Bangladesh University of Professionals (BUP)

Term Paper on

Financial System and Banking Sector of Bangladesh

Course Code: FIN 8602

Course Title: Financial Institution & Market

Submitted to
Dr. Md. Shahidul Islam (Zahid)

Associate Professor

Faculty of Business Studies (FBS)

Bangladesh University of Professionals (BUP).

Submitted by

Group 1

Date of Submission: 8th May,2020

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 Group 1 – Fin Technicians

Name Student Roll No

Md.Rabiul Islam EV- 18018022
Md. Mahabubul Quddus EV- 18018057
Razib Ahmed EV -18018085
S. M. Rezwan Hassan Zeshan EV-18018009
Sufian Imrul Siddiquei EV-18017054

ii
Date: May 8, 2020

To

Dr. Md. Shahidul Islam (Zahid)

Associate Professor

Bangladesh University of Professionals (BUP).

Subject: Financial System and Banking Sector of Bangladesh

Sir,

With due honor, we are wishing to inform you that it was a matter of great pleasure as well as
learning to prepare a report on “Financial System and Banking Sector of Bangladesh” under the
course of Financial Institution & Market, actually we have enjoyed more in preparing this report.
Our five members have worked hard to prepare this report. So, we would highly oblige if the
content of the report has been acceptable to you.

Though we have put our best efforts yet it is very likely that the report may have some mistakes and
omissions that are unintentional. So, we hope that the report will worthy of your consideration.

With Respect yours,

Md. Mahabubul Quddus

On behalf of the Group 1 members

iii
 ACKNOWLEDGEMENT

First of all, we would like to thank ALMIGHTY ALLAH that HE gave us courage to complete this
assignment. We would like to thank all helping hands who were with us to make this term paper.

We also would like to thank our honorable course instructor Dr. Md. Shahidul Islam (Zahid),
Bangladesh University of Professionals (BUP) for giving us the opportunity to prepare this term
paper.

Md. Mahabubul Quddus

On Behalf of the Group 1 Members

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 ABSTRACT

The sectors have been categorized in accordance with their degree of regulation. The 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).
The 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.

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 TABLE OF CONTENTS

Chapter Chapter Names Page No.

No.
1.0 Introduction
1.1 Origin of the report 03-03
1.2 Objectives of the Study 04-04
1.3 Scope of the Report 04-04
1.4 Methodology 05-05
1.5 Limitations of the Study 05-05
2.0 Financial System of Bangladesh 06-33
3.0 Overview of DSE
3.1.1 Historical Overview of DSE 34-34
3.1.2 Mission & Vision of DSE 35-35
3.1.3 Formation of DSE 35-35
3.1.4 Management of DSE 36-36
3.1.5 Trading hour of DSE 36-36
3.2 Members of DSE 36-36
3.3 Circuit Breaker 37-37
3.4 Security Enlistment Rules 38-39
3.5 Number of Security Enlisted 39-41
3.6 IPOs in Different Years 41-42
3.7 Market Capitalization 42-44
3.8 Trading Volume in Numbers 45-46
3.9 Trading Volume in Value 46-47
3.10 Share Price Index: DSE Broad Index 48-49
3.11 Classification of Securities 50-50
4.0 Problems & Suggestions
4.1 Problems of DSE 51-54
4.2 Recommendations 55-55
4.3 Conclusion 56-57
Bibliography 58-58

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 Chapter -1 Introduction
Overview
Financial system of Bangladesh is getting emerged with the support of Bangladesh Bank,
motorized by Bangladesh Bank Order 1972, which is now substitute as regulatory body of
financial institutes. Under the supervision of Bangladesh Bank, 57 scheduled banks and 31 non-
bank financial institutes are running actively in the country. For shielding the interest of general
depositors, it is essential to control the financial institutes expansively so that payment of
depositors may be made on demand. We have to keep in wits one thing that contagious aspect
may be worked in the financial system of Bangladesh in the case of arising bank run to a
particular bank. In that case, the economy of the county may be easily broken. As a result we
will experience the negative growth of the economy in our country. So a brutal dare we might
face if we cannot ensure a substantial financial system in the country.

1.1 Origin of the report

This report on “An overview on Financial System and Banking Sector of Bangladesh” has been
prepared as the partial requirement of the four months course of “FIN-8602: Financial
Institutions and Markets”. This report is a practical part of our academic studies that helps to
understand and experience the activities and functions of our financial markets through studying
the Dhaka Stock Exchange (DSE), the largest and the most important financial market in
Bangladesh.

This report is prepared by the group effort and contributions of all members of the group
following the instructions from our honorable instructor Associate Professor Md. Shahidul Islam
(Zahid) PhD, Department of Banking and Insurance, University of Dhaka.

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1.2 Objectives of the Study

The objectives of the study are as follows:

I. To present an overview of Financial System and Banking Sector of Bangladesh based on

DSE
II. To appraise the principal activities of Financial System and Banking Sector of
Bangladesh based on DSE
III. To analyze the security enlistment rules of Financial System and Banking Sector of
Bangladesh based on DSE
IV. To analyze the security price index of Financial System and Banking Sector of
Bangladesh based on DSE
V. To analyze different categories of Shares traded in DSE
VI. To identify the problems of Financial System and Banking Sector of Bangladesh based
on DSE to suggest remedial measures for the development of the Financial System and
Banking Sector of Bangladesh based on DSE

1.3 Scope of the Report

The scope of this report is to find out the overall performance of DSE by analyzing data of last 9
years (from for the year of 2010-2011 to for the year of 2018-2019). The report is basically
divided into two parts:

i. The Organizational part

ii. The Analysis part

The organizational part of the report gives an overview of Dhaka Stock Exchange. This part
focuses on the history, formation, management, rules and functions of DSE.The analysis part of
the report evaluates the performance of DSE based on the data from several reports and different
performance measures on IPO offerings, market capitalization, trading volume, indexes, etc. This
part also includes findings of present problems and some recommendations are addressed.

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1.4 Methodology

The data, required information and various analysis were collected from DSE website, EWU
Educational Repository and other online journals and portals.

Types of data: Secondary data

Time period of analysis: From 2010-2011 to 2018-2019

Analytic and Statistical tool: MS Excel and SPSS for Trend and Regression analysis

1.5 Limitations of the Study

The main limitation of this report is that, it is purely academic and course related for learning
purpose only. For our limited knowledge and expertise, this report does not present any in depth
analysis from any perspective. Besides, we have limited access to the information and no
primary level data is used for the analyses. Only five years of data is used for analysis and to
draw several conclusions. The time constraint, to prepare the report within a specific date, also
adds some limitations to this report.

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Chapter -2 Financial System of Bangladesh
A financial system is a system that to channels finances from lenders to borrowers, to make
liquidity and money, to supply an outgoing system, to provide financial services such as
insurance and pensions and to offers portfolio adjustment facilities. A developed financial
system is one that has a protected and well-organized payment system, security market and
financial intermediaries that plan financing and derivative markets and financial institutions that
provide right to use to risk management instruments.
The current structure of the financial system in Bangladesh comprises of different types of
banks, insurance companies, and non-bank financial institutions. Bangladesh Bank is at the top
of the banking system and is responsible for assuring prudential administration and central
banking actions for all types of banks working within the banking industry. In contrast, the
Securities and Exchange Commission (SEC) of Bangladesh is the regulatory body for stock-
market correlated activities.
Financial Sectors

The financial system of Bangladesh is comprised of three broad fragmented sectors:

1. Formal Sector,

2. Semi-Formal Sector,

3. Informal Sector.
*Chart: 1.1 : Financial Sectors of Bangladesh

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Formal Sector
The Sectors have been categorized in accordance with their quantity of guideline. The formal
sector includes a regulated institutions like Banks, Non-Bank Financial Insurance companies ,
capital Market Intermediaries like Brokerage Houser ,Merchant Banks, Institutions and so on.
Semi-formal Sector

The semi-formal sector includes those institutions which are synchronized or else but do not drop
under the authority of Central Bank, Insurance Authority, Securities and Exchange Commission
or any other enacted financial supervisor. This sector is mainly represented by Specialized
Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak
Foundation (PKSF), and Samabay Bank, Grameen Bank, Non-Governmental Organizations and
distinct government programs.
Informal Sector
The informal sector includes private intermediaries which are fully unregulated.
The purpose of Financial Market
Financial assets exist in an economy because the saving of various individuals, corporations and
governments during a period of time differ from their investment in real assets. By real assets we
mean such things as houses, buildings, equipment, inventories and durable goods.
A financial asset is created only when the investment of an economic unit in real assets exceeds
its saving, and it finances this excess by borrowing and issuing stock. Of course, another
economic unit must be willing to lend. In the economy as a whole saving surplus units (those
whose savings exceed their investment in real assets) provide funds saving deficit units (those
whose investment in real assets exceed their saving). This exchange of funds is evidenced by
investment instruments or securities representing financial assets to the holders and liabilities to
the issuers.
The purpose of financial markets in economy is to allocate savings efficiently to ultimate users.
If those economic units that saved were the same as those that engaged in capital formation, an
economy could prosper without financial markets.

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The purpose of Financial Institutions
A bank or financial institution is a company that conducts banking business commercially.
Financial institutions are in the business of managing payments, taking receipt of interest bearing
deposits, supply of credit, underwriting and settlement of investment banking among other
activities.
They also manage the balance between investment and borrowing requirements and thus act as a
financial intermediary. They facilitate in the transferring of funds from investors to firms, and
their presence greatly fosters the flow of money in an economy.
In this savings are drawn upon to mitigate the risk involved in the provision of loans.
In the event that the yield curve turns inverse, institutional players in this domain often resort to
offering supplementary fee generating services such as securities underwriting, and prime
brokerage.
The business conduct of these institutions of fortune is closely supervised by the banking
supervision authorities, which exist in almost every country, and in some cases it is carried out
by the central bank.
Financial market in Bangladesh
Money Market: The primary money market is comprised of banks, FIs and primary dealers as
intermediaries and savings & lending instruments, treasury bills as instruments. There are
currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary
market is overnight call money market which is participated by the scheduled banks and FIs. The
money market in Bangladesh is regulated by Bangladesh Bank (BB), the Central Bank of
Bangladesh.
Capital market: The primary segment of capital market is operated through private and public
offering of equity and bond instruments. The secondary segment of capital market is
institutionalized by two (02) stock exchanges-Dhaka Stock Exchange and Chittagong Stock
Exchange. The instruments in these exchanges are equity securities (shares), debentures,
corporate bonds and treasury bonds. The capital market in Bangladesh is governed by Securities
and Exchange Commission (SEC).
Foreign Exchange Market: Towards liberalization of foreign exchange transactions, a number
of measures were adopted since 1990s. Bangladeshi currency, the taka, was declared convertible
on current account transactions (as on 24 March 1994), in terms of Article VIII of IMF Article of

8
Agreement (1994). As Taka is not convertible in capital account, resident owned capital is not
freely transferable abroad. Repatriation of profits or disinvestment proceeds on non-resident FDI
and portfolio investment inflows are permitted freely. Direct investments of non-residents in the
industrial sector and portfolio investments of non-residents through stock exchanges are
repatriable abroad, as also are capital gains and profits/dividends thereon. Investment abroad of
resident-owned capital is subject to prior Bangladesh Bank approval, which is allowed only
sparingly. Bangladesh adopted Floating Exchange Rate regime since 31 May 2003. Under the
regime, BB does not interfere in the determination of exchange rate, but operates the monetary
policy prudently for minimizing extreme swings in exchange rate to avoid adverse repercussion
on the domestic economy. The exchange rate is being determined in the market on the basis of
market demand and supply forces of the respective currencies. In the forex market banks are free
to buy and sale foreign currency in the spot and also in the forward markets. However, to avoid
any unusual volatility in the exchange rate, Bangladesh Bank, the regulator of foreign exchange
market remains vigilant over the developments in the foreign exchange market and intervenes by
buying and selling foreign currencies whenever it deems necessary to maintain stability in the
foreign exchange market.

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Regulators of the Financial System

Central Bank:

Bangladesh Bank acts as the Central Bank of Bangladesh which was established on December
16, 1972 through the enactment of Bangladesh Bank Order 1972- President’s Order No. 127 of
1972 (Amended in 2003). The general superintendence and direction of the affairs and business
of BB have been entrusted to a 9 members' Board of Directors which is headed by the Governor
who is the Chief Executive Officer of this institution as well. BB has 40 departments and 9
branch offices. In Strategic Plan (2010-2014), the vision of BB has been stated as, “To develop
continually as a forward looking central bank with competent and committed professionals of
high ethical standards, conducting monetary management and financial sector supervision to
maintain price stability and financial system robustness, supporting rapid broad based inclusive
economic growth, employment generation and poverty eradication in Bangladesh”.
The main functions of BB are (Section 7A of BB Order, 1972) -to formulate and implement
monetary policy

✓ To formulate and implement intervention policies in the foreign exchange market.

✓ To give advice to the Government on the interaction of monetary policy with fiscal and
exchange rate policy, on the impact of various policy measures on the economy and to
propose legislative measures it considers necessary or appropriate to attain its objectives
and perform its functions;
✓ To hold and manage the official foreign reserves of Bangladesh;
✓ To promote, regulate and ensure a secure and efficient payment system, including the
issue of bank notes;
✓ To regulate and supervise banking companies and financial institutions

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Core Policies of Central Bank
Monetary policy

• The main objectives of monetary policy of Bangladesh Bank are:

• Price stability both internal & external
• Sustainable growth & development
• High employment
• Economic and efficient use of resources
• Stability of financial & payment system
Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement (MPS)
twice (January and July) in a year. The tools and instruments for implementation of monetary
policy in Bangladesh are Bank Rate, Open Market Operations (OMO), Repurchase agreements
(Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).
Reserve Management Strategy:

Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies
to minimize the risk emerging from widespread fluctuation in exchange rate of major currencies
and very irregular movement in interest rates in the global money market. BB has established
Nostro account arrangements with different Central Banks. Funds accumulated in these accounts
are invested in Treasury bills, repos and other government papers in the respective currencies. It
also makes investment in the form of short term deposits with different high rated and reputed
commercial banks and purchase of high rated sovereign/supranational/corporate bonds. A
separate department of BB performs the operational functions regarding investment which is
guided by investment policy set by the BB's Investment Committee headed by a Deputy
Governor. The underlying principle of the investment policy is to ensure the optimum return on
investment with minimum market risk.
Interest Rate Policy:

Under the Financial sector reform program, a flexible interest policy was formulated. According
to that, banks are free to charge/fix their deposit (Bank /Financial Institutes) and Lending
(Bank /Financial Institutes) rates other than Export Credit. At present, except Pre-shipment
export credit and agricultural lending, there is no interest rate cap on lending for banks. Yet,

11
banks can differentiate interest rate up to 3% considering comparative risk elements involved
among borrowers in same lending category. With progressive deregulation of interest rates,
banks have been advised to announce the mid-rate of the limit (if any) for different sectors and
the banks may change interest 1.5% more or less than the announced mid-rate on the basis of the
comparative credit risk. Banks upload their deposit and lending interest rate in their respective
website.
Capital Adequacy for Banks and FIs:

With a view to strengthening the capital base of banks & FIs, Basel-II Accord has been
introduced in both of these sectors. For banks, full implementation of Basel-II was started in
January 01, 2010 (Guidelines on Risk Based Capital Adequacy for banks). Now, scheduled
banks in Bangladesh are required to maintain Tk. 4 billion or 10% of Total Risk Weighted
Assets as capital, whichever is higher. For FIs, full implementation of Basel-II has been started
in January 01, 2012 (Prudential Guidelines on Capital Adequacy and Market Discipline (CAMD)
for Financial Institutions). Now, FIs in Bangladesh are required to maintain Tk. 1 billion or 10%
of Total Risk Weighted Assets as capital, whichever is higher.
Deposit Insurance:
The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a
safety net for the depositors. All the scheduled banks Bangladesh are the member of this scheme
Bank Deposit Insurance Act 2000. The purpose of DIS is to help to 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. A Deposit Insurance Trust Fund (DITF) has also been created
for providing limited protection (not exceeding Taka 0.01 million) to a small depositor in case of
winding up of any bank. The Board of Directors of BB is the Trustee Board for the DITF. BB
has adopted a system of risk based deposit insurance premium rates applicable for all scheduled
banks effective from January - June 2007. According to new instruction regarding premium
rates, problem banks are required to pay 0.09 percent and private banks other than the problem
banks and state owned commercial banks are required to pay 0.07 percent where the percent
coverage of the deposits is taka one hundred thousand per depositor per bank. With this end in
view, BB has already advised the banks for bringing DIS into the notice of the public through
displaying the same in their display board.

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Insurance Authority:

Insurance Development and Regulatory Authority (IDRA) was instituted on January 26, 2011 as
the regulator of insurance industry being empowered by Insurance Development and Regulatory
Act, 2010 by replacing its predecessor, Chief Controller of Insurance. This institution is operated
under Ministry of Finance and a 4-member executive body headed by Chairman is responsible
for its general supervision and direction of business.

IDRA has been established to make the insurance industry as the premier financial service
provider in the country by structuring on an efficient corporate environment, by securing
embryonic aspiration of society and by penetrating deep into all segments for high economic
growth. The mission of IDRA is to 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 and for matters connected
therewith or incidental thereto.
Securities and Exchange Commission (SEC) performs the functions to regulate the capital
market intermediaries and issuance of capital and financial instruments by public limited
companies. It was established on June 8, 1993 under the Securities and Exchange Commission
Act, 1993. A 5-member commission headed by a Chairman has the overall responsibility to
administer securities legislation and the Commission is attached to the Ministry of Finance.
The mission of SEC is to 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. The main functions of SEC are:

✓ Regulating the business of the Stock Exchanges or any other securities market.
✓ Registering and regulating the business of stock-brokers, sub-brokers, share transfer
agents, merchant bankers and managers of issues, trustee of trust deeds, registrar of an
issue, underwriters, portfolio managers, investment advisers and other intermediaries in
the securities market.
✓ Registering, monitoring and regulating of collective investment scheme including all
forms of mutual funds.

