Non Bank Financial Institutions (FIs)

:
Non-bank financial institutions (NBFIs) represent one
of the most important parts of a financial system. Non
Bank Financial Institutions (FIs) are those types of
financial institutions which are regulated under
Financial Institution Act, 1993 and controlled by
Bangladesh Bank. Now, 33 FIs are operating in
Bangladesh while the maiden one was established in
1981 (IPDC). Out of the total, 2 is fully government
owned, 1 is the subsidiary of a SOCB, 15 were
initiated by private domestic initiative and 15 were
initiated by joint venture initiative. Major sources of
funds of FIs are Term Deposit (at least three months
tenure), Credit Facility from Banks and other FIs, Call
Money as well as Bond and Securitization.
 
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Non Bank Financial Institutions (FIs)
:
Bangladesh Bank issues licence and
supervises NBFIs under the Financial
Institution Act, 1993. At present, the minimum
paid up capital for NBFIs is Taka 1.0 billion
as per the Financial Institution Regulation,
1994. NBFIs' business line is narrow in
comparison with Banks in Bangladesh. NBFIs
have been allowed to offer term deposit
service for tenure of at least three months
effective from 2 December 2013

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The major difference between banks and FIs are as follows :
:

-FIs cannot issue cheques, pay-orders or

demand drafts.
-FIs cannot receive demand deposits,
-FIs cannot be involved in foreign exchange
financing,

-FIs can conduct their business operations

with diversified financing modes like
syndicated financing, bridge financing, lease
financing, securitization instruments, private
placement of equity etc.
.
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Sources of Fund:
The prime sources of NBFIs finance are loan from
the other commercial banks, term deposits from
the public, fund from capital market by issuing
shares, debentures, bonds etc. and loan facilities
from the international agencies like ADB, IDA,
IFC etc

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Product & Services of NBFIs:
Finance/ Capital Lease
Provide a long-term solution that allows customers to
free up working capital
 Operational Lease :
An operational lease entails the client renting an
asset over a time period that is substantially less than
the asset’s economic life. It offers short-term
flexibility, which may allow the customer to take
advantage of off-balance sheet accounting treatment

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Product & Services of NBFIs:
 Hire Purchase
A hire purchase is an alternative to a lending
transaction for the equipment purchase. It is usually
employed for retail or individual financing of smaller
items, such as consumer products. However, hire
purchase option is also suitable for business houses
depending on tax practices.

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Product & Services of NBFIs:
 Leveraged Leases
Leases generally for large transactions involving three
parties: a lessee, a lesser and a funding source. These
leases infuse third-party non-recourse debt
underwritten by the customer’s ability to raise capital in
the public and private capital markets for a significant
portion of the cost.
Synthetic Leases
Synthetic lease structure is generally provided for
property that retains value over an extended period of
time such as aircraft, railroad rolling stock,
manufacturing equipment and certain types of real-
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Product & Services of NBFIs:
Home Loan and Real Estate Financing
House loan and real estate financing is extended for
purchase of apartment and house, construction of
residential house, purchase of chamber and office
space for professionals, purchase of office space and
display center, purchase and construction of
commercial building, real estate developer for
construction of apartment project. Mostly mid to
long-term in nature

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Product & Services of NBFIs:
Short Term Loans
Factoring of Accounts Receivables Financing against
invoices raised by the supplier after making the
delivery successfully. Major Features are Revolving
Short Term Facility, Permanent Assignment of
Payment, Financing against invoices, Post-delivery
Financing

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Product & Services of NBFIs:
Corporate Finance
 Bridge Finance : Bridge Finance is a kind of Short Term Finance extended in
anticipation of immediate long term financing such as public issue, private
placement, loan syndication, lease syndication, loan, lease & debentured
Finance

 Syndication: Syndication of Large Loans Making available a large financing

for a corporate client. Arrange syndicated financing in the mode of loan,
lease, equity, working capital, or any combination thereof. Particularly useful
for large projects requiring large scale investment and no single financier
wants to take the whole risk. Example: Greenfield project.
 Merger and Acquisition : Merger and Acquisition help find appropriate
organization for best possible synergy, conduct valuation of companies and
select suitable merger and acquisition methods, negotiate and execute deal
beneficial for all the parties involved

