin& listin& rules to &ive assurance t%at t%e issuance of a com5anyCs
securities %as conformed to le&al re;uirements8
Providin& disclosure rules8
Pu)lication of mont%ly (ournal* s%o:in& 5erformance of t%e market as :ell as
listed com5anies8
Provide floor for transaction8
-nsure ade;uate volume of trade leadin& to li;uidity8
Provide reasona)le level of fairness in deal makin& and tradin&8
,e&isterin&* monitorin& security 5rices8
Provide ade;uate instruments and tec%nical aids for 5rom5t and smoot% tradin&8
hittagong Stock $%change &S$': Ban&lades% &overnment a55roved 1%itta&on& Stock
->c%an&e s a second )ourse of t%e country on Fe)ruary 1"*1BBA* in order to accelerate
industrial &ro:t% for overall )enefit of t%e economy8 1%itta&on& Stock ->c%an&e :as
incor5orated as 5u)lic limited com5any on A5ril 1* 1BBA8 Since t%en* it %as accom5lis%ed
some innovative functions8
The )ole of hittagong Stock $%change: t%e ma(or role of 1%itta&on& Stock ->c%an&e
is to create an effective* efficient and trans5arent market of international standard to save
and invest in Ban&lades% in order to facilitate t%e com5etent entre5reneurs to raise
ca5ital8
*ther roles are:
The role of Financial Market in the Economic Development of Bangladesh
"
Seek e>5lanation from t%e listed com5any<s= on any reasona)le &round*
Delist any com5any for some s5ecific reasons8
->tend time sc%edule for A3'N-3'8
4)serve A3'N-3' time sc%edule8
It can take any le&al action a&ainst t%e listed com5anies for violation of listin&
re&ulations or for not fulfillin& t%e continuous listin& re;uirements8
The -nvestment Corporation of Bangladesh: one of t%e dominant 5layers of t%e
financial market in Ban&lades% is Investment 1or5oration of Ban&lades%* t%e
esta)lis%ment of Investment 1or5oration of Ban&lades% <I1B= on 4cto)er 1*1B$#* :as a
ma(or ste5 in a series of measures undertaken )y t%e &overnment to accelerate t%e 5ace of
industriali@ation and develo5 a :ell or&ani@ed and vi)rant ca5ital market8
The Ma,or .ctivities of -CB are:
Act as a catalytic a&ent to encoura&e and )roaden t%e )ase of investors8
Develo5ment t%e ca5ital market t%rou&% mo)ili@in& savin&s8
Provide financial assistance in t%e form of under:ritin&* issue of securities* IP4
5lacement* and trustee to de)enture issue of IP4 facilities over industrial 5ro(ectN
com5anies8
I1B 5rovides investment counsel to issuers and investors8
Partici5ate I &overnment dis6investment 5ro&ramme8
Finance (oint venture 5ro(ect8
Provide credit facilities to invest in IP4 and in listed securities8
'ana&e ei&%t close6end mutual funds and an o5en6end <unit fund= to mo) savin&s
and to su55ort t%e stock market8
1B is also 5layin& a leadin& role in t%e stock e>c%an&es8 Since ince5tion* I1B
%as )een 5layin& a dominant role to ensure a %ealt%y and :ell or&ani@ed
secondary market8
-nsrance Companies:
Insurance a system of s5readin& t%e risk of one to t%e s%oulders of many8 It is a contract
:%ere)y t%e insurers* on recei5t of a consideration kno:n as 5remium* a&ree to
indemnify t%e insured a&ainst losses arisin& out of certain s5ecified unforeseen
contin&encies or 5erils insured a&ainst8 /%us insurance com5anies 5rovide insurance
5olicies to individuals and firms t%at reduce t%e financial )urden associated :it% deat%*
illness and dama&es to 5ro5erty8 /%ey c%ar&es 5remiums in e>c%an&e for t%e insurance
t%at t%ey 5rovide8 /%ey invest t%e funds t%at are received as 5remium in different sectors
until t%e funds are needed to cover t%e insurance claims8 /%us t%rou&% investin& t%e funds
in different sectors* t%ey serve as im5ortant financial intermediaries8
Insurance is not a ne: )usiness in Ban&lades%8 Almost a century )ack* durin& Britis% rule
in India* some insurance com5anies started transactin& )usiness* )ot% life and &eneral* in
Ben&al8 Insurance )usiness &ained momentum in -ast Pakistan durin& 1B?$61B$1* :%en
?B insurance com5anies transacted )ot% life and &eneral insurance sc%emes8 But after t%e
li)eration* t%e &overnment of Ban&lades% nationali@ed insurance industry in 1B$" )y t%e
The role of Financial Market in the Economic Development of Bangladesh
"1
Ban&lades% Insurance <Nationali@ation= 4rder 1B$"8 /%rou&% t%is 5rocess all ?B
insurance com5anies and or&ani@ations transactin& insurance )usiness in t%e country
:ere 5laced in t%e 5u)lic sector under five cor5orations8 /%ese cor5orations :ere: t%e
Latiya Bima 1or5oration* /ista Bima 1or5oration* Harnafuli Bima 1or5oration* ,u5sa
Li)an Bima 1or5oration* and Surma Li)an Bima 1or5oration8 /%e Latiya Bima
1or5oration :as an a5e> cor5oration only to su5ervise and control t%e activities of t%e
ot%er insurance cor5orations* :%ic% :ere res5onsi)le for under:ritin&8 /ista and
Harnafuli Bima 1or5orations :ere for &eneral insurance and ,u5sa and Surma for life
insurance8 /%e s5ecialist life com5anies or t%e life 5ortion of a com5osite com5any
(oined t%e ,u5sa and Surma cor5orations :%ile s5ecialist &eneral insurance com5anies or
t%e &eneral 5ortion of a com5osite com5any (oined t%e /ista and Harnafuli cor5orations8
1onse;uently* on 1? 'ay 1B$+* a restructurin& :as made under t%e Insurance
1or5orations Act 1B$+8 Follo:in& t%e Act* in 5lace of five cor5orations t%e &overnment
formed t:o: t%e Sad%aran Bima 1or5oration for &eneral )usiness* and Li)an Bima
1or5oration for life )usiness8
U5 to "* t%e &overnment %as &iven 5ermission to 1B &eneral insurance com5anies and
1 life insurance com5anies in t%e 5rivate sector8 Insurers of t%e country no: conduct
almost all ty5es of &eneral and life insurance* e>ce5t cro5 insurance and e>5ort credit
&uarantee insurance* :%ic% are availa)le only :it% t%e Sad%aran Bima 1or5oration8
Some of t%e insurance com5anies t%at are :orkin& in Ban&lades% are:
3eneral Insurance 1om5any
National Insurance 1om5any
Ban&lades% 1o6o5erative Insurance Ltd8
American Life Insurance 1om5any Ltd8 <ALI14=
United Insurance 1om5any etc8
Role of -nsrance Company:
Insurance com5anies are :orkin& as im5ortant financial intermediaries in t%e economic
develo5ment of t%e country8 Some of t%e role 5erforms )y t%e insurance com5aniesC are6
/%ey financially su55orts individuals and firms in case of any financial )urden8
,einsure t%e ins
$easing Companies:
Lease Financin& Lease is a contract )et:een t%e o:ner and t%e user of assets for a certain
time 5eriod durin& :%ic% t%e second 5arty uses an asset in e>c%an&e of makin& 5eriodic
rental 5ayments to t%e first 5arty :it%out 5urc%asin& it8 Under lease financin&* t%e lessee
re&ularly 5ays t%e fi>ed lease rent over a 5eriod of time at t%e )e&innin& or at t%e end of a
mont%* + mont%s* # mont%s or a year8 At t%e end of t%e lease contract t%e asset reverts to
t%e real o:ner8
Le&ally* a leasin& com5any is defined as one %avin& t%e )usiness of %irin& 5lants or
e;ui5ment or of financin& t%eir %ire )y ot%ers8 /%e International Finance 1or5oration
The role of Financial Market in the Economic Development of Bangladesh
""
5romotes leasin& as a met%od of financin& industrial develo5ment in t%e develo5in&
countries as a 5art of its ca5ital market develo5ment strate&ies8
/%e functions of a lease )usiness include lease financin&* s%ort6term financin&* %ouse
)uildin& financin&* and merc%ant )ankin& and cor5orate financin&8 /%e leasin& )usiness
in Ban&lades% moved a:ay from re&ular leasin& activities and is no: involved in stock6
market related activities suc% as issue mana&ement* under:ritin&* trust mana&ement*
5rivate 5lacement* 5ortfolio mana&ement* and mutual fund o5eration8 Broad ca5ital
market o5erations of t%e lease financin& institutions include )rid&e financin&* cor5orate
counselin&* mer&ers and ac;uisition* ca5ital restructurin&* financial en&ineerin&* and
lease syndication8
/%e leasin& com5anies no: o5eratin& in t%e country are6
Industrial Develo5ment Leasin& 1om5any of Ban&lades%
United Leasin& 1om5any
3SP Finance 1om5any <Ban&lades%=
Uttara Finance and Investments
Bay Leasin& and Investment
P%oeni> Leasin& 1om5any
Prime Finance and Investment
International Leasin& and Financial Services
Union 1a5ital
.anik Ban&lades%
Peo5les Leasin& and Financial Services
Ban&lades% Industrial Finance 1om5any
UA-6Ban&lades% Investment 1om5any
Ban&lades% Finance and Investment 1om5any and
First Lease International8
/%e money market in Ban&lades% is in its transitional sta&e8 /%e various constituent 5arts
of it are in t%e 5rocess of formation* :%ile continuous efforts are )ein& made to develo5
a55ro5riate and ade;uate instruments to )e traded in t%e market8 At 5resent* &overnment
treasury )ills of varyin& maturity* Ban&lades% Bank Bills and 1ertificates of De5osits etc
in limited su55ly are availa)le for tradin& in t%e market8 2o:ever* t%e s%ort6term credit
market of t%e )ankin& sector e>5erienced a tremendous &ro:t% since li)eration8 In 1BBB*
a total of a)out # )ranc%es of t%e sc%eduled )anks 5rovided s%ort6term credit
t%rou&%out t%e country in t%e form of cas% credit* overdraft and demand loan8 /%e rates of
interest are determined )y t%e individual )anks and as suc% t%e market is ;uite
The role of Financial Market in the Economic Development of Bangladesh
"+
com5etitive8 -ac% )ank maintains its li;uidity and su55ly of fund is arran&ed t%rou&%out
t%e country :it% t%e %el5 of an interconnected net:ork of )ranc%es8 Ban&lades% )ank as
central )ank of t%e country e>ercises its role in t%is market t%rou&% t%e use of instruments
suc% as )ank rate* o5en market o5erations and c%an&es in statutory li;uidity
re;uirements8 /%e money market of Ban&lades% reac%ed its 5resent 5%ase t%rou&% a
series of c%an&es and evolution8 Initially* after li)eration* money market :as t%e ma(or
constituent 5art of t%e financial market of t%e country8 1a5ital market* its ot%er se&ment
:as a relatively smaller 5art8 All financial institutions of t%e country :ere nationali@ed
after li)eration8 /%e &ro:t% and evolution of money market in t%e country took 5lace
durin& t%e 5eriod from 1B$1 to t%e early ei&%ties under various sets of interventionist
rules and re&ulations of t%e &overnment and as suc% it could %ardly reflect t%e actual
market conditions8 2o:ever* in t%is 5eriod a vast financial su5erstructure :it% lar&e
net:ork of commercial )ank )ranc%es :as esta)lis%ed in t%e country8 Simultaneously*
s5eciali@ed financial institutions under &overnment sector also emer&ed :it% t%e
o)(ective of mo)ili@in& financial resources and c%annelin& t%em for s%ort* medium and
lon&6term credit and investments8 /%e market 5artici5ants %ad to o5erate in an
environment of directed lendin& and loan dis)ursement &oals* and 5redetermined rates of
interest fi>ed )y t%e aut%ority8 2o:ever* rate of interest in t%e call market :as fle>i)le
)ut due to 5revalence of li)eral refinance facility at concessional rates from Ban&lades%
Bank* t%e activities of call money market remained insi&nificant8
/%e &ro:t% of ca5ital market in Ban&lades% :as very slo: )ecause of t%e %i&%ly
re&ulated economic re&ime and market im5erfections8 Lon&6term funds re;uired )y
industrial enter5rises :ere &enerally 5rovided )y &overnment6o:ned develo5ment
finance institutions <DFIs= at concessional and directed interest rates8 /%e DFIs are t%e
Ban&lades% S%il5a Bank* Ban&lades% S%il5a ,in San&st%a* Ban&lades% Hris%i Bank and
t%e ra(s%a%i kris%i unnayan )ank8 /%e Ban&lades% Small M 1otta&e Industries
1or5oration <BSI1= is anot%er institution t%at 5rovides medium and lon&6term loans to
small industries eit%er directly or t%rou&% a consortium of commercial )anks8 Ban&lades%
%ouse )uildin& Finance 1or5oration 5rovides lon&6term loans for construction of
residential %ouses8 DFIs &enerate t%eir investi)le funds t%rou&% allocations from
&overnment sources* credit from international financial institutions* and )orro:in&s from
t%e Ban&lades% )ank8 1o6o5erative )anks in t%e country 5rovide medium and lon&6term
credit for 5urc%ase of land and a&ricultural e;ui5ment8
The role of Financial Market in the Economic Development of Bangladesh
"?