Progress and Prospects of Non-Banking Financial Institutions in Bangladesh Theft move cng, pci an competed sid nope renromas iis ps tes teehee pea es pe Te mame ee ie rt mean rhe aes hen woe yn ot Be SFA emer fie pa dz a they eo he ‘pane ean el ey iyo ct ins a To play htt ep hn on Seren hel mk he NB ‘Sono inane fps hee scan we ao ‘Sen a eof nraton sl ene po of Bg Bega (Sa sw ym tir le pra mang cero pote sad ‘pen Fh pnt sn prs Pe ay Introduction in the system of maet economy, Noo Banking Financial Istiions (NBs have now cieaed 3s important player tn meting the dee Financial meds of varios sete and subsector fac ea well Functioning ficient nancial art, lang withthe Banking Pani Insitutions (BPI). NBFI play a hey role hunsing the esto of 7 Titers Sree remy eee ra ot a ‘coor on “Pgh und Popes! Nong Fons srs Basa Stains cet fm eo aan Sg Sl pp Tae rings and investmcn though her is een bern hess 1 pes St intions inthe wetness In cane of BE the ities re comeed at money whi forthe NBFs theyre no ‘eves the cpt Frmati ht ress fom tes tw sti oniries tthe deepening of the county's nancial market and to ‘Sonam develoment However the momentum of developments 9. fanking anil tector in eet years as pened apie deat are [NBFIs to grow tthe cost of BF macouty” Coldsnith (1969) observes thatthe Final development in een counter ofthe word sats wth BPs as (inanil evlopnen) posses the rol f NBFI becomes prominent aloes wih de BF. Buh of {hem pays igiicant roc ithe sconome popes of 3 county by infictcing tnd moblsng the savings for veer. Tel Sven the came grocess makes them competitors thet 16 cater tothe ae ‘chem the same real they are complementary 1 each eo ne can ‘otra an area whet he ray mt ba his lately suena. ‘be inancl mobile the te. To eted ihe sateen er th BES ‘Sul NBFIc compete with cach other for attacting fends fom the sae Sources and they complet each tein the process of ancl ‘evelopment by way of nctesing the aematives of imesent Tor the tomers trod providing» wiser ange of proach however, neds teimenoned hee that "im some count many inal nan Instone fave opted bth Banking and nom fanking mail seve chaps f0 mt the changing requirements of the cstomer ad. ely [peta for cr on survival. Bel ths ot eed te portance NNBFLs per se Ars mater of fact, the fan wold moves fase. the Spesalze series of NBs se becomng ore demandsy ease of he imepation andthe subseqcre emergence a Seanes 2-boatglobel Fara market Compiles speclzed and compettioned ivesiied oduct requirements ate oilers lager arenes forthe involvement of Aris in the franca aut In the comest of Bangliesh he sngorance of NBFI tas 10 be emphasied oth fom te stscure ofthe nancial “sys and ‘macroeconomic perspne nthe finn system of Bangladesh tbe singe {las nator tat have energe olay prodonsnat le a, bth he ‘epostry of lage faction of the ey’ gud savings andthe ety throogh wich nds are Being chanel te he Fe whch re ney ‘he comarca tanks Duc to th inherent sacral isa ‘iterem replicas. the BF cold mot exp thelr eperainsn heARS areas an eels and have mostly resid coated in ed sphere of Tinncilserie, te the trmeaton font: Nese ta site fo mt longterm dand requirments piject aki) ‘sorter sources (demand depie) has creed mena he Sancal cyte and as pts tremens prs thie ancl bas, ‘heir par BFT have edo come ot wi nove fiancalpeac imet the customer’ choice hase ar well to oalen elt Seeing) ‘vin. This tlh conribed the on growth of « meaning capa ‘ark which num hs aecied the efor of tnaiaeaton aod cosa ‘owt of Banging, ‘With this economic and oa ckdop, the place and easily of the NBEIs nthe ezanomy of Bangladesh eed te ses. Atal ig first privat ctr NBFIconerged inthe nancial mvc of Banglades ony {it 1881 when the Mal Promston and Development Company Bangladesh Li (PDC) as fated. Sine then staf 8 NOE ae en given cemses hy te Hangldesh Ban il ody A quick lak ne _rowth and operational horizon bing at meng acs