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 ✓ Monitoring and regulating all authorized self regulatory organizations in the securities
market.
✓ Prohibiting fraudulent and unfair trade practices in any securities market.
✓ Promoting investors’ education and providing training for intermediaries of the securities
market.
✓ Prohibiting insider trading in securities.
✓ Regulating the substantial acquisition of shares and take-over of companies.
✓ Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of
securities, the Stock Exchanges and intermediaries and any self regulatory organization
in the securities market.
To bring Non-government Microfinance Institutions (NGO-MFIs) under a regulatory framework,
the Government of Bangladesh enacted "Microcredit Regulatory Authority Act, 2006’" (Act no.
32 of 2006) which came into effect from August 27, 2006. Under this Act, the Government
established Microcredit Regulatory Authority (MRA) with a view to ensuring transparency and
accountability of microcredit activities of the NGO-MFIs in the country. The Authority is
empowered and responsible to implement the said act and to bring the microcredit sector of the
country under a full-fledged regulatory framework.
MRA’s mission is to ensure transparency and accountability of microfinance operations of NGO-
MFIs as well as foster sustainable growth of this sector. In order to achieve its mission, MRA has
set itself the task to attain the following goals:

✓ To formulate as well as implement the policies to ensure good governance and

transparent financial systems of MFIs.
✓ To conduct in-depth research on critical microfinance issues and provide policy inputs to
the government consistent with the national strategy for poverty eradication.
✓ To provide training of NGO-MFIs and linking them with the broader financial market to
facilitate sustainable resources and efficient management.
✓ To assist the government to build up an inclusive financial market for economic
development of the country.
✓ To identify the priorities in the microfinance sector for policy guidance and dissemination
of information to attain the MRA’s social responsibility.

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According to the Act, the MRA will be responsible for the three primary functions that will need
to be carried out, namely:
o Licensing of MFIs with explicit legal powers
o Supervision of MFIs to ensure that they continue to comply with the licensing
requirements; and
o Enforcement of sanctions in the event of any MFI failing to meet the licensing
and ongoing supervisory requirements.
Banks:

Banking sector is one of the major sectors of Bangladesh and contributes greatly to the economy
of the country. There are a number of banks under various categories in Bangladesh.
Banks can be classified in four major categories in respect of ownership such as:
1. Nationalized Commercial Bank (NCBs)
2. Specialized Banks (SPBs)
3. Private Commercial Banks (PCBs)
4. Trans-National Banks (TNBs)
There is a great impact of the commercial banking system on the financial sector of Bangladesh.
Bangladesh bank is the central bank of Bangladesh and it controls the whole banking sector. It
takes all the major decisions about the banking sector. Here are total 57 states owned, private,
foreign and specialized banks in Bangladesh. More specifically there are 6 state-owned
commercial banks, 31 private commercial banks, and 10 foreign banks.
Nobel Prize winning the Grameen bank is a specialized micro-finance institution. The Grameen
bank and its micro-credit system have brought a great revolution to the nation’s economy and
has contributed to poverty reduction. The Grameen bank has also focused on women
empowerment which has helped the economy of Bangladesh in great extent.

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Banking structure in Bangladesh respect of bank is shown in the chart below:

Table: 1.1 Amounts of Banks in Bangladesh

Bank types Number of banks

National commercial banks 4

Specialized Banks 4

Private commercial banks 32

Foreign commercial bank 9

Islamic Banks 8

Total 57

Historical Background
Bangladesh became independent in 1971. after its independence it started its journey in the
banking sector. At first there were 6 nationalized banks, 2 state owned specialized banks, 3
foreign banks, the banking sector flourished much in the 1980s when private banks came into
operation.
At present there are two types of banking sector in Bangladesh they are:

1. schedule bank
2. Non-schedule bank
3. Scheduled Banks

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The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are
termed as Scheduled Bank State owned commercial banks, private commercial banks, Islamic
commercial banks, foreign commercial banks and some specialized banks are Scheduled Bank
State Owned Commercial Banks
Staten owned commercial bank is a financial institution that has been chartered by a state to
provide commercial banking. A state bank is not the same as a central or reserve bank because
those banks are primarily concerned with influencing a government's monetary policy. Here are
the state-owned commercial banks of Bangladesh-
Private Commercial Banks
A commercial bank is a type of financial institution that provides services such as accepting
deposits, making business loans, and offering basic investment products.
Islamic Commercial Banks
Islamic banking is a banking system that is based on the principles of Islamic law, also referred
to as Shariah law, and guided by Islamic economics. Two basic principles behind Islamic
banking are the sharing of profit and loss and, significantly, the prohibition of the collection and
payment of interest by lenders and investors. Collecting interest or "riga" is not permitted under
Islamic law
Specialized Banks
Specialized Banks are banks which concentrate mainly on financing specialized economic and
social activities. Specialized activities may be small and cottage industries financing. Financing
the rural asset less and landless people etc. Here are the specialized banks of Bangladesh-
✓ Bangladesh Krishi Bank
✓ Bangladesh Development Bank
✓ BASIC Bank Limited
✓ Rajshahi Krishi Unnayan Bank (RAKUB)
Non-Scheduled Banks
The banks which are established for special and definite objective and operate under the acts that
are enacted for meeting up those objectives are termed as Non-Scheduled Bank. These banks
cannot perform all functions as like as scheduled banks. Grameen Bank, Probashi --Kallyan
Bank, Karmasangsthan Bank, Progoti Co-operative Land Development Bank Limited (progoti
Bank) and Answer VDP UnnayanBankare Non-Scheduled Bank *Source: Bangladesh Bank

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Problems of Banking Sector in Bangladesh
The banking sector in Bangladesh has been performing well in terms of employment generation,
profitability and operations during the rest few decades. But the banking industry has been facing
the challenges arising from political instability and uncertainties in addition to inept management
in decision making and so on. Other challenges faced by the banking sector in Bangladesh are
lack of effective and efficient corporate governance. Best practice of corporate governance can
speed up the operation, cut corruption, increase profitability and the performance of the banks.
Imbibing best practice of corporate governance ion the banking industry is the crying need of the
time. Highly inconsistent interest rates of deposits and landings of banks in the country stand as a
stumbling block to banks investment. Because of high interest rates on lending from the local
banks, some off-shore banks have started lending in the country at lower rates then the local
banks. They are not investing in stocks of shares. If the process continues, the local banks will
face more problems in investment. Improved IT sector can play a major role in the banking
industry of the country by enabling banks to connect more customers and speed up banking
operations. Now-a-days people can do banking transactions sitting at offices or at home without
visiting banks physically. Although this system of banking has started in Bangladesh, it is still
very inadequate compare to needs.
Possibilities of Banking Sector in Bangladesh
✓ Banking sector is an integral part of the economy of a country. In Bangladesh also the
banking sector has huge possibilities.
✓ Banking sector has a great opportunity to become a major sector of the national economy.
✓ Bangladesh has huge number of population. This huge population can be used to
accelerate the banking sector by taking proper initiatives.
✓ Banking sector can be the main source of loan and information for the business entities
and largely contribute to the national economy.
✓ As Bangladesh is an agricultural country the sector has huge possibility to flourish. If
banking sector gives proper help and facilities in the form of loan and instruction it can
be a huge contribution to the economy.
✓ There are many foreign banks in Bangladesh yet many more foreign banks can be opened
to broad the banking sector in international level.

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 ✓ General people in Bangladesh face many problems in opening and performing banking
activities. If proper facilities and help are provided to the people banking sector can be
more popular among the general people also.
FIs
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, 31 FIs are
operating in Bangladesh while the maiden one was established in 1981. Out of the total, 2 is fully
government owned, 1 is the subsidiary of a SOCB, 13 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 six months tenure), Credit Facility from Banks and other FIs, Call Money as
well as Bond and Securitization.
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.
Money Market in Bangladesh
Money Market is an integral part of the financial market of a country. It provides a medium for
the redistribution of short term loan able funds among financial institutions, which perform this
function by selling deposits of various types, certificate of deposits and discounting of bills,
TREASURY BILLs etc. The participants in the money market are: the central bank, commercial
banks, the government, finance companies, contractual saving institutions like the pension funds,
insurance companies, savings and loan associations etc. The instruments that are generally traded
in the money market constitute: treasury bills, short-term central bank and government bonds,
negotiable certificates of deposits, bankers acceptances and commercial papers like the bills of
exchange and promissory notes, mutual funds etc.
The money market in Bangladesh is in its transitional stage. The various constituent parts of it
are in the process of formation, while continuous efforts are being made to develop appropriate
and adequate instruments to be traded in the market. At present, government treasury bills of

19
varying maturity, Bangladesh Bank Bills and Certificates of Deposits etc in limited supply are
available for trading in the market. However, the short-term CREDIT market of the banking sector
experienced a tremendous growth since liberation. In 1999, a total of about 6000 branches of the
scheduled banks provided short-term credit throughout the country in the form of cash credit,
overdraft and demand loan. The rates of interest are determined by the individual banks and as
such the market is quite competitive. Each bank maintains its liquidity and supply of fund is
arranged throughout the country with the help of an interconnected network of branches.
BANGLADESH BANK as central bank of the country exercises its role in this market through the
use of instruments such as bank rate, open market operations and changes in statutory liquidity
requirements.
The money market of Bangladesh reached its present phase through a series of changes and
evolution. Initially, after liberation, money market was the major constituent part of the financial
market of the country. Capital market, its other segment was a relatively smaller part. All
financial institutions of the country were nationalized after liberation. The growth and evolution
of money market in the country took place during the period from 1971 to the early eighties
under various sets of interventionist rules and regulations of the government and as such it could
hardly reflect the actual market conditions. However, in this period a vast financial
superstructure with large network of commercial bank branches was established in the country.
Simultaneously, specialized financial institutions under government sector also emerged with the
objective of mobilizing financial resources and channeling them for short, medium- and long-
term credit and investments. The market participants had to operate in an environment of
directed lending and loan disbursement goals, and predetermined rates of interest fixed by the
authority. However, rate of interest in the call market was flexible but due to prevalence of
liberal refinance facility at concessional rates from Bangladesh Bank, the activities of call money
market remained insignificant.
In the beginning of the 1980s, money market in Bangladesh entered a new era with the
denationalization of two nationalized banks and establishment of some private banks. With this
development money market assumed the characteristics of a competitive market in the country.
However, the administered interest rate structure and the government's policy of priority sector
lending continued to operate as factors that deterred the development of a liberalized money
market in the country.

20
Constituents of money market Structurally, money market in Bangladesh is composed of two
broad groups of institutions: formal and informal. The formal institutions (up to 1999) include
the Bangladesh Bank at the apex, 4 nationalized commercial banks, 27 domestic and 12 foreign
private commercial banks, 9 specialized (development) banks, 24 NON-BANK FINANCIAL

INSTITUTIONs, a number of non-scheduled banks. Informal institutions comprised mainly the

moneylenders and small co-operative organizations, which are not under the control of the
central bank. The three distinct components of organized segment of money market of
Bangladesh are the inter-bank market, call money market and bill market.
The year 1990 may be treated as a landmark in the evolution of money market in Bangladesh.
This year a comprehensive Financial Sector Reform Programme (FSRP) was undertaken to
establish a market oriented financial structure in the country. The objectives of FSRP were to
deregulate lending activities, replace the refinance facilities with rediscount facility, and abolish
the administered interest rate regime. Subsequently, introduction of new money market
instruments such as certificate of deposits (CDs), Bangladesh Bank bills of 91-days and 30-days
maturity and some new government treasury bills were introduced to accelerate the pace of
development of money market in the country.
Inter-bank market operates within a limited scale in the form of inter bank deposits and
borrowings and has virtually no fixed price fixing mechanism. Traditionally, scheduled
commercial banks lend to each other when they are in need of temporary funds. Sometimes,
banks also keep a part of their resources to other banks as deposits and borrow as and when
needed against the lien of those deposits. Small banks usually keep their funds as deposits with
large banks for safety.
Non-bank financial institutions also take part in inter-bank market operations in Bangladesh by
way of lending their fund to the deficit banks. The inter-bank transactions are concentrated
mainly in Dhaka city but may also be found in other parts of the country. As part of fund
management, branch offices of banks, which can not send their surplus funds to their respective
head offices, usually keep them in their nearest big branch or in other banks and draw the funds
back as and when needed.
Inter-bank transactions, although constitute an integral part of money market, comprise a small
portion of total banking activities. Inter-bank deposits as percent of total deposits varied between
2 and 5 percent during 1986-99. This indicator was between 1.6 and 2.5 percent during the FSRP

21
period of 1990-96. Historically, there appears to be a positive correlation between growth of
inter-bank deposits and excess cash reverses of the banking system. Total inter-bank deposits
increased from Tk 3.4 billion in June 1986 to Tk 25 billion in December 1998. Excess cash
reverses increased during this period from Tk 1.3 billion to Tk 21.5 billion.
The deposit resources of banks registered an increase of Tk 122.6 billion or an yearly average
growth of 22% during the period between June 1986 to June 1991 and 18% during June 1991-
June 1998. That the money market is not much developed in Bangladesh is depicted from the
growth pattern of deposits of the country.
Certificate of deposit was introduced as a money market instrument in Bangladesh in 1983. Its
objective was to strengthen the money market and bring idle funds, including those arising from
black money and unearned incomes, within the fold of the banking system.
The Bearer of Certificate of Deposits (BCD) with a fixed maturity is issued by and payable at
the bank to Bangladeshi nationals, firms and companies. The certificate does not contain the
name of the purchaser or holder. The interest rate is not fixed as in the case of other deposit
resources accepted by the banks at present.
The interest is determined on the date of issue of CDs based on the demand and supply of funds
in the money market. The difference between the face value of CDs and the prepaid interest is
received by the bank from the purchaser of CDs at the time of issue. The bearer of CDs can sell
the same to another purchaser. The bank maintains no record other than the Certificate No., rate
of interest allowed, and the date of sale and encashment. A bank does not issue certificate of
deposits for the value exceeding the limit prescribed for it by the Bangladesh Bank. The
outstanding number of CDs was about Tk 1.05 billion in June 1988 and increased to Tk 2.91
billion in June 1992 and further, to Tk 3.44 billion in December 1998. The amount of resources
mobilized through issue of CDs was only 0.58 percent of total deposits at the end of December
1998.
Call money market is the most sensitive part of money market, in which a good number of
players from the banking as well as the non-bank financial sector actively participate on a regular
basis. Initially, this market developed as an inter-bank market where the banks in temporary
deficit of cash resorted to borrowing from other banks having surplus funds. As banks were in
the public sector until the beginning of the 1980s, the Bangladesh Bank provided them with
liberal refinance facilities at concessional rates. There was hardly any need for raising funds

22
from the call money market during this period. Moreover, administered interest rate regime, easy
availability of borrowing from central bank and its directive to provide credit to priority sectors
were the major impediments in development of a call money market in the country.
Notwithstanding the fact, banks participated in a limited scale in the call money market mainly to
wipe out the temporary mismatch in their assets and liabilities.
A turning point was the denationalization of Uttara and Pubali Bank in 1983 and 1984
respectively and the government decision to allow private banks to operate in the country.
Formation of private banks during the 1980s provided new opportunities to develop this segment
of money market. In 1985, two investment companies and in 1989, one leasing company were
allowed to participate in the call money market. At present, all banks including specialised ones
and non-bank financial institutions are allowed to participate in this market.
Basic features the transactions of call money market are mainly Dhaka based. Since, the head
offices of all banks and financial institutions are located in Dhaka, the branches of the banks and
financial institutions from all over the country remit their excess funds to their respective head
offices at Dhaka for investment. The head offices, after meeting their usual liquidity requirement
invest the surplus funds in the call money market.
As there is no brokerage house or intermediary organization, the transactions in call money
market usually take place on the basis of bilateral negotiations. Since call loans are made on
clean basis, i.e., without any security, lending institutions/banks are always cautious in the
selection of borrowing banks/institutions.
Foreign banks are the main source of liquidity in the call money market. Cost of funds for
foreign banks are very low as compared to the indigenous banks and as such they can hold a
substantial amount of excess liquidity for lending in the call money market. In case of borrowing
they are also at a very advantageous situation as compared to the local banks. Foreign banks
have in their portfolio lower amount of non-performing loans compared to domestic private
banks and nationalized banks. Local private banks appear to be the regular borrowers in the call
money market.
Information systems of banks in Bangladesh are outdated. Market players therefore, do not know
much about the demand for and supply of fund. Banks and financial institutions having surplus
funds take advantage of the market imperfection of domestic deficit banks.

23
Bangladesh Bank has circulated some guidelines to the lending and borrowing banks and
financial institutions regarding operations in the call money market. Although it is not
compulsory for banks to participate in the call market, they are advised to provide call loans
considering liquidity, solvency and sources of repayment of borrowings by the borrowing
institutions.
The demand for and supply of funds in the call market remains volatile throughout the year with
some occasional turbulence. The transactions and the rate of interest are largely linked with
government treasury bill market, seasonality in demand for bank loans, central bank's monetary
policy, variation in discount rate, open market operations, changes in statutory reserve
requirements, excess liquidity position of the banks etc. The transactions and the variations of the
rate of interest in call money market normally remains high during November to April and as
such the rate of interest during this period also goes up.
The underdeveloped nature of the inter-bank market in Bangladesh is evident from the large
spread between the highest and lowest rates in the call money market. The lowest call money
market rate always remained higher than the Bank Rate during the period from September 1985
to June 1992. One notable feature of the call money market is that the spread between lowest and
highest call money market rate has been larger during the reform period. It is because of the fact
that with the implementation of FSRP, the need for funds of banks other than the Bangladesh
Bank increased with abolition of easy refinance facility from the central bank. Thereafter, the
lowest inter-bank call money rate remained lower than the bank rate. The inter-bank call money
rate varied with rise in excess cash reserves of banks.
Experience suggests that when there was sufficient excess reserves with banks, the inter-bank
rate came down but the rate denoted increase with the accentuation of short-fall in reserves
position of banks. Compared to nationalized banks and domestic private banks, the foreign banks
in general, and Islami banks in particular, held higher excess reserves with them. Foreign banks
are the major sources of supplier of funds to the inter-bank market in recent years. Before the
introduction of financial sector reforms, foreign banks preferred preserving excess liquidity to
lending to inter-bank market partly because of lack of confidence and partly because of
instructions from their head office. In addition, the information gap between borrowing and
lending banks also discouraged transactions in the inter-bank market.

