An Overview of Financial and Banking System of Bangladesh: Structure,

Functions, Main Differences between Banks & NBFIs and the Role of
Bangladesh Bank
Dr. Md. Mosharref Hossain

Introduction

Any system is defined in terms of its core functions. The core function of financial system is
finance. Financial system of any country has three main components viz., financial
institutions, financial instruments and financial markets. The financial system of Bangladesh
is dominated by banking system followed by NBFIs and insurance companies as well as
microfinance institutions (MFIs). For regulating the whole financial system, there are some
financial regulators and supervisors in the country. Various financial institutions operating in
Bangladesh have their distinctive characteristics and operational areas which are serving for
the economic development of the country.

Basic Concepts

Finance

Finance is the provision or mobilization of funds from surplus economic units to deficit
economic units. The core function of financial institutions is to transfer fund from savers to
borrowers.

Surplus Units Funds Deficit Units

Surplus Units

Surplus units are those economic units whose incomes are greater than their expenditures.
They are the net savers.

Deficit Units
Deficit units are those economic units whose expenditures are greater than their incomes.
They are basically net borrowers.

Modes of mobilizing/financing the fund

Mobilization of fund from savers to borrowers can be done through two ways.

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 1. Direct Finance:
Under this mode of finance, fund flows from surplus unit to deficit unit without any
intermediary or middleman. In this mode, investors have financial claim against real sector
units.

2. Indirect Finance
In this case fund from surplus units is transferred to deficit units through intermediary. In
bank financing, this mode is used to flow the funds. In this mode, investors have financial
claims against financial institutions. Following is a diagram of indirect mode of finance.

Depositors Bank (As intermediary) Borrowers

Financial System

Financial system can be defined as a set of institutional arrangements within the framework of
which financial surpluses in the economy are mobilized from surplus units and transferred to
deficit spenders.

Alternatively, financial system is a system, which deals with the supply and utilization of
funds to different economic units in most efficient manner within the institutional framework
on most favorable terms & conditions.

The main components of any financial system are-

1. Financial Institutions/Intermediaries
2. Financial Instruments
3. Financial Markets

(1) Financial Institutions/Intermediaries

They receive request from the surplus and deficit units on what securities to be purchased or
sold, and they use this information to match up the demand of buyers and sellers of funds. The
modern name of financial institution is financial intermediary (FI), because it mediates or
stands between ultimate borrowers and ultimate lenders.

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

1. Formal Sector,
2. Semi-Formal Sector,
3. Informal Sector.

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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.

The informal sector includes private intermediaries which are completely unregulated.

The Formal Financial sectors are dominated by the following two categories. They are:

(A) Banking financial institutions

(B) Non-banking financial institutions

To be a bank, a financial institution must render two services simultaneously. The two
services are:

(I) Core services, which include taking deposits and providing loans.
(II) Ancillary services such as bill taking, school fee taking, L/C
operation etc.

In Bangladesh banking system is unproportionately higher than the security market.

Banking financial institutions are classified into two categories. They are-

(i) Commercial banks: All State-owned Commercial Banks (SOCBs), Private

Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs) are clubbed
under this category.
(ii) Specialized banks: Bangladesh Krishi Bank (BKB), Bangladesh Development
Bank Limited (BDBL), Rajshahi Krishi Unnayan Bank (RAKUB) and BASIC are
under this head.

Banks
After the independence, banking industry in Bangladesh started its journey with 6
Nationalized commercialized banks, 2 State owned Specialized banks and 3 Foreign Banks.
In the 1980's banking industry achieved significant expansion with the entrance of private
banks. Now, banks in Bangladesh are primarily of two types:

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  Scheduled Banks: The banks which get license to operate under Bank Company Act,
1991 (Amended upto 2013) are termed as Scheduled Banks.
 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 Banks. These banks cannot perform all functions of
scheduled banks.