a a eto emerge as important players in tem of esuce bioaion eee ‘Ssenifcaion or ofengltrscompeition so that financial conatot happens. Keeping in mid the number, finacacapi! markt cooweanon a the level of eso incl sophitistin, te NBFL shoud sot ‘nvte uch rita asessment. Morne, the shone of tiem a ‘eur framework. with regu ote ‘saienshiptetwen beting ot on tanking franca rtitutens as happened te comparnenaoe the [NBFis and BFs in functional ses bt deconpurmeraieg tr ‘wc by spying he same oi for both the types of stations Th by to means ca asst the development of NBFl on these line Art ‘ancl lations Act of 1993 demareses a wind range of nsttons aed services vi merchant tanks, iavexinen company. atl seat, ‘mata company, lesng company alin soy, under Be efnog of NBFL th loa suse of regulations fr NBFL shuld hae oy ileent forthe sake of ve payng ld 1.2 Objectives and Methodology ofthe Study ‘The preset paper hasbeen devoted the broad objectives of ooking ino the goth abd operational sats ofthe NBs me angeles at atous relator ses ply an import rin proming he eseh a ‘he NBs critcal examination af the iues bas tc Bupa eo bce o the paper For the par of he study oly 18 priv NF have ec ae it ons a the sample poop. Catal they esse et a NAF tnt gt the iene fm he Bangs Ban oops no baing business im Bangladesh The pape second byt fh at ma of NP i pd nea se only an age of ew Jean tr bin. aay {har epertoml ees pea ebm on wth asso eae have ben made cover informa fors pnd fo 190 fo Seems, 1998 for various sats eferenes. Ase and plesented das hoe ‘en clei queso well rom evant Source, ‘Though the Investment Corporation of Bangladesh (CB) ocapes an important place a fulledged plc sector nvestment bank he Somiet f the development of the capital mart n Banglades has been ef ou of {he purview ofthe resent paper a he same hat mo beh ented ot ‘eins rested by the Financ Inns At 1993 The Howse Bulldog Finance Corration (HBR), anther import NB inthe pbc ser ‘as abo eine uncovered nthe apron the sae osc 1.3 Organization af the Stay ‘The whole presentation has ben divided into sven sections inching the introductory par Secon IT traces the grow eararict aod ogress of NBFIs in Bangladesh. In ths stn, lensing company have ‘Male mere atten in the anal bean tthe pe aks to thot yeraional and financial formance il deals with he analy of the sures of fads forthe NBFls- Section V attempts to aout seas 4 Nell 8 the mate of deployment of finds by the NBPIs, Secon stots vial area of he sda lok no the teultery franck forthe NBFis and the le of Bangladesh Bank. The prospects of NBFT have been examined in Secton-VL ofthe pape. The paper Ss sre conlsons al gestion in Seto VI SECTIONAL ‘Growth, Characteristis and Progress of NBFIs in Bangladesh ‘As hs been potted ou nthe previous prt the NBFs appear inthe financial act Bangladesh oan the 19806 Actually 981, PDC Ws floated as the fist prvae Sector NBFI under Chapter V of the Bangladesh Bonk Onder, "1972. Chater V of the onder crpoweted Bangladesh Bak to spervse and eultethe factions of pve MBFeh. Since the scetion of IDC, another 17 NBEI have heen ‘ram ime il oda San nme th roa f NB ye terme any mica pops oer prod tne Now. we at these IS NBFIc nthe analy frame woek, me fd tha hey a y hi ti ‘ting 1 gow taking oe of more composite) financial haar and ar ‘ting efor to dsr thr opcaior ceordngy Som our dcuson, ‘elite wo cover the following sex one by one 2.1 Growth of NBFIe Over Time After the easiest of IPDC, two malin sing companies ie Indstial Development Leasing Company (IDLC) of Bangladesh and United easing Company Ld (ULC) wor et epi he mi 98Ds Tn the Incatine,atoe nveimen company Said Bangle Insti ad ‘Agricultural Investment Company Lid. (SABINCO) came into bing 2 jum venture feteen t49 sovereign stats arly Bangladesh and Sed ‘Arabia in 1984 and ated operation TOR, Two kelly sponsored invesmen companies namely Bargladsh Commerce and Iveta (2) and National Cet Lined (NCL) wee ao formed bu within few yar ‘their operations bth te investment compass fll it ees and wer ‘ose down “The effort o bring more NBFs in th capital mart has ofr mide a limited popes. This cold be undesiod rom he fat ht wpa 1997 oly ‘Teasing companies sted operation and tthe 3a inthe proces of fing to be operational. Aol of 1I-mercham banks have stared nctining ice Janay 198, an 8 ae operating 2s fellmerchan banks (Out of 18 NBs oly Tour have been rgistred withthe Series and Exchange Commision (SEC) to operate as merchant tanks. They ae IDLCUFILBLIL and VANIK, 22 Ownership Paters of NBFIS | close loka he omnership pate of the NBs bigs out the fst thatthe ownership compost oud be ofthe lowing spe |. NBFIs eves ty Local Foreign Public hare 2 on Verte Los Feri 3.100 percent Goverment ne and 4 10 percent Local Private one “Toble- elasifies he NBEs acon tthe categorie dan ane 1. Thee ate only thee NBs eich fall er the fr cae of clasifiation of ownership pater. They ae IDLC. United Leasing Company id. (ULC) and rts snc ad vse Ud UFC) the ULE, 6 perce ofthe hues ae held by the fren: UF ‘nati the ato of pic holding, whch 30 porte of he ot cau. 2. We tem th term NBFIs as JV. NBFs where only io owner groupe prev Toland frig owner. We ave atuly 7 NBF which Five sch ownership. pater The isttutns ate ~ CSP Finance Company PDC. SABINCO, VANIK. DBH, UAE-BICL apd BBE ei to be aed ber hatin POC all 30 percent of clly ned pat ‘Pered by the goverment of Bangaesh, while SABINCO. i ‘Goverment to Government Joint Vere between Bargadesh and Sa ‘rain bth he Governments own the ntaton eal 3. There is only one NBFI vic the Infant Development Company Eid DCL} which 100 percent Bangles Govt owned nso, 44 nah ast category we ave 7 NBFs vi Phos Lewin Company Lid. (PLC), Iterations Leasing and Financial Servis id, (LES). Bay Leasing nd Invest Lu. (BLIL), Pre Finance and Investment Lid (PPL. Union Capt Lid. (UCL). ‘angldesh Inia Fiance {Comgary Lid (BFL) and Peoples Leasing and Fnac Scuen La. {PLFS) which ae 100 percent focally owned. What eed 0 Be lid Is tao mean local we understand that hese fpr of inion ae ‘ne by Banas fan bis o pate dvsTate nership Pater of NBFIS |i ae sie [3m a ssa os wang ‘sar TY adr rome Conny TH] 10 liege Cae # Ra] To TRAN pa | a | “The Inertona Fnanee Corporation (IC) an ezan of the World Bank, is actly volved i the effort ofthe developmen of NBFL ia Bangi: acruny as det sarcboling In PDC (178 prem) DLC {CO erent) ant DBM (15 pre ‘Tale Ali the Appendix inate he Sources of fds (ter han sarcolers cu) of fe NBs What mas tine ate a ms he NB in Banglades se depot Ta sores for Bancig. ence the ty -bkng “wg he ators re contre y the noma of noes 1 te a once shat he se Ava data sgget hat oly 4 Nitric xen er option of pu depot king IDLC. PLC. CFI and ‘VANIK) an noe has pone publ with ay te nancial prot, 2.3 Profile of Present Activites of NBFIs “able A2in he Appendn A smi he acts tha the NBS of Bangladesh are at preset metic i. We have te ete range of NBFI ‘ves vide i fou oad roupeasng. fan Financing neste Sn merchant banking apd hese finance. Out of these aie, Tinancing and tween and merchant Banking have een sive it the fllovang capris lan nacing nto tm lending soe er an. ‘awesome & mechan banking it ety fiance. polio Managemen Underwing, wae momagement ody Services and ter ‘An analy of Tale A2 brings out the eteetng fact hat cut of 18 [NBFin 18 an actively msl in the leasing Busines. The concentration of Fin the sing snes makes an ae of mali an orton, ‘The posible explanation tha cul Be fled i this pari that in he bor thse wan serious earth king ten Finance fr setting {nivares in Bangla The two Development mance Insitaons (DFS) ‘incl BSD and BSRS wor facing th ace shortage offs athe donor ccs stnpendadopcraion of thi ret ine dew Fone coer ‘Soe inttans, Commerc banks were mere Heo on wae fitancing