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Product & Services of NBFIs:
Merchant Banking
 The Issue Management group is capable of devising innovative
solution for raising capital – debt e.g. placement of bonds and
debentures, and raising equity through private and public placement
– from the market suiting the unique needs and constraints of the
corporate clients.
 Underwriting refers to the guarantee by the underwriters that in
the event of under-subscription, the underwriter will take up the
under-subscribed amount on pro-rata basis upon payment of price of
that option
 Portfolio Management Merchant banks allow small investors to
open investor account with merchant banks and provide support for
the purchase and sales of shares . Clients shall have absolute
discretionary power to make investment decisions.
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Product & Services of NBFIs:
Securities Services
Brokerage Services Provide services for Trade Execution
(Dhaka and Chittagong Stock Exchanges), Pre -IPO
private placement, Asset allocation advice, Opportunities
for trading in different financial instruments
CDBL Services as full service Depository Participant
(DP)
Apart from the brokerage services, securities services
also provide the services like BO (Beneficial
Owner)accounts opening and maintenance,
Dematerialization ,Re-materialization, Transfers and
multiple accounts movement, Lending and borrowing etc.
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Financial Performance of NBFIs:

Assets:
The asset of NBFIs went up substantially by 17.5 percent to
611.0 billion in 2015 from Taka 520.1 billion in 2014. At the
end of June 2016, assets of NBFIs increased to Taka 672.8
billion. NBFIs deploy funds for providing mainly term loan in
different sectors of the economy with major concentration in
industrial sector. Sector wise composition of NBFIs'
investment at the end of June 2016 was as follows: industry
43.0 percent, real estate 16.6 percent, margin loan 3.6
percent, trade and commerce 17.7 percent, merchant banking
3.9 percent, agriculture 1.9 percent and others 13.3 percent.

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Financial Performance of NBFIs:
 Deposits:
 Total deposits of the NBFIs in 2015 rose to Taka 318.1 billion (62.5
percent of total liabilities) from Taka 238.5 billion (56.2 percent of
total liabilities) in 2014 showing an overall increase of 33.4 percent. At
the end of June 2016, total deposit of NBFIs increased
 to Taka 351.4 billion.
Capital Market Investment:
 NBFIs are allowed to invest in the capital market to the extent
mentioned in the Financial Institutions Act, 1993. In 2015, all NBFIs'
total investment in capital market was Taka 19.4 billion compared to
Taka 18.4 billion in December 2014. Investment in capital market
accounted for 3.2 percent of the total assets of all NBFIs. At the end of
 June 2016, NBFIs total investment in capital market stood at Taka 21.1
billion.
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Financial Performance of NBFIs:
 NPL:
 The ratio of gross nonperforming loan /lease to total loan/lease is
used to judge the asset quality of NBFIs. At the end of June 2016, the
NPL ratio for NBFIs was 9.0 percent. In the total asset composition of
all NBFIs, the concentration of loans, lease and advances was 74.2
percent. At the end of June 2016, out of 33 NBFIs, 1 was evaluated as "1
or Strong", 7 were "2 or Satisfactory", 14 were "3 or Fair", 9 were "4 or
Marginal" and 1 was "5 or Unsatisfactory" in the asset quality
component of the CAMELS rating matrix (the remaining one NBFI is
yet to come into rating)

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Financial Performance of NBFIs:
 Cost of Fund:
 NBFIs are regularly submitting their monthly statements of base rate and cost of funds to
BB as per guideline published in 2013. On the basis of these statements, BB prepares an
aggregate cost of funds index, uploads that in the BB website and updates it in its website
on a monthly basis. It can be mentioned that base rate is the minimum interest rate
below which it is not viable for an NBFI to lend in the market. As there was no specific
guideline before December 2013, the NBFIs calculated the interest rate in different ways
from their own perspective. Some NBFIs provided loan using floating interest rate. In
that case, they imposed the rate based on the deviation among their own cost of funds.
As a result, their efficiency or inefficiency to manage the liquidity directly affected the
clients. The cost of funds index is used as an acceptable reference rate. The base rate
system facilitates the interest rate determining process and ensures more transparency
and accountability in the NBFIs. Base Rate System is used in different countries
including India, Nepal and Bhutan.
 In Bangladesh, the base rate system with cost of funds index has been initiated for the
first
 time.
  