There are 59 scheduled banks in Bangladesh who operate under full control and supervision
of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and
Bank Company Act, 1991. Scheduled Banks are classified into following types:

 State Owned Commercial Banks (SOCBs): There are 6 SOCBs which are fully or
majorly owned by the Government of Bangladesh.
 Specialized Banks (SDBs): 3 specialized banks are now operating which were
established for specific objectives like agricultural or industrial development. These
banks are also fully or majorly owned by the Government of Bangladesh.
 Private Commercial Banks (PCBs): There are 41 private commercial banks which
are majorly owned by the private entities. PCBs can be categorized into two groups:
 Conventional PCBs: 33 conventional PCBs are now operating in the industry. They
perform the banking functions in conventional fashion i.e interest based operations.
 Islami Shariah based PCBs: There are 8 Islami Shariah based PCBs in Bangladesh
and they execute banking activities according to Islami Shariah based principles i.e.
Profit-Loss Sharing (PLS) mode.
 Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the
branches of the banks which are incorporated in abroad.

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

 Ansar VDP Unnayan Bank,

 Karmashangosthan Bank,
 Grameen Bank,
 Jubilee Bank,
 Palli Sanchay Bank

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, 34
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, 15 were initiated by private
domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of
FIs are Term Deposit (at least three months tenure), Credit Facility from Banks and other FIs,
Call Money as well as Bond and Securitization.

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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.

Bangladesh 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).
• BB has a 9 members Board of Directors headed by the Governor who is the Chief
Executive Officer of it.
• BB has 40 departments and 10 branch offices.
Role of Bangladesh Bank

• To issue notes and coins

• Banker to the Government
- Custodian of the Government

- All payments of the Government are made through it

- Lender of last resort to the Government

- Advisor to the Government on financial matters

- Manages public debt on behalf of the Government

• Banker to the banks (lender of last resort to the banks)

• To formulate and implement monetary policy
• To formulate and implement intervention policies in the foreign exchange market;
• To hold and manage the official foreign reserves of Bangladesh;
• Clearing house operations
• To regulate and supervise banking companies and financial institutions.

BB Monetary Policy Implementation Tools

• Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement
(MPS) twice (January and July) in a year.

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 • The tools and instruments for implementation of monetary policy of BB are –
- Bank Rate (Currently 5%)

- Open Market Operations (OMO)

- Repurchase agreements (Repo) & Reverse Repo

-Statutory Reserve Requirements (SLR & CRR). Currently SLR 18.5% & CRR 5.5%.
For Islami Bank 11%.

Some Concepts Related to Financial System

Money:

 Money is anything that is generally acceptable as a medium of exchange or

means of payment in the settlement of all transaction, including debt.
 Money is a matter of functions four: a medium, a measure (unit of account), a
standard and a store.
 Money consists of coins, paper currency and deposit money (cheque).
 All of them are fiduciary (trust) money.
 Money may be legal tender/fiat money (coins, currency notes) and non-legal
tender (demand deposits).

Demand for Money:

 Transactions, precautionary and speculative.

Supply of Money:

 This is the total stock of money of various forms at a particular point of time.
 There are two common measures of money supply: Narrow Money (M1),
Broad Money (M2).
 M1 = Currency outside banks + Dd. deposits of the banking system.
 M2 = M1 + Time deposits of the banking system.

(2) Financial Instruments

Financial instruments are the evidences of financial claims of one party (holders) against
another party (issuers). Alternatively, financial instruments are the documents with the help of
which funds from surplus units are mobilized to deficit units. There are two broad types of
financial instruments.

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 (I) Primary or direct financial instruments: These are the financial claims against
real-sector units. These include loans & advances, shares, debentures etc.
(II) Secondary or indirect financial instruments: These are financial claims against
financial institutions or intermediaries. Examples of these are deposits, mutual fund,
unit certificates, certificates of deposit etc.

Financial instruments can also be classified into the following two categories:
(1) Money Market instruments: securities with maturities within one year or less
are referred to as money market instruments. Money markets instruments are
short-term, highly marketable, liquid, low risk debts instruments.
(2) Capital Market instruments: Securities having maturities more than one year are
called capital market instruments. This includes. Long-term securities. Securities
in the capital market are much more diverse than those found in the money
market.

Money Market Instruments

Treasury Bills: These represent the simplest form of borrowing. The government raises
money by selling bills to public. Investors buy the bills at a discount from the stated
maturity value. At the bills maturity, the holder receives from the government a payment
equal to the face value of the bills. The difference between the purchase price and ultimate
maturity value constitutes the investors earnings. Different maturity T-bills are available
in the markets. Example: 28-day, 91-day, 182-day and 364-day. Since June 25, 2008 28-
day T-bill auction is suspended (As per notification of FRTMD, dated 25/06/08, 28-Day
T-bill auction has been suspended).

Certificate of Deposit: large commercial banks and other depository institutions issue this
as a short-term source of funds. Non-financial corporations often purchase CDs. Generally
its denominations is very high, $1 million is more common. Certificate of deposit is a time
deposit with a bank. The time deposit may not be withdrawn on demand. The bank pays
interest and principal to the depositor only at the end of the fixed term of the CDs.

Commercial Papers: large well-known companies as short-term unsecured debt notes

often issue Commercial papers. It is normally issued to provide liquidity or finance a
firm’s investment. Commercial papers maturities range up to 270 days or 9 months.

Bankers’ Acceptance: Through this instrument a bank accepting responsibility for a

future payment. It is commonly used for international trade transactions. Exporters often
prefer that banks act as guarantor before sending goods to importer whose credit rating is

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 not known. The bank therefore facilitates international trade by stamping ACCEPTANCE
on a draft, which obligates payment at a specific point in time. In turn, the importer will
pay the bank what is owed to the exporter along with a fee to the bank for guaranteeing
the payment.

Eurodollars: Eurodollars are currencies deposited in a bank outside the country of its
origin. For example, dollar denominated deposits at foreign banks or foreign branches of
American banks are Eurodollars. Most Eurodollar deposits are for large sums, and most
are time deposit of less than six months maturity.

Repo and Reverse Repo: Repo means repurchase agreements. Dealers sell government
securities to an investor on an overnight basis, with an agreement to buy back those
securities the next day at slightly higher price. The increase in price is the overnight
interest. The Reverse Repo is the mirror image of the Repo.

Federal Funds: Funds in the banks’ reserve account are called federal funds. The federal
funds market allows depository institutions to effectively lend or borrow short-term funds
from each other at the federal fund rate. In Bangladesh commercial banks are supposed to
keep 18.5% of their deposit amount to the central bank.

LIBOR Market: The London Inter-Bank Offered Rate (LIBOR) is the interest rate at
which large banks in London are willing to lend money themselves. This rate, which is
quoted on dollar-denominated loans, has become the premium short-term interest rate
quoted in the European money market, and it serves as a reference rate for a wide range of
transactions. For example, a corporation might borrow at a floating rate equal to LIBOR +
2%.

Capital Market Instruments

Fixed Income Securities

Treasury Notes and Bonds: Government borrows funds in large part by selling treasury
notes and bonds. T-notes maturities range up to 10 years, whereas T-bonds are issued with
maturities range from 10 to 30 years.

Federal Agency Debts: Some government agencies issue their own securities to finance
their activities. These agencies are usually formed to channel credit to a particular sector
of the economy. Some of the agencies are federal home loan bank (FHLB), federal
national mortgage association (FNMA), government national mortgage association
(GNMA), etc.

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 Municipal Bonds: state and local governments usually to finance infrastructure
development issue these. Exempt from taxation by the federal government and the state
that issued the bond, provided the investor is a resident of that state. Varying degrees of
default risk, rated similar to corporate debt. Two types of Municipal bonds are General
obligation bonds and Revenue bonds.

Corporate Bonds: Corporate bonds are the means by which private firms borrow money
directly from the public. The bonds are similar in structure to treasury issues-they
typically pay semiannual coupons over their lives and return the face value to the
bondholders at maturity. Corporate bonds are classified in different ways. Some these are
as follows:

 Secured Debt: These securities are classified according to the collateral and the
mortgage used to protect the bondholder. Collateral is a general term that frequently
means securities that are pledged as security for payment of debt. Mortgage
securities are secured by mortgage on the real property of the borrower. For
example, land, building.
 Unsecured Bond (Debenture): This frequently represents unsecured obligations of
the company. A debenture is an unsecured bond, for which no specific pledge of
property is made. Debenture holders only have a claim on the property not
otherwise pledged. In other words, the property that remains after mortgage and
collateral trusts are taken into account.
 Senior Bond: In general, seniority indicates preference in position over other
lenders, and debts are sometimes labeled as senior or junior to indicate seniority.
Some debt is subordinate. In the event of default, holders of subordinate debt must
give preference to other specified creditors.
 Callable Bond: A call provision allows the company to repurchase or “Call” part
or all of the bond issue at sated prices over a specified period. Corporate bonds are
usually callable. A bond that, during a certain period, cannot be redeemed by the
issuer is called call-protected bond. During this period of prohibition, the bond is
said to be non-callable bond.
 Convertible Bond: A convertible bond can be swapped for a fixed number of
shares of stock any time before maturity at the holder’s option. Convertibles are
relatively common, but the number has been decreasing in recent years.

Equity Securities

Equity securities describe several equity instruments, which differ from fixed income
securities because their returns are not contractual. As a result we can receive returns that are
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much better or much worse than what we would receive on a bond. There are two types of
equity securities.

(a) Common Stock: Common stock represents ownership shares in a corporation.

Features of common stock are voting right, proxy voting, classes of stock, share
proportionally in declared dividends, share proportionally in remaining assets
during liquidation, preemptive right.
(b) Preferred Stock: A class of stock in which the stockholder is entitled to dividends
but unlike on common stock, dividends are a specified percentage of par or face
value. It also has priority over common stockholder in dividends and distributions
in the event of liquidation. Preferred stock does not carry any voting rights.

Derivative Securities
Derivatives are financial agreements between two parties whose payments are based on, or
derived from the performance of some agreed-upon benchmark. Different forms of derivative
instruments are

 Forwards
 Futures
 Options
 SWAP

In business, derivatives can be powerful speculative securities. For example, companies often
use forwards and exchange listed futures to protect against fluctuations in currency or
commodity prices, thereby helping to manage import trades. Options can serve as similar
purpose; interest rate options such as caps and floors help companies control financing costs.

(3) Financial Markets

Financial markets are the markets where financial instruments are bought and sold. It is
mechanism by which borrowers and lenders get together. Financial markets facilitate the flow
of funds from surplus units to deficit units. Financial markets are of two types.

1. Money Market: Money market is that financial market that facilitates the flow of
short-term funds (with maturities of less than one year)
2. Capital Market: Financial market that facilitates the flow of long-term funds
(maturities more than one year) is known as capital market.

After the independence, establishment of Dhaka Stock Exchange (formerly East Pakistan
Stock Exchange) initiated the pathway of capital market intermediaries in Bangladesh. In
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1976, formation of Investment Corporation of Bangladesh opened the door of professional
portfolio management in institutional form. In last two decades, capital market witnessed
number of institutional and regulatory advancements which has resulted diversified capital
market intermediaries. At present, capital market intermediaries are of following types:

1. Stock Exchanges: Apart from Dhaka Stock Exchange, there is another stock exchange
in Bangladesh that is Chittagong Stock Exchange established in 1995.
2. Central Depository: The only depository system for the transaction and settlement of
financial securities, Central Depository Bangladesh Ltd (CDBL) was formed in 2000
which conducts its operations under Depositories Act 1999, Depositories Regulations
2000, Depository (User) Regulations 2003, and the CDBL by-laws.
3. Stock Dealer/Sock Broker: Under BSEC (Stock Dealer, Stock Broker & Authorized
Representative) Rules 2000, these entities are licensed and they are bound to be a
member of any of the two stock exchanges. At present, DSE and CSE have 238 and
136 members respectively.
4. Merchant Banker & Portfolio Manager: These institutions are licensed to operate
under BSEC (Merchant Banker & Portfolio Manager Rules) 1996 and 45 institutions
have been licensed by BSEC under this rules so far.
5. Asset Management Companies (AMCs): AMCs are authorized to act as issue and
portfolio manager of the mutual funds which are issued under BSEC (Mutual Fund)
Rules 2001. There are 15 AMCs in Bangladesh at present.
6. Credit Rating Companies (CRCs): CRCs in Bangladesh are licensed under Credit
Rating Companies Rules, 1996 and now, 5 CRCs have been accredited by BSEC.
7.  Trustees/Custodians: According to rules, all asset backed securitizations and mutual
funds must have an accredited trusty and security custodian. For that purpose, BSEC
has licensed 9 institutions as Trustees and 9 institutions as custodians.
8. Investment Corporation of Bangladesh (ICB): ICB is a specialized capital market
intermediary which was established in 1976 through the ordainment of The Investment
Corporation of Bangladesh Ordinance 1976. This ordinance has empowered ICB to
perform all types of capital market intermediation that fall under jurisdiction of BSEC.
ICB has three subsidiaries:

Capital Market can be classified into two types. They are-

(a) Primary Market: Primary market is the market where security of a company is
issued for the first time to the general investors. Primary market transaction
provides funds to the initial issuer of the securities. The process of issuing new
securities is called Initial Public Offerings (IPOs).
(b) Secondary Market: The market in securities and other financial assets are
traded among investors after corporations have issued them and public agencies
are called secondary market. Secondary market facilitates the trading of existing
securities. Transaction in this market does not provide anything to the issuing firm.

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Financial Markets may also be divided into two categories, namely

(a) Security Market: Security portion of financial market comprises New Issue
Market (NIM) and Secondary market, which is again composed of stock exchange
(SE) market and over-the-counter market (OTC)
(b) Non-Security Market: Banking and non-banking sector markets are these category
markets.

The financial market in Bangladesh is mainly of following types:

1. 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.
2. 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 Bangladesh Securities and Exchange Commission (BSEC).
3. 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 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
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 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.

Financial Market Participants

The participants of financial market may be classified into FOUR groups according to their
behavior in the market:

► Investors: Individuals and firms buy financial assets for income. They expect from holding
such assets in the form of dividends and interest. They prefer stability of income.

► Speculators: They hold financial assets to take the benefits of price changes. They
generally buy at lower price and sell at higher price. Professional speculator quite often trade
in the financial market.

► Hedgers: They hold financial assets in order to hedge. “Hedge” occurs when different
types of assets are held in order to have offsetting price management. Higher price of some
securities would offset the lower price.

► Arbitragers: Arbitrage takes place when an asset is bought in one market and
simultaneously sold at higher price in another market.

Central Bank (Bangladesh Bank) is the financial supervisor and regulator for non-security
portion market and Bangladesh Securities and Exchange Commission (BSEC) plays the role
of supervisor and regulator for security portion of the financial market.

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 FINANCIAL SYSTEM OF BANGLADESH

BBO 1972
Financial Supervisor/Regulator MRA Act 2006
(BB/BSEC/IDRA/MRA)

Financial Institutions Financial Instruments Financial Markets

IDRA Act 2010
SEC Act 1993

BCA Formal Semi-Formal Informal

1991 Non-
Money Market Foreign Capital MarketSecurity Market
Exchange Security Market
anking Financial Institutions Insurance Companies MFIs Market
NBFIs (18 life, 44 General) (599)
9 scheduled, 5 non-scheduled 1. Specialized Financial Institutions:
(34) Excluding Grameen
- HBFC Bank
(1952)
- PKSF (1990) Non-Banking
- Samabay Bank Banking
FIA 2. NGOs
Ins. Act.
1993 Primary/ Secondary/
2010
Capital Mkt. Intermediaries: Direct Indirect
Scheduled Banks - Investment/ (Loans & Advances,(Deposit, Mutual Fund, Unit New
shares, Debentures Issue Market
Certificate, CDs) Secondary Market BCA
(IPO) FIA
1. Commercial Merchant 1991 1993
- SOCBs - 6 Banks (51),
- PCBs-41 - AMCs (17),
(33 con, 8 Islami) - Stock Exchanges
- FCBs - 9 - Stock Broker
& Dealer MRA
(DSE 238, Contract Act, N.I. Act
2. Specialized - 3 Act Organized Stock Exchange
Over-The-Counter
(DSE, CSE) Market (OTC)
CSE 136) 2006 TP Act, BBE Act,
(BKB, RAKUB, PKB) MLC Act, MLP Act etc.
- Central Depository
- Credit Rating
Non-Scheduled Banks- 6 Agencies (8),
- Ansar VDP - Trustees (9) &
Custodians (10)
-Karmashanosthan
- ICB 14
Grameen Bank
- Probashi Kollyan
- Jubilee
- Palli Sanchay Bank
Insurance company

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:

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

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. 

 Regulator of Capital Market Intermediaries

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:

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  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.
 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.
 Conducting research and publishing information.

Regulator of Micro Finance Institutions

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:

 Licensing of MFIs with explicit legal powers;

 Supervision of MFIs to ensure that they continue to comply with the licensing
requirements; and

Enforcement of sanctions in the event of any MFI failing to meet the licensing and ongoing
supervisory requirements.

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