24
The rate of interest in the inter-bank call money market reached a maximum of 21% in
November 1997. During the first half of 1998, there was a tremendous pressure in the call money
market of the country. The rate of interest reached 27% in February 1998. A large number of
domestic private and foreign banks borrowed at the rates of 20% and above up to April 1998.
During 1997-98, Bangladesh Bank followed a restrictive monetary policy. In view of expansion
of domestic credit, bank rate was raised to 8% from 7.5% in November 1997 and tightened the
discount window for the banks. The government also borrowed substantial amount of funds from
the banking sector to meet its budgetary shortfall in the second half of 1997-98. Total
outstanding treasury bill holding by the scheduled banks which was only Tk 11.48 billion at the
end of June 1997, reached the level of Tk 25.11 billion at the end of January 1998, and further to
Tk 27.94 billion at the end of June 1998. However, during 1998-99, the pressure in call money
market eased substantially.
The rates of interest amidst fluctuations reached a maximum of 17% during 1998-99. Due to
prolonged and devastating floods at the beginning of 1998-99, the country's monetary policy was
relaxed to enable banks to provide necessary credit for early recovery of economic activities.
Easy access of the scheduled banks to the discount window of the Bangladesh Bank helped them
holding liquidity position at a comfortable level. The banks borrowed an amount of Tk 9.15
billion from the Bangladesh Bank during 1998-99 as compared to a much lower amount of Tk
1.13 billion during 1997-98. Moreover, excess reserve position of the banks increased by Tk 4.96
billion during 1998-99 as compared to an increase of Tk 9.78 billion in the preceding year. As a
result, the call money market witnessed a lower pressure during 1998-99.
Bill market is restricted to buying and selling of government treasury bills. In the past, it was
basically concentrated in transaction of government treasury bills of 3-month maturity at
predetermined rates. Commercial banks were obliged to buy these bills as approved security to
meet their statutory liquidity requirement (SLR) under the Banking Companies Act. Moreover,
these instruments were being used to mop up excess cash from the banking sector and help
government to borrow money from banks to meet its budgetary shortfall. In fact, it was a guilt-
edged market where both the principal and interest were guaranteed by the government.
Bangladesh Bank, on behalf of the government, was entirely responsible for arranging buying
and selling of treasury bills. However, the availability of the government treasury bills depended
only on the fiscal consideration of the government. Bangladesh Bank had no scope of its own to

25
increase or decrease their supply. Besides, interest rates were not market based and were fixed
arbitrarily by the government from time to time. In addition to the commercial banks,
Bangladesh Bank also had to hold a portion of government treasury bills.
The commercial bill market remained very narrow in the country largely due to a low level of
industrialization and a slow growth of trade and commerce. Banks traditionally financed two
broad categories of commercial bills viz. inland bills and export bills. These bills are marketable
papers and can be resold in the market at a competitive rate. Usually, the holders of these bills
sell them for cash to the banks, which pays the holder the face value of the bills less collection
charges and the interest for the remaining period of the bill. Prevalence of cash credit system of
the banks is a major hindrance in the way of the development of an active commercial bill
market in the country. Stamp duty, procedural difficulties and reluctance of the drawees of bills
to undertake the additional paper work involved in handling documents etc hindered the
development of commercial bill market. With the introduction of FSRP, the commercial bill
market is gradually developing in the country. The amount of commercial bill financing by the
Deposit Money Bank (DMB) was only Tk 8.60 billion at the end of January 1991. This rose to
Tk 36.20 billion at the end of December 1998.
Bangladesh Bank introduced its own security, the 91-day Bangladesh Bank Bill in December
1990. This added a new dimension in the bill market of Bangladesh. The bill was issued at a
discount at par value of Tk 100 through monthly auctions held at the Bangladesh Bank. Banks,
financial institutions and others including individuals, firms, companies and corporate bodies
were eligible to invest in the Bangladesh Bank Bill. The bill was introduced primarily to control
liquidity of the banking system in accordance with the requirement of monetary policy. The
ultimate objective was the development of a workable secondary market for successful open
market operations by the Bangladesh Bank. Later, Bangladesh Bank introduced 30-day
Bangladesh Bank Bills. The frequency of auctions of these bills was also increased.
Despite regular auction of Bangladesh Bank Bills, government treasury bills continued its
normal transaction in the market. However, following the declaration of Bangladesh Bank Bills
as approved securities for the SLR purposes, the effectiveness of the bills weakened as an
instrument of monetary control. The auctions of Bangladesh Bank Bills were, therefore,
suspended from March 1997. On the other hand, the auctions of the four categories of
government treasury Bills ie, 30-day, 90-day, 180-day and 1-Year Bills were held on weekly

26
basis regularly up to August 1998. These treasury bills were replaced later by the newly
introduced 28-day, 91-day, 182-day, 364-day, 2-year and 5-year government treasury bills since
September 6 1998.
The main features of the bill market are as follows:
It is still a captive market. Banks and financial institutions having SLR obligation are the only
participants in this market. Financial institutions having no obligation of SLR, corporate or non-
corporate firms, semi-government or autonomous bodies having temporary surplus funds do not
invest in government treasury bills.
Bangladesh Bank is the main holder of treasury bills. These are sold to the banks and financial
institutions on the basis of requirement through auctions.
The rates of interest of treasury bills are now competitive and flexible. Treasury bill rates largely
influence the market rate in the other segment of the money market, particularly, the rate of
interest in the call money market.
There is no secondary market for trading of these bills. However, in case of need of funds the
holders of bills can get them rediscounted with the Bangladesh Bank.
The sale of treasury bills depends on the budgetary requirements of the government. Moreover,
due to SLR obligations banks are compelled to hold a certain amount of treasury bills. As a
result, treasury bill market of Bangladesh turned to be a non-liquid market.
The holdings of treasury bills by the deposit money banks (DMB) were only Tk 0.94 billion on
30 June 1973 and the rate of interest was 6%. Amidst fluctuations, the volume went up to Tk
9.54 billion at the end of June 1986. The rates of interest went up to 9% at that time. Although
the rate of interest declined to 8% at the beginning of 1987, the treasury bill holdings by the
DMBs went up substantially to Tk 12.51 billion at the end of June 1987. The treasury bill
holdings reached a peak of Tk 45.12 billion at the end of June 1993 and thereafter, it declined to
Tk 0.46 billion at the end of June 1995. However, the treasury bill holdings shoot up to Tk 49.73
billion by May 1999. It may be assumed that lower treasury rate as compared to higher yield on
Bangladesh Bank Bill might have induced the banks to shift their portfolio investments in favour
of the latter. However, due to suspension of auctioning of Bangladesh Bank Bills government
treasury bills, other than the commercial bill segment, have become the only instruments in the
bill market.

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Capital Market in Bangladesh
Definition
Capital market can be termed as the engine of raising capital, which accelerates industrialization
and the process of privatization. In other words, capital market means the share and stock
markets of the country. It is a market for long term fund. With the emergence of the need for
infrastructural development projects, for setting up of new industries for entrepreneurial
attempts-now there are more frequent needs of funds. Participants in the capital markets are
many. They include the commercial banks, saving and loan associations, credit unions, mutual
saving banks, finance houses, finance companies, merchant bankers, discount houses, venture
capital companies, leasing companies, investment banks & companies, investment clubs, pension
funds, stock exchanges, security companies, underwriters, portfolio-managers, and insurance
companies.
Functions
The functioning of an efficient capital market may ensure smooth floatation of funds from the
savers to the investors. When banking system cannot meet up the total need for funds to the
market economy, capital market stands up to supplement. To put it in a single sentence, we can
therefore say that the increased need for funds in the business sector has created an immense
need for an effective and efficient capital market. It facilitates an efficient transfer of resources
from savers to investors and becomes conduits for channeling investment funds from investors to
borrowers. The capital market is required to meet at least two basic requirements:
(a) it should support industrialization through savings mobilization, investment fund allocation
and maturity transformation
(b) it must be safe and efficient in discharging the aforesaid function. It has two segments,
namely, securities segments and non-securities segments.

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Classification of companies
The SEC classified firms in terms of A, B, G, N and Z categories that had not only guided retail
investors to know weak shares but also helped reducing netting and gambling done by a few
hidden consortia.
■ “A” Category Companies: Companies which are regular in holding the Annual General
Meetings (AGM) and have declared dividend at the rate of 10 percent or more in a calendar year.
(Mutual fund, debentures and bonds are being traded in this category).
■ “B” Category Companies: Companies which are regular in holding the AGM but have failed
to declare dividend at least at the rate of 10 percent in a calendar year.
■ “G’ Category Companies: Greenfield companies.
■ “N’ Category Companies: All newly listed companies except Greenfield companies will be
placed in this category and their settlement system would be like B-Category companies.
■ “Z’ Category Companies: Companies which have failed to hold the AGM or failed to declare
any dividend or which are not in operation continuously for more than six months or whose
accumulated loss after adjustment of revenue reserve, if any is negative and exceeded its paid up
capital.
Importance of Capital Market in the economy
The capital market is the market for long-term loans and equity capital. Developing countries in
fact, view capital market as the engine for future growth through mobilizing of surplus fund to
the deficit group. An efficient capital market may perform as an alternative to many other
financing sources as being the least cost capital source. Especially in a country like ours, where
savings is minimal, and capital market can no wonder be a lucrative source of finance. The
securities market provides a linkage between the savings and the preferred investment across the
business entities and other economic units, specially the general households that in aggregate
form the surplus savings units. It offers alternative investment windows to the surplus savings
units by mobilizing their savings and channelizes them through securities into optimal
destinations. The stock market enables all individuals, irrespective of their means, to share the
increased wealth provided by competitive enterprises. Moreover, the stock market also provides
a market system for purchase and sale of listed securities and thereby ensures liquidity
(transferability of securities), which is the basis for the joint stock enterprise system. (The
existence of the stock market makes it possible to satisfy simultaneously the needs of the firms

29
for capital and of investors for liquidity.) Especially at times when the banking sector of the
country is facing the challenge of bringing down the advance-deposit ratio to sustainable level,
the economy of the country is unfolding newer horizon of opportunities. Due to over-exposure
level of the financial system the securities market could play a very positive role, had there been
no market debacle. Due to the last market crash and follow through events, it will be difficult to
utilize the primary market to raise significant volume of funds. Thus the greatest economic
importance of securities market at this point can be understood from the opportunities being lost.
Bangladesh having its target to become a middle-income country must have significant level of
rise in investment, which at the present state of banking system cannot be met. The securities
market could play the key role in meeting these huge investment demands if the secondary
market would remain stable. The capital market also helps increase savings and investment,
which are essential for economic development. An equity market, by allowing diversification
across a variety of assets, helps reduce the risk the investors must bear, thus reducing the cost of
capital, which in turn spurs investment and economic growth. However, volatility and market
efficiency are two important features which will ultimately determine the effectiveness of the
stock market in economic development. If a stock market is inefficient due to insufficient
informational supply, investors face difficulty in choosing the optimal investment as information
on corporate performance is slow or less available. The resulting uncertainty may induce
investors either to withdraw from the market until this uncertainty is resolved or discourage them
to invest funds for long term. Moreover, if investors are not rewarded for taking on higher risk
by investing in the stock market, or if excess volatility weakens investor’s confidence, they will
not invest their savings in the stock market, and hence deter economic growth. The emerging
stock markets offer an opportunity to examine the evolution of stock return distributions and
stochastic processes in response to economic and political changes in these emerging economies.

30
Structure of the Capital Market in Bangladesh
Bangladesh capital market is one of the smallest in Asia but within the south Asian region, it is
the third largest one. It has two full-fledged automated stock exchanges namely Dhaka Stock
Exchange(DSE),Chittagong Stock Exchange(CSE) and an OTC exchange operated by CSE. It
also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it
implements rules and regulations, monitors their implications to operate and develop the capital.

It consists of Central Depository Bangladesh Limited (CDBL), the only Central Deptory in
Bangladesh that provides facilities for the settlement of transactions of dematerialized securities
in CSE market and DSE.

Bangladesh Stock Market

Amid all the formidable obstacles momentum. Even in the backdrop of Global Financial Crisis
2008 when the stock markets in almost all the developed and developing countries crashed and
Governments of those countries spent thousands of dollars to rescue the markets. Both depth and
dimension in Bangladesh capital market has been becoming gradually strong and securties
market registered significant growth at the initial stage and later market fell a little bit. The
reason is might be that the amount of foreign portfolio in Bangladesh securities market is more
or less only two percent. But lack of supply of fundamentally sound shares has been causing
overheating situation and circumstance like overpricing has been a common phenomenon here in
recent times. Transaction has risen from a daily Tk. of 250 crore two years ago to tk 2500 crore
now and General Index has risen to record 8918 from 2400 two years back.

31
Insurance
Insurance sector in Bangladesh emerged after independence with 2 nationalized insurance
companies- 1 Life & 1 General; and 1 foreign insurance company. In mid 80s, private sector
insurance companies started to enter in the industry and it got expanded. Now days, 62
companies are operating under Insurance Act 2010. Out of them-
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:
• Life insurance,
• General Insurance,
• Reinsurance,
• Micro-insurance,
• Takaful or Islami insurance.

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.

32
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). The growth in the MFI sector, in terms of the number of MFI as well as total
membership, was phenomenal during the 1990s and continues till today.

Despite the fact that more than a thousand of institutions are operating microcredit programs, but
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.
Credit services of this sector can be categorized into six broad groups:
i) General microcredit for small-scale self-employment based activities,
ii) Microenterprise loans,
iii) Loans for ultra-poor,
iv) Agricultural loans,
v) Seasonal loans, and
vi) Loans for disaster management.

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.

33
 Chapter -3 Overview of DSE
3.1 An Overview of Dhaka Stock Exchange (DSE)

3.1.1 Historical Overview of Dhaka Stock Exchange

The Dhaka Stock Exchange (DSE) was founded on 28th April 1954 as East Pakistan Stock
Exchange Ltd. Although incorporated in 1954, the formal trading was started in 1956 at
Narayanganj. In 1958 it was shifted to Dhaka and started functioning at the Narayangonj
Chamber Building in Motijheel C/A. On 23rd June, 1962 the name was changed to East Pakistan
Stock Exchange. On 1 November, 1957 the stock exchange purchase a land at 9F Motijheel C/A
from the government and shifted the stock exchange to its own location in 1959 and it is still
continuing there. On 13th May 1964, its name was again revised and it became known as Dacca
Stock Exchange Ltd.

After that, the service on the stock exchange continued uninterrupted until 1971. Following the
Liberation War of 1971, the trading was suspended for five years which started again in 1976.

DSE All Share Price Index had begun on 16th September 1986. On 1st November 1993,
according to the formula of International Finance Corporation (IFC), DSE All Share Price Index
was changed. On 10th August 1998, the automatic trading was launched in DSE. On 1st January
2001, DSE 20 Index and on 24th January 2004 Central Depository System were initiated.

34
3.1.2 Mission and Vision of DSE
The Vision of DSE is:

“To be the leading exchange in the region and a key driver of economic growth with
state-of-art technology and world class service to ensure highest level of confidence
among stakeholders.”

To meet the ultimate Vision, the Missions of the DSE are:

- Proactive approach to keep pace with continuous technological advancement, and

providing highest standard of service through efficiency improvement and introduction
of new products.
- Contributing to country’s economic growth through creation of wealth, facilitating access
to capital and penetrating untapped market.
- Superior corporate governance to enhance confidence of investors, regulators, issuers and
intermediaries.

3.1.3 Formation of DSE

The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities
are regulated by its Articles of Association rules & regulations and by-laws along with the
Securities and Exchange Ordinance - 1969, Companies Act - 1994 & Securities & Exchange
Commission Act - 1993.

35
3.1.4 Management of DSE
The Board of Directors of 25 members are the responsible and entrusted authority for
management and operation of Dhaka Stock Exchange. Among them 12 of the Board of Directors
members are elected from DSE members, another 12 are selected from different trade bodies and
relevant organizations.

The following organizations are currently holding positions in DSE Board:

• Bangladesh Bank
• ICB - Investment Corporation of Bangladesh
• President of Institute of Chartered Accountants of Bangladesh
• President of Federation of Bangladesh Chambers of Commerce and Industries
• President of Metropolitan Chambers of Commerce and Industries
• Professor of Finance Department of Dhaka University
• President of Dhaka Chamber of Commerce & Industry (DCCI).
K.A.M. Majedur Rahman is now holding the position of Managing Director of DSE. The
Managing Director is the 25th ex officio member of the board.

3.1.5 Trading hour of DSE

From Sunday through Thursday, Dhaka Stock Exchange is open for trading between 10:30 am –
2:30 pm Bangladesh Standard Time (BST), with the exception of holidays declared by the
Exchange in advance. In the month of Ramadan, the exchange is open for trading between 10:30
am – 1:30 pm BST.

3.2 Members of DSE

Presently DSE has 230 members who are the Shareholders of this Public Limited Company,
having last quoted price of Tk. 300 million. The members are licensed by the Securities and
Exchange Commission (SEC) for conducting trading as stock dealer or broker.

36
3.3 Circuit Breaker

Circuit Breaker is a financial regulatory instrument that is in place to prevent stock market
crashes from occurring. A circuit breaker is an automated method which automatically halts a
share’s trading for the day, if its price goes beyond set limits.

The current circuit breaker of DSE is set to 10%.

Newly listed companies used to get a circuit breaker relaxation time of 5 days. Recently, the
circuit breaker relaxation time for newly listed companies was reduced to 2 days according to the
decision of BSEC after DES’s recommendation.

Earlier the newly listed companies got the loan facilities from the first day or its trading and for
the first five days there was no control over the price movements by the circuit breakers. As a
result, the unusual rise of the share price could spoil the balance of the market. The new rule that
has been introduced was effective from May 17, 2015.

37
3.4 Security Enlistment Rules
The BSEC approved the Dhaka Stock Exchange (Listing) regulations, 2015 on May 27, 2015
with new provisions of giving opinions by stock exchanges on submitted public offer documents,
separate conditions on debt securities (Bond, Debenture, etc.) and mutual funds for listing,
relisting of instruments of OTC market, post-listing compliances of issuer companies, e-filing
and web information posting of issuer companies, inspection to the issuer companies and seeking
information/explanation from directors, employees and auditors of an issuer company.

The unlisted companies are required to complete certain procedures to get listing at DSE
(Exchange). The present process/way of listing, in short, may describe as follows:

- Every company intending to enlist its securities to DSE by issuing its securities through
IPO is required to appoint Issue Manager to proceed with the listing process of the
company in the Exchange;
- The Issue Manager prepares the draft prospectus of the company as per Public Issue
Rules of SEC and submit the same to the SEC and the Exchange(s) for necessary
approval;
- The Issuer is also required to make agreement with the Underwriter(s) and Bankers to the
Issue for IPO purpose;
- After receiving the draft prospectus, the Exchange examine and evaluate overall
performance as well as financial features of the company which may have short term and
long-term impact on the market;
- The Exchange send its opinion to SEC within 15 days of receipt of draft prospectus for
SEC's consideration;
- After proper scrutiny, SEC gives it consent for floating IPO as per Public Issue Rule;
- Having consent from SEC, the Issuer is required to file application to the Exchange for
listing its securities within 5 days of issuance of its prospectus;
- On successful subscription, the company is required to complete distribution of
allotment/refund warrants within 42 days of closing of subscription;
- After 100% distribution of shares/refund warrants and compliance of other requirements,
the application for listing of the Issuer is placed to the Exchange's meeting for necessary
decision of the Board of DSE;

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 - The Board of DSE takes the decision regarding listing/non-listing of the company which
must be completed within 75 days from the closure of the subscription.

3.5 Number of Securities Enlisted

At the end of the fiscal year of 2014-15, the total number of listed securities at Dhaka stock
exchange Ltd. Stands at 555.Of the securities, 283 are equity Companies, 41 are Mutual Funds, 8
are debentures, 221 are Treasury Bonds and 2 are Corporate Bonds.

The total number listed securities at the end of 2013-14 fiscal stood at 536. Of the securities there
were 263 equity companies, 41 Mutual Funds, 8 debentures, 221 Treasury Bonds, 3 Corporate
Bonds.

Table 2.1: Number of Securities Enlisted

2018-19 2013-14 Change %

Total Listed securities 589 536 9.88

Equity Instruments 321 263 22.05

Mutual Funds 37 41 -9.75

Debentures 8 8 0

Government Treasury Bonds 221 221 0

Corporate Bonds 2 2 0

Source: DSE Annual Report

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 Chart 2.1: Structure of Securities

Government Treasury Bonds and Equity securities together hold more than 90% of share of the
DSE in 2015.

Table 2.2: Number of Securities

Fiscal Year No. of Companies

2010-11 490

2011-12 511

2012-13 525

2013-14 536

2014-15 555

2015-16 559

2016-17 563

2017-18 572

2018-2019 584

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 Chart 2.2: Number of Securities

The increasing trend of number of securities is very stable in growth.

3.6 IPOs in Different Years

An initial public offering or IPO is the first sale of stock by a company to the public. A
company can raise money by using debt or equity option. If the company has never raised
fund by using equity option to the public, it’s known as IPO. Number of IPO offering in
different years is given below:

Table 2.3: Number of IPOs in different years

Year of IPO offering No. of Companies
2010-11 17
2011-12 16
2012-13 14
2013-14 16
2014-15 16
2015-16 11
2016-17 9
2017-18 11
2018-19 14
Source: Annual report 2014-15 of DSE
Chart: Number of IPOs in different years

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From the above-mentioned table, it can be seen that in years 2010-11, the number of IPOs
offered by seventeen different companies, are highest among the five years. But after the years
2010-11, IPO offering by the companies was going down. Companies were not interested to
going public and in the years 2012-13, IPO offering was lowest among the years.The reasons
may be stock market is imperfect and the companies are not interested to issue IPO. Companies
may finance their operation by taking loan by using debt option. Insofar, in the last two FY
years, IPO offering is increased from previous year and may be the reason that the stock market
pursues the investors to invest in the stock market and the companies are feeling confident to
issue IPO.

3.7 Market Capitalization

Market capitalization is the market value at a point in time of the shares outstanding of a publicly
traded company. It is calculated by multiplying a company’s shares outstanding by the current
market price of one share. Market capitalization is used by the investment community in ranking
the size of companies, as opposed to sales or total asset figures. It is also used in ranking the
relative size of stock exchanges, being a measure of the sum of the market capitalizations of all
companies listed on each stock exchange. Below market capitalization of DSE and the growth in
different years are given:

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 Table: Market Capitalization (million BDT)

Amount
Year Growth (%)
(million BDT)
2010-11 2,853,892 -
2011-12 2,491,613 -12.69%
2012-13 2,530,246 1.55%
2013-14 2,943,202 16.32%
2014-15 3,247,306 10.33%
2015-16 3,185,749 -1.89
2016-17 3,801,001 19.31
2017-18 3,847,348 1.22
2018-19 3,998,164 3.92
Source: Annual report 2014-15, DSE

Chart: Market capitalization from the year 2010-11 to 2014-15

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 Chart 2.5: Growth rate of Market Capitalization

From the above table and grapes, we can see that the amount of market capitalization in the year
2011-12 was decreased dramatically from the previous year and the growth became negative that
indicate many weaknesses of DSE. However, after the year of 2011-12, the amount of market
capitalization increases and the growth rate is in upward tendency which may be the reason of
share price increases over the time. The average growth rate of market capitalization is 15.51
percent. As in our country’s stock markets are vulnerable, the growth rate also fluctuates over the
time.

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3.8 Trading Volume in Number
The trading volume of DSE from the year 2010-11 to 2014-15 is given below:

Table 2.5: Trading volume (in Number) of DSE

Trading volume in number

Year Growth rate%
(in millions)
2010-11 19695.16 -
2011-12 18579.80 -5.66%
2012-13 21556.06 16.02%
2013-14 24318.17 12.81%
2014-15 26574.10 9.28%
Source: Annual Report 2014-15, DSE

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 Chart: Trading Volume in Number

From the table and graph, we can see the trading volume of Dhaka stock exchange. In the year
2011-12, the trading volume decreases and the growth rate is negative from the previous year
which indicates that the stock market performance is worse. Insofar, after the year 2011-12,
trading volume increases over the time which may be the reason that the stock market try to
overcome the weaknesses and do better. The growth rate is highest in year 2012-13.

3.9 Trading Volume in Value

The trading value of DSE from the year 2010-11 to 2014-15 is given below and also described
the trend in a graph.

Table : Trading Volume in Value

Year Trading value (million BDT) Growth rate%

2010-11 3259152.58

2011-12 1171451.41 -64.06%

2012-13 857089.69 -26.84%

2013-14 1125398.38 31.30%

2014-15 1123519.45 -0.17%

Source: Annual Report 2014-15, DSE

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 Chart: Trading Volume in Value

From the table and graph, we can see the trading value of DSE over the years. It is very
unpleasant that the trading value decreased over the years. In the year 2011-12, trading value
decreases too much and the growth rate is -64.06 percent. It indicates that the stock market is not
doing well so the investors are not interested to trade and the amount has decreased too much.
Insofar, the value was slightly increased in the 2013-14 and it is highest growth rate among the
years. The fluctuation pattern of growth rate indicates DSE is not performed well and the
necessary corrective actions need to take.

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3.10 Share Price Index: DSE Broad Index

In past, there were three types of indices DSE used to calculate the price movement. They
wereDSI (all shares), DGEN (A, B, G and N Category) and DS20.But from 2013, after few
changes in the DSE indices methodology, the Dhaka Stock Exchange presently computes three
indices:

1. DSE Broad Index (DSEX)

2. DSEX Shariah Index (DSES)

3. DSE 30 Index (DS30)

None of the DSE Indices include mutual funds, debentures and bonds.

Only the DSE Broad Index (DSEX) is discussed in this report to evaluate market performance.

The algorithm of calculating indexes:

Current Index

= (Yesterday's Closing Index * Current Market Capital) / Opening Market Capitalization

Closing Index

= (Yesterday's Closing Index X Current Market Capital) / Closing Market Capitalization

Current Market Capitalization = ∑(Last Traded Price X Total no. of indexed shares)

Closing Market Capitalization = ∑(Closing Price X Total no. of indexed shares)

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DSE Broad Index (DSEX):

The Dhaka Stock Exchange Limited introduced DSE Broad Index (“DSEX”) based on free float
and Standard & Poor’s methodology with effect from January 28, 2013. ”DSEX” is the Broad
Index of the Exchange (Benchmark Index) which reflects around 97% of the total equity market
capitalization. DSEX indicates considers 2008 as the base year.

Table: DSE Broad Index (at year end)

DGEN (at year- Growth

Year
end) (%)
2010-2011 6117.23 ---
2011-2012 4572.88 -25.24%
2012-2013 4104.65 -10.23%
2013-2014 4480.52 9.15%
2014-2015 4583.11 2.29%
Source: DSE Website (http://www.dsebd.org/)

From the data shown in the aforementioned table, it is clear the security market is unstable and
the fluctuation is very high. The security market is recovering from the crisis of 2011.

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3.11 Classification of Securities
Dhaka Stock Exchange follow some criteria to maintain their securities. Here is a complete
picture of the settlement system for all instruments categories as A, B, G, N and Z which are
traded in DSE.

A-Category Companies:

Companies which are regular in holding the annual general meetings and have declared dividend
at the rate of ten percent or more in the last English calendar year.

B-Category Companies:

Companies which are regular in holding the annual general meetings but have failed to declare
dividend at least at the rate of ten percent in the last English calendar year.

G-Category Companies:

Green-field companies of which shares are listed with the DSE before the company goes into
commercial operation and prior to listing the said company declares the year of first declaration
of dividend.

N-Category Companies:

Newly listed companies except green-field companies which shall be transferred to other
categories in accordance with their first dividend declaration and respective compliance after
listing of their shares.

Z-Category Companies:

Companies which have failed to hold the annual general meeting when due or have failed to
declare any dividend based on annual performance or which are not in operation continuously for
more than six months or whose accumulated loss after adjustment of revenue reserve, if any,
exceeds its paid-up capital.

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 Chapter -4 Problems & Suggestions
4.1 Problems of DSE
We do have certain problems in our stock market and that’s why our stock market is
underdeveloped. Our capital market structure does not represent a good indication of a perfect
capital market. The weak point of our stock market is volatility. The problems of our stock
market are some kind of structural and also related with the lack of financial knowledge of
general investors.

If problems of Dhaka Stock Exchange we find through our research and in preparing the report
are the followings:

Delay in Settlements: Investors face problems in terms of unusual time taken for financing
procedures like trade securities in stock market and delivery of securities which is caused for
nothing.

Manipulation of Pricing: If we closely focus, there have some major syndicates acting together
to influence the stock price artificially that means a huge profit for them. In some cases, it has
been seen, value of some profitable companies shares increased some items imaginatively that
makes an impact on the daily operation in Dhaka Stock Market.

Problems of New Trading Software: Dhaka Stock Exchange is an organized market place
where buyer and seller brought together that allow themselves to purchase and sell securities.
Dhaka Stock Exchange uses their own electronic system called TESA that works as an
arrangement to help buy and sell of enlisting securities. But DSE recently launched a new
trading engine has continuously technical faults, particularly at the time of every flourishing
stock. As DSE installed world class upgraded new trading software system a number of brokers
and individual investors faced some problems regarding price ticker, trade terminal login and
client purchase capacity. Most of them normally blame the software and they said they face
problems to handle the trade executed by fault in suspended B/O accounts due to bring of latest
version. These problems may happen because many brokerage firms don’t up to date to cope up
with the change brought in depository system (Financial Express)

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Having the Access to Credible Corporate Information: The investors in the stock market are
basically institutional or corporate investors and retail investors. Institutional investors have
certain benefits because they maintain investment unit controlled by professional and skilled
managers. But in case of retail or individual level investors, they don’t have such research
house. So, they need to focus on the advice of brokers, who maintain the accounts of their
stocks and that basically contains of market rumours. As in many cases investors select the
securities on the basis of rumours, speculations, advice from the non-expert market operators,
relative or friends without doing proper research and study on that and that behaviour turn into
the market inefficiency.

• Insider Trading: Insider trading indicates that trading with internal news or information
which is not publicly posted. Investors who basically get this information are the
ultimate winners by participating in the stock market for trading. On the other hand, the
losers who don’t have such links to get inside information will left the market after losing
again and again. That is why it is said our capital market is imperfect. In Dhaka Stock
Exchange, some listed company’s directors using their internal information for getting
personal benefits and this is not strictly monitored by the proper regulatory authorities.
That indicates how weak our surveillance system is. We cannot easily find out who is
leaking information or who is doing insider trading. We cannot pinpoint. A perfect
example about how strict the surveillance system, we can see in few months ago, in Wall
Street a group of people who were passing insider information to some specific investors
and they were doing that by playing the game name “call of duty”. So, they were playing
call of duty in multiplayer and they were chatting in the game and passing insider
information which were not licked openly like us. That information was also coded by
the gaming language. So, imagine that how advance they were and eventually they got
caught. So now imagine how good the surveillance system was, how advance and strict
it is. But in case of our surveillance system inside news are getting licked everywhere
but no one is caught.

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• Improper Use of Circuit Breaker: Circuit breaker is the price controlling mechanism
that is used to control the price from any extensive movement and if the price exceeds the
rate of circuit breaker then the market will be closed for that particular date. So, this
circuit breaker protects our market from any kind of irrational movements. But if we
consider the capital market crash in the year of 1996, one of the biggest reasons was
government withdraw the circuit breaker. Another capital market crash was in 2011-
2012. In 2011, the circuit breaker was very high and the result was the movement of
share price irrationally. So, without considering the consequences the regulatory
authority had taken this undue decision.

• Improper Way of Dividend Payment: There have some enlisted companies in the
Dhaka Stock Exchange that don’t maintain the Annual General meeting (AGM)
properly. At last when they declared dividend that normally distracted the investors
about the financial position of the company.

• Lack of Skilled Manpower: Efficient management team and the employee always play a
major contribution on the success of a capital market development for any country. This
managing director’s crisis in financial sectors hits our economy very hardly. Bangladesh
financial sector is suffering from a complete lack of experienced manpower and as usual
our Dhaka Stock Exchange, the largest capital market in Bangladesh.

• Lack of Policies and Poor Governance in Capital market: There is an absence of

proper policies or framework for incentives and protection of the investors. There is a
weak oversight functions of regulatory bodies that makes the capital market inefficient
and imperfect. As we know there are 3 regulatory authorities regulate our capital market:
Registered of Joint Stock Companies, Bangladesh Securities and Exchange Commission
and Dhaka Stock Exchange itself. Despite of having these 3 regulatory authorities the
investors experienced so many fraudulent activities like insider trading, market rumours,
change of pricing artificially. If we consider the rules and regulations, there is certain
limit that a merchant bank can invest in the capital market and this restriction is given by
the Bangladesh Securities and Exchange Commission that how much a bank can invest.
In Bangladesh, government inquiry report published that 30 merchant banks had violated

53
 this restriction. For violating this restriction, their punishment was just the CEO of those
merchant banks were suspended for only 1 month. This was not as simple as they
considered.

• Political Influence: Any economic turn oil or political unrest can affect the future stock
price. Any political incident that can negatively affect the economy in future will reduce
the stock price today and vice versa. Dhaka Stock Exchange is considered as the main
stock market in Bangladesh but is not that much big and connected with the rest of the
world. Some few buyers and sellers can control it more skilfully and carefully. That’s
create a doubt about the efficiency of the stock market that holds the leading information
about the economy.

• Financial Statement Unworthiness: Some enlisted companies in DSE don’t publish

financial statement properly that makes quit more difficult to understand the real financial
position and this occurs just because of some corrupted audit firms and credit rating
agencies. The investors who basically participate in the trading don’t have the true idea
about the company’s financial position and become the ultimate losers for these
irregularities.

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4.2 Recommendations

- As the three regulatory authorities work for our capital market. It will be very efficient
and perfect if all of them perform the part of their responsibilities just like professionals.
- Enlisted companies and authorities must make sure that no one will pass any confidential
information that may affect share price and demotivate the general investors for losing
their money.
- DSE needs some sort of automated system that can reduce price manipulation,
malpractice and also insider trading.
- Make sure that all the enlisted companies publish their annual report on time that will
help the investors to know about the issuing companies, about their assets, liabilities,
price earning, earning price share, profitability and so on.
- Regulatory authorities must be strict on the limit of investment of different financial and
non-financial institutions. If they cross the limit, then there must have some immediate
punishment rather making too much late.
- Government should ensure the market must rely on the symmetric information that means
investors have the equal access of information in terms of trading.
- With an excellent growth rate of our GDP, we need to put more emphasize on our capital
market development. DSE needs more qualified and sensitive manpower who give more
value of its development rather than personal satisfaction.

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4.3 Conclusion

Dhaka Stock Exchange is the 1stand considered as the main stock exchange in Bangladesh. It is
the engine of growth of our economy. DSE has passed so many decades after its incorporation.
Within this time period it has gone through several ups and downs situations. DSE is playing a
vital role in terms of industry expansion, trade and commerce related activities by supplying
funds. Though it has some lacking DSE has achieved so many successful operations. DSE offers
transparent and efficient trading of wide variety of securities though it faces nonstop highly fault
tolerant screen based automated system. Over its journey, it has a significant contribution in the
development of our economy. But still out capital market has a long way to go if we consider the
position of developed and perfect capital markets.
Having an excellent growth rate of GDP, we don’t have a good capital structure. Public are not
motivated to come for trading in the capital market. Their beliefs on this market tend to be very
low due to some market crashes. But if the government and the regulatory authorities provide
proper protections form malpractice as well as ensure the activities of a perfect market then it
may be possible to move the investors toward our capital market.

Source: Chittagong Stock Exchange Ltd.

At present, around 2.6 million investors engage in our capital market. Most of the individual
investors are from middle earner educated people and they come into this market with their little
savings. So, it is the responsibility of the government as well as the regulatory authorities to
provide proper security of their investments and save our capital market.

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Today, almost everyone agrees that the financial system is essential for development of a
country. Improving the financial system can lead to higher growth and reduce the likelihood and
severity of crises. While Bangladesh has achieved relatively high economic growth over the past
years with a distorted financial system and in spite of its governance problems, crosscountry
experience has shown the importance of financial and institutional development to sustain long-
term economic growth. Faster GDP growth consistent with the poverty reduction goals cannot be
met unless the extent and quality of financial intermediation in Bangladesh advances
significantly. In particular, this would require more competitive banking and nonbanking
financial sectors capable of reaching out to all sections of the community, rural & urban, catering
to all types of marketable financial service. The pro-active measures taken in the financial sector
in recent years have put salutary impact on the financial system. Hopefully, the on-going reform
process in the financial system of Bangladesh will bring more stability and transparency. In this
regard, proper care should be taken in the reform process so that reforms in the financial sector
embrace the socio- economic realities in Bangladesh.

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Bibliography:
• Bangladesh Bank’s website and its various publications:
http://www.bangladeshbank.org/,www.bangladeshbank.org/pub/annual/anreport/ar04
05/chap5.pdf
• Financial Sector Reforms in Bangladesh: The Next Round – Debapriya Bhattacharya,
Toufic A Chowdhury: http://www.cpd-bangladesh.org/publications/op/op22.pdf
• The Financial Express website:
http://www.thefinancialexpressbd.com/more.php?news_id=90159
• Small and Medium Enterprise Foundation’s website: www.smef.org.bd/
• “The Road Map to Financial System Standards for Middle Income Bangladesh” – Dr.
• Salehudden Ahmed, former Governer, Bangladesh Bank.
• “Performance evaluation of SMEs of Bangladesh” – Kashfia Ahmed & Tanvir
Ahmed Chowdhury.

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