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Challenging Issues for NBFIs
Sources of Funds
Asset-Liability Mismatch.
Investment in High Risk Portfolio
Product Diversification
Competition with Banks

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Insurance Companies:

History of Bangladesh Insurance Business.

Insurance Business in Bangladesh is one of the common
phenomenon traditional businesses. This business has a
long history. Insurance business in Bangladesh started
almost century back for the during the British regime in
India, some insurance companies began business
operation, both life and general. 

Bangladesh Insurance business increased for the
duration of 1947-1971, when there are 49 insurance
companies operate their business both life and general
insurance. In that time Twenty seven Insurance company
head office in Bangladesh former West Pakistan and Ten
Insurance company head office in East Pakistan.
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Insurance Companies:

After liberation war in 1972 The People's Republic Government

of Bangladesh nationalized the insurance industry along with
the banks in 1972 by Presidential Order No. 95. By virtue of
this order, all insurance company  in Bangladesh operate
they are businesses under this nationalization order. This was
observed by formation of 5 insurance companies in the life
and non-life sector. Further changes were added on 14th
May,1973. These Five Insurance Company insurance
corporations were given below-
Jatiya Bima Corporation.
Tista Bima Corporation.
Karnafuli Bima Corporation.
Rupsa Jiban Bima Corporation.
Surma Jiban Bima Corporation.
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Insurance Companies:

Through the enactment of Insurance Corporation Act VI, 1973

which led to creation of two corporations namely Sadharan Bima
Corporation for general insurance and, Jiban Bima Corporation for
life insurance in Bangladesh. In other words Sadharan Bima
Corporation (SBC) emerged on 14th May, 1973 under the Insurance
Corporation Act (Act. No. VI) of 1973 as the only state owned
organization to deal with all classes of general insurance & re-
insurance business emanating in Bangladesh. Thereafter SBC was
acting as the sole insurer of General Insurance till 1984. Bangladesh
Government allowed the private sector to conduct business in all
areas of insurance for the first time in 1984. The private sector
availed the opportunity promptly and came forward to establish
private insurance companies through promulgation of the
Insurance Corporations (Amendment) Ordinance (LI of 1984)
1984.
.
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Types of Insurance:

Marine Insurance:
Marine insurance covers the loss or damage of ships,
cargo, terminals, and any transport or cargo by which
property is transferred, acquired, or held between the
points of origin and final destination.
Marine is the oldest form of insurance and came first in the list.
This type of insurance probably began in northern Italy
sometime during the 12th and 13th century and gradually the
concept was rather transferred to or taken over by the United
Kingdom. During the 13th & 14th century the Italian merchants
went to UK and along with the merchandise carried with them
the trading customs including the concept of marine insurance.
Marine insurance as such was not being practiced as a separate
specialized entity during that time since it were the merchants
who used to transact marine insurance business side by side
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Types of Insurance:

Fire insurance:
Fire insurance covers damage or loss to a property because
of fire. It is a specific form of insurance in addition to
homeowner's or property insurance, and it covers the cost
of replacement and repair or reconstruction above what
the property insurance policy covers

After marine insurance fire insurance developed in

present form. It had been originated in Germany in
the beginning of sixteenth century. The fire insurance got
momentum in England after the great fire in 1666 when
the fire losses were tremendous.
 
. 22
Types of Insurance:

Life Insurance:

Life insurance is a protection against financial loss that

would result from the premature death of an insured. The
named beneficiary receives the proceeds and is thereby
safeguarded from the financial impact of the death of the
insured. The death benefit is paid by a life insurer in
consideration for premium payments made by the insured.
 
.

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:

Contribution of Insurance Business in the National

Development In Bangladesh

Formation of capital & increase of investment:

Reduce of hindrance of risk:  
Distribution of risks:
Extension of business
Provide safety and security
Generates financial resources:
Life Insurance encourages savings:
General Insurance claims payments to continue
business:
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:

Contribution of Insurance Business in the National

Development In Bangladesh

Medical support
Spreading of risk
Increase of awareness
Human resources development for insurance
industry
Paying Taxes
Contribute specialized expertise
Incentive to control losses
Invest long term Government Projects:
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