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The financial system of Bangladesh is comprised of three sectors:

1. Formal Sector: includes all regulated institutions like Banks, Non-Bank Financial Institutions
(FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant
Banks etc.; Micro Finance Institutions (MFIs)
2. Semi-Formal Sector: includes those institutions which are regulated otherwise but do not fall
under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange
Commission or any other enacted financial regulator. This sector is mainly represented by
Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli
Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc., Non Governmental
Organizations (NGOs and discrete government programs
3. Informal Sector: includes private intermediaries which are completely unregulated

The financial market in Bangladesh is mainly of following types:

1. Money Market: The money market comprises banks and financial institutions as
intermediaries, 20 of them are primary dealers in treasury securities.

2. Taka Treasury Bond market: The Taka treasury bond market consists of primary issues of
treasury bonds of different maturities (2, 5, 10, 15 and 20 years), and secondary trade therein
through primary dealers. 20 banks performing as Primary Dealers participate directly in the
primary auctions. Other bank and non bank investors can participate in primary auctions and in
secondary trading through their nominated Primary Dealers.

3. Capital market: The primary issues and secondary trading of equity securities of capital
market take place through two (02) stock exchanges-Dhaka Stock Exchange and Chittagong
Stock Exchange. The capital market is regulated by Bangladesh Securities and Exchange
Commission (BSEC).

4. Foreign Exchange Market: The exchange rate is being determined in the market on the basis
of market demand and supply forces of the respective currencies.

Payment and Settlement Systems:

Payment systems are the means by which funds are transferred among financial institutions, businesses,
and individuals and are considered to be the critical factor for proper functioning of country's financial
system. Payment Systems Department (PSD) endeavors for promoting new payments, clearing and
settlement systems to ease financial transactions ensuring circulation of money in the economy and also
enforces new rules regulation to facilitate payment systems innovation in the country.
Payment System department’s function may be divided into following three broad categories:

1. Regulation, Policy and Licensing

a. Legal and Regulatory Function: Proper legal and regulatory framework is important to
ensure smooth functioning of the payment and settlement system. The legal basis for
Bangladesh bank to promote a safe secure payment system is lies in the Bangladesh
Bank Order 1972. Side-by-side Payment Systems Department issues regulation and
publishes systems rules, which among other defines roles and responsibilities of the
participants of specific payment systems.
b. Mobile Financial Services (MFS): Bangladesh Bank permits Cash in, Cash out, Person
to Person (P2P), Person to Business (P2B), Business to Person (B2P), Person to
Government (P2G) and Government to Person (G2P) payment services through MFS
domestically. No cross border money transfer is allowed under this service.

c. Payment Service Provider (PSP) and Payment System Operator (PSO): Payment
Systems Department (PSD) issues license in two broad criteria- Payment Service
Provider (PSP) and Payment System Operator (PSO). It gives PSP license to the
company who facilitates payment(s) or payment processes directly to the customers and
settling their transactions through a scheduled bank or financial institution; for example
E-wallet, Mobile Wallet etc. Besides, PSD gives PSO license to the company who
operates a settlement system for payment activities between/among participants of
which the principal participant must be a scheduled bank or financial institution.
List of Authorized PSP and PSO
 IT Consultants Ltd (PSO)
 SSL Commerz Ltd (PSO)
 ShurjoMukhi Ltd (PSO)
 iPay Systems Ltd (PSP)
 D Money Bangladesh Ltd (PSP)

2. Operation
a. Bangladesh Automated Clearing House (BACH)
i. Bangladesh Automated Cheque Processing Systems (BACPS): ACPS is the only
state-of-the art cheque clearing facility. It uses the Cheque Imaging and
Truncation (CIT) technology for electronic presentment and payment of paper-
based instruments (i.e. cheque, pay order, dividend & refund warrants, etc).

ii. Bangladesh Electronic Funds Transfer Network (BEFTN): BEFTN was country's
first paperless electronic inter-bank funds transfer system. It facilitates both
credit and debit transactions, as a lead over cheque clearing system. This network
can handle credit transfers such as payroll, foreign and domestic remittances,
social security payments, company dividends, bill payments, corporate
payments, government tax payments, social security payments and person to
person payments. At the same way it accommodates debit transactions like utility
bill payments, insurance premium payments, Club/Association payments, EMI
payment etc. Most of Govt. salary, social benefits, all social safety net payments
and other government payments are processed through BEFTN.
b. National Payment Switch Bangladesh (NPSB): NPSB is meant for establishing
interoperability among participating banks for their account and card based transactions.
Currently, it caters interbank Automated Teller Machines (ATM), Point of Sales (POS)
and Internet Banking Fund Transfer (IBFT) transactions while the Mobile Financial
Services interoperability is under active consideration. 51 Banks are now interconnected
through NPSB for their ATM transactions. Currently, three types of interbank ATM
transaction (i.e. cash withdrawal, balance enquiry and mini statement) could be done
through NPSB.

c. Bangladesh Real Time Gross Settlement (BD-RTGS): To facilitate real time settlement
of high value time critical payments BB introduced Bangladesh Real Time Gross
Settlement (BD-RTGS) system

3. Payment Systems Oversight: Payment Systems Oversight is a specialized form of supervision of

existing and planned payment systems which is one of the key functions of all the central banks
around the globe. It promotes the objectives of safety, efficiency and soundness of payment
systems by effective monitoring and assessment of payment systems and thereafter, suggesting
policy changes.

Government Securities Market

Government securities market of Bangladesh is consist of tradable and non tradable securities. Non-
tradable securities include National Savings Certificates i.e. Sanchayapatras and Sanchayabonds which
are only for retail investors.

The tradable securities include Treasury Bills (T-Bills) and Bangladesh Government Treasury Bonds
(BGTB). T-Bills and BGTBs are issued through auctions. Only Primary Dealers (PD) can submit bids
in the auctions. Other institutions and individuals can submit bids in auction but through the PDs. At
present 20 banks are performing as Primary Dealer. T-Bills and BGTBs can be sold in the secondary
market. Non-resident individual and institutional investors also eligible to buy BGTBs through a Non-
Resident Foreign Currency Account and Non-Resident Investor's Taka Account maintained with
commercial banks of Bangladesh.

Deposit Insurance Systems

Deposit Insurance Systems is a measure to protect bank depositors, in full or in part, from losses caused
by a bank's inability to pay its debts when owing. Deposit Insurance Systems is one of the components
of financial safety net that is meant to promote financial stability.

Importance of DIS: Deposit Insurance plays a key role in maintenance of financial stability by
sustaining public confidence in the banking system through protecting depositors, especially small and
less sophisticated depositors, against loss of deposit to a significant extent.
<DID: The Deposit Insurance Department (DID), Bangladesh Bank, has been entrusted to administer
the activities of Deposit Insurance Systems in Bangladesh.>

Central Bank

Bangladesh Bank acts as the Central Bank of Bangladesh

Banks & FIs

Banks in Bangladesh are primarily of two types:

 Scheduled Banks: The banks that remain in the list of banks maintained under the Bangladesh
Bank Order, 1972.
 Non-Scheduled Banks: The banks which are established for special and definite objective and
operate under any act act but are not Scheduled Banks. These banks cannot perform all
functions of scheduled banks.

There are 59 scheduled banks in Bangladesh who operate under full control and supervision of
Bangladesh Bank. Scheduled Banks are classified into following types:

 State Owned Commercial Banks (SOCBs): There are 6 SOCBs which are fully or majorly
owned by the Government of Bangladesh.
 Specialized Banks (SDBs): 3 specialized banks which were established for specific objectives
like agricultural or industrial development. These banks are also fully or majorly owned by the
Government of Bangladesh.
 Private Commercial Banks (PCBs): There are 41 private commercial banks which are majorly
owned by individuals/the private entities. PCBs can be categorized into two groups:

 Conventional PCBs: 33 conventional PCBs are now operating in the industry. They
perform the banking functions in conventional fashion i.e interest based operations.
 Islami Shariah based PCBs: There are 8 Islami Shariah based PCBs in Bangladesh and
they execute banking activities according to Islami Shariah based principles i.e. Profit-
Loss Sharing (PLS) mode.

 Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the branches of the
banks which are incorporated in abroad.

There are now 5 non-scheduled banks in Bangladesh which are:

 Ansar VDP Unnayan Bank,

 Karmashangosthan Bank,
 Grameen Bank,
 Jubilee Bank,
 Palli Sanchay Bank
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, 34 FIs are operating in
Bangladesh. 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. 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.

Now days, 62 companies are operating under Insurance Act 2010. -

 18 are Life Insurance Companies including 1 foreign company and 1 is state-owned company,
 44 General Insurance Companies including 1 state-owned company.

Insurance companies in Bangladesh provide following services:

1. Life insurance,
2. General Insurance,
3. Reinsurance,
4. Micro-insurance,
5. Takaful or Islami insurance.

Micro Finance Institutions (MFIs)

The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural
Financial Market (RFM) in Bangladesh. Microcredit programs (MCP) in Bangladesh are implemented
by various formal financial institutions (nationalized commercial banks and specialized banks),
specialized government organizations and Non-Government Organizations (NGOs). Only 10 large
Microcredit Institutions (MFIs) and Grameen Bank represent 87% of total savings of the sector and
81% of total outstanding loan of the sector. Currently, 599 institutions (as of October 10 2011) have
been licensed by MRA to operate Micro Credit Programs. But, Grameen Bank is out of the jurisdiction
of MRA as it is operated under a distinct legislation- Grameen Bank Ordinance, 1983.

Monetary Policy Statement (MPS)

Open Market Operations (OMO)

Repurchase agreements (Repo)

Capital to Risk Weighted Assets Ratio (CRAR)

Capital Conservation Buffer (CCB)

Capital Adequacy and Market Discipline (CAMD)

Enterprise Resource Planning (ERP)

Anti Money Laundering (AML)/Combating Financing of Terrorism (CFT)

Deposit insurance scheme (DIS): increase market discipline, reduce moral hazard in the financial sector and
provide safety nets at the minimum cost to the public in the event of bank failure

Deposit Insurance Trust Fund (DITF): providing limited protection (not exceeding Taka 0.01 million) to a small
depositor in case of winding up of any bank.

Insurance Development and Regulatory Authority (IDRA): protect the interest of the policy holders and other
stakeholders under insurance policy, supervise and regulate the insurance industry effectively, ensure orderly
and systematic growth of the insurance industry.

Securities and Exchange Commission (SEC): protect the interests of securities investors, to develop and
maintain fair, transparent and efficient securities markets and to ensure proper issuance of securities and
compliance with securities laws.

Non-government Microfinance Institutions (NGO-MFIs)

Microcredit Regulatory Authority (MRA): ensure transparency and accountability of microfinance operations of
NGO-MFIs as well as foster sustainable growth of this sector.

Market Infrastructure (MI) Module for automated auction and trading of government securities.

Automated Credit Information Bureau (CIB) service provides credit related information for prospective and
existing borrowers.

The e-Returns service has been introduced which is An Online Portal Service for Scheduled Banks to submit
Electronic Returns using predefined template for the purpose of Macro Economy Analysis through related BB

Online Export Monitoring System is used for monitoring export of Bangladesh.

Bangladesh Automated Clearing House (BACH) started to work by replacing the ancient manual clearing system
which allows the inter-bank cheques and similar type instruments to be to settled in instant manner.

Electronic Fund Transfer (EFT) has been introduced which facilitates the banks to make bulk payments instantly
and using least paper and manpower.