and ‘fee tcc to provide long form facing All thse together sean “epi pond for ah aeraive mode of projet financing to rg he ‘fever of ong tr nang Lene anc et in th es rom the Table could seh thts he aren of Ioan Financing [NBFIs hive feed ter eng and stations ave shor tem kun 8 aos etre “The pce of fvestment of NBFs in the inesiment and mechan tunting orcas emo tht encouraging IPDC and. SABINCO ae two Suvi) itn inthis area VANIK fs abo Uying 0 emerge 8 3 ‘Soopcttor by vcraing fonction im the rca of ines at treat aking Prine Fiance nd Unio Capital have st ow er thera vente td merchant anne SeDit only NIT which hasten geil honing mn ‘ye Th anni hate ot DB might ma peal fo hee Te ‘tes intnons amely FIL and FIL have feed sing Fence 2.4 Operational Progres of NBFIs ‘Assessment of progres of he NBFs nets ob done with de car and saniderton NBFIs of Bangladesh have ality evaned pater of once in one aa of operation they ae eto ce et with an) Pract bse to mobilize fandom surpass to dic sectors fe ‘ronony. Sin ems of pres meses ‘erations stand of perfomance comparison punters. Before pone fo discassion, tao pes tobe clarifdth he NBFI ae og fore lopsided development of bates in ne sea te” kesing. he deen eer as ao been Based by hat ac, seen, ut of 18 NBFIs 13 fave aay go ‘hermciesivaved in lease Fiancng We hive alo ted Wo ep ak posible reasons forth sided develope Now lt Rave fc om he Bsns Table-2 Growth of Lease Markets and Perfrmance of Selected NBFs From 1985 197 I FREE fk EER EP EERE a ERR RE i EFERE El a BPR Bee i Ele Ie ? Ekg BEE 5 a] I EFF 4 Eh iTab dpi the prot f tae mart in Halas Fr a pe of 3 year rom 1998 to 197. Performs of major NBFI hae aso cn Incorporated in theta ist tabs a exactions ‘Sons The fal ndry poo terme of exceton and growth of iS anins hat le Son the tab, Invi mart hae aed eve at pomth could se be seo nthe le Acta, he nds experienced high vel of growth in 1995 when grew by 7183 percent and since then the prow dropped wo 57.1 pce i 1996 and a farther low 1o 1288 percent in 1997" The amour of ease xccton of the ny od tT. 1027 malin, Th. 1618 lon and Th. ‘307 ion for 1998, 1988 and 197 respectively” A lok a the easing fence mth boat ime rane reveal thr up 1997 since 1950 the tnday has msinind n sms average growth rt of 26.8 percent. THs tind apr or htr than the growth poston ofthe tn indy is Pakistan where sping pyrexia tht of 25 percent somali (Asian Leaing Associaton 1998. Five NBFI, viz IDLC, ULC, PLC, UFIL and LFS have emerge to be the major player in the ease art ae 1997 thei asiesstopetor ‘ona TK 2186 millon of ttl se exzewon 9 percent ofthe Inds ttalIDLC ha remand the number ne player he esi tmarkc t ULE Becoming shone ote the mart. The progress of PLC i remartble airing the period nde fvow as his creased Inarket share fom mre 159 percan im 1985 to 1643 percent 1997 However as pet lead et hlding HDLC has ei fr aba of ther Cogpeineet ithe eet! Append atthe end prover ws 3 papal representation fart fae contacts nthe Banas for the poi fo 19 1019. i F ce at ie he a iH ih it i 5Table 8 has to deel th te bjt Hk ater the rrwonag-nne sal auton of ane pro o the eading NBFS [tvaved inthe ben. The tds company develope ke peo tert bain aratepy and competive cp Bet the seca ed seems "hcp exe at the etre rm bere mot of he dma or lese equipment omg Service empsing inane, uses ec ‘hehe are st imporance for the NB fo port ston Whi ‘le Iesing cnpancs are me png for iancing the manent ‘ctr significa exten For tuckwur nd ferwdlinkage effets few “Sct play import rok forthe development of overall economy. Neglect ‘tthe eto, by the NBs old ot ae wel forthe rl of he NF Append ha char of sectewise lease cont darn 1997 which pcs tats ttl of 8 pcem ofthe lene comnts were i wasp (Gh) and texte (21) sco apparels and acessories (OF) sete ladda texte then becomes the single Trgest sector of leasing Uses ofthe NBFIs" Engineering (8%). service (7%). chemical and cnurtions (6) were te ther imp ares of cones daring th eid “Table hs bon coma to fo int the Financial performance ofthe selected NBFIs Fase ancing operation The performance ofthe NBFI ve heen mene again in poramcters | Financ Eapese Coverage Rai, Deb qty Rat, Retr on Ege. Ret on Asse Ean Pe ‘Shae (EPS) and Collection Kato Tah Finacial Peformance of Sleced NBFIsin Leasing Business NOTES: UC ese Laan Cogn Bn UL ni ening dagey se teases ped B-ind Gabber oafor ing compares By thar mre cpg PT al ter NE {Sabha ome wel covering thir epee Ae the Eat and Stan Pinnacles Betsy Rat of 5106 der 0 Tepe by mar sand companies exept PLE and LES ha « ‘ener show a his ead é Four cat of sx major payer gain performed wel nthe parameter et te secede weep standin ncn of ar om tana fied vo comgare pod ee ihe the pat he tale Accs Good sh by the omanice ‘oop UF “Two majors in he easing operation i exceedingly wl EPS ding 19981997 fatal Ores area improving heir postions By his Finan trea asthe ble shows ‘hari the mon satisfying yr about the NBs in the tbl is te ‘cotton too fea ental They have bee ble to maint rato 0 8 erent and boven hi ea “we compare the perforce of to major players i sing matt «2 AAT nar a jor Compe gm on between IDL and ULC and TEER ULC wa tlt scare attr postion nme of be nancial cae aos than ts facial strong cometoeIDLC ding he psd of ‘ordacension ‘We are not poston 10 make an abjetve craton of the cpa asin fan oes NOFI HPD, SABINCO SE wich a cose be epee! tks. UAE eine fein art of Bangles for toe than ses bet pictur of tr opera veer Hes tat Se al psa bn cea hee extn “re Al in Ape A conan lie Seo vests of sanitation scons fon 986 to 197. Dung th peri. SARINEO feed poets a dnburenent of Tk. 2591 rlion aaa attion of 1298 eli). The dsburenent we anand (oop com of suction oer fe al een ey rth po. Tae prteino sectrl esnet este SU'AStEahtowct by sheila phrmaceutaly 2 pee As for PDC: 197 the sation potion was TRA aon. of | “shich 1248 mullon was dsb t 1 projets We ate cnstane om ‘making ay Tort nancial a peraina ssamet of the acts Oe (Cmeavaliy of franca ntrmation of the IPDC. The pi that we ‘Saat fo Tale"A3 is tha 1997. fod ad Beers wa the ites svt on PDC pot nemo a ee y pape td ‘caging subnet In 1997, UAESBICL sanctioned and buried Th. 24 {io sng poe. ‘DBH iste only NBFL with Bsc characte fous Financ. 197 seed operations and disbursed al oun of Tk 113 allo int 220 nau the NBFs hive achieve ited and lpsied progress in easing bins: ut amish more ceded to beatae be Sects oe ‘rch priipasn hs ben enone ne economy SECTION -I Analysis ofthe Sources of Pd for the NBFIS ‘Analy ofthe exiting sources of fnds of the NBFs reveals that nly INF went the publi for asing deposits wich alle nly teat ‘Tk280 milion by he ead Soper. 1998. Almost all he NBFIe were Trond to deol ices tans from Toes! banks sl fancal Inston and cet es f the ieratonl ences fo fade the [CStoveumen takinghosing fiance atte aon to the Tans Salute wah them tomer guy” Mow of the NBFs heme fd ‘Shri the major econo team pile of hun ties [As we al how, the financing Form fr the NBFIs can assure 10 ‘ype Connetonal_ and Unconventions. Conventional Sure le ‘Sener fone oeqiy capt commercial Nak lan, las om rane ination: borowing fm fiance cranial epost om et poblic sie of dents nem and stra acca. Wi Slovenoul sources conte sh term eroypate Stet “xo commer brewing, anc of cone papt ie of eat from selena stators te ADB, IFC, ct o-bnce sheet tering Ike suiting and leverage eases and Siscuming sale of ‘Ene mechan ‘As menomed ati, the publ depot bane of the NBFI sry seb NB, can develop the atone tem depot procs of SEAN OW Sy onEAapH AsHg SNM FE A ome.) ev ae. SHON 0 9 wyespun Seog SmnSy fg ~d 1 2014i st et a ait et z Tatleat 3 Lease Finance & Total Domestic Credit During the Period 4 erie i a Tae : ‘| xeon] somes | “| minum | tra : fea] ess le ae hae Bn. on por RT 1 292 asmeay ona fe