FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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Financial System Operative in Bangladesh

Financial System:

The Financial System is a set of institutional arrangement through which surplus units transfer their fund to deficit units. The financial system is a set of organized institutional set-up through which surplus units transfer their funds to deficit units.

Define a financial system fair narrowly, to consist of a set of markets, individuals and institutions, which trade in those markets and the supervisory bodies responsible for their regulation. The end-users of the system are people and firms whose desire is to lend and to borrow.

At present the financial system in Bangladesh is mainly composed of two types of institutions like banks and non-bank financial institution (NBFIs). The formal financial sector in Bangladesh includes: (a) Bangladesh Bank as the central bank, (b) 48 commercial banks, including 4 Government owned commercial banks, 30 domestic private banks (PCBs) (of which 6 banks are operating under Islamic Shariah), 9 foreign banks (FCBs) (of which 1 bank is operating as Islamic bank); and 5 government-owned specialized banks (DFIs); (c) 28 non-bank financial institutions (NBFIs) – licensed by the Bangladesh Bank); (d) 2 large government- owned insurance companies (life and general) and 60 private owned (17 life and 43 general) insurance companies; (e) 2 stock exchanges and, (f) some co-operative banks. Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in Bangladesh.

Overview of Financial system of Bangladesh The financial system of Bangladesh is comprised of three broad fragmented sectors: Formal Sector, Semi-Formal Sector, Informal Sector.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

FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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Stock Exchanges, Stock Dealers & Brokers, Merchants Banks, AMC s, Credit Rating Agencies etc.

Microcredit Regulatory Authority (MFI Authority)

Micro Finance Institutions 599 MFIs

Financial System of Bangladesh

Formal Sector Semi Formal Sector Informal Sector

Financial Market Regulators & Institutions

Specialized Financial Institutions:

1. House Building Financial Corporation(HBFC)2. Palli Karma Sahayak Foundation(PKSF)3. Samabay Bank4. Grameen Bank

Money Market(Banks, NBFIs,Primary Dealers)

Bangladesh Bank(Central Bank)

Capital Market (Investment banks, Stock Exchanges, Credit Rating Companies etc.)

Banks47 scheduled & 4 non-scheduled banks

Foreign Exchange Market (Authorized Dealers)

NBFIs 31 NBFIs

Insurance Development & Regulatory Authority (Insurance Authority)

Insurance Companies18 Life and 44 Non-Life Insurance Companies

Securities & Exchange Commission (Regulatory of capital market Intermediaries)

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

The main constituents of financial system are :i) Financial Institutionsii) Financial Instruments, andiii) Financial Markets.

Financial Institutions

The modern name of Financial Institution is Financial Intermediary (FI), because it mediates or stand between ultimate borrowers and ultimate lenders and helps transfer funds from one to another.The Financial system helps production, capital-accumulation and growth byi) encouraging savings andii) allocating them among the alternative uses and users.

Financial InstrumentsFinancial Instruments are of two types:i) Primary (or Direct)ii) Secondary (or Indirect)

Financial Markets

Financial markets facilitate the flow of funds in order to finance investments by governments, corporations, and individuals. It transfers funds from those who have excess funds (surplus units) to those who need funds(deficit units).

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 Securities and Commission (SEC).

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).

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

Overview of Financial system of Bangladesh 

Financial markets facilitate:

The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets) Price discovery Global transactions with integration of financial markets The transfer of liquidity (in the money markets) International trade (in the currency markets)

Role of Financial markets in the economy

One of the important requisite for the accelerated development of an economy is the existence of a dynamic financial market. A financial market helps the economy in the following manner.

Saving mobilization: Obtaining funds from the savers or surplus units such as household individuals, business firms, public sector units, central government, state governments etc. is an important role played by financial markets.

Investment: Financial markets play a crucial role in arranging to invest funds thus collected in those units which are in need of the same.

National Growth: An important role played by financial market is that, they contributed to a nations growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for productive purposes is also made possible.

Entrepreneurship growth: Financial market contribute to the development of the entrepreneurial claw by making available the necessary financial resources.

Industrial development: The different components of financial markets help an accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society of well-being.

Functions of Financial Markets

Intermediary Functions: The intermediary functions of a financial markets include the following:

o Transfer of Resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers.

o Enhancing income: Financial markets allow lenders to earn interest or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income.

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

o Productive usage: Financial markets allow for the productive use of the funds borrowed. The enhancing the income and the gross national production.

o Capital Formation: Financial markets provide a channel through which new savings flow to aid capital formation of a country.

o Price determination: Financial markets allow for the determination of price of the traded financial assets through the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on the demand and supply through the mechanism called price discovery process.

o Sale Mechanism: Financial markets provide a mechanism for selling of a financial asset by an investor so as to offer the benefit of marketability and liquidity of such assets.

o Information: The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the market. So as to reduce the cost of transaction of financial assets.

Financial Functions o Providing the borrower with funds so as to enable them to carry out their

investment plans.o Providing the lenders with earning assets so as to enable them to earn

wealth by deploying the assets in production debentures.o Providing liquidity in the market so as to facilitate trading of funds.

Constituents of Financial Market

Based on market levels

Primary market: Primary market is a market for new issues or new financial claims. Hence it’s also called new issue market. The primary market deals with those securities which are issued to the public for the first time.

Secondary market: It’s a market for secondary sale of securities. In other words, securities which have already passed through the new issue market are traded in this market. Generally, such securities are quoted in the stock exchange and it provides a continuous and regular market for buying and selling of securities.

Based on security types

Money market: Money market is a market for dealing with financial assets and securities which have a maturity period of up to one year. In other words, it’s a market for purely short term funds.

Capital market: A capital market is a market for financial assets which have a long or indefinite maturity. Generally it deals with long term securities which have a maturity period of above one year. Capital market may be further

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

divided in to: (a) industrial securities market (b) Govt. securities market and (c) long term loans market.

o Equity markets: A market where ownership of securities are issued and subscribed is known as equity market. An example of a secondary equity market for shares is the Bombay stock exchange.

o Debt market: The market where funds are borrowed and lent is known as debt market. Arrangements are made in such a way that the borrowers agree to pay the lender the original amount of the loan plus some specified amount of interest.

Derivative markets: Derivative securities are financial contracts whose values are derived from the underlying assets. And derivative markets are Markets that allow for buying & selling of derivative securities.

Financial service market: A market that comprises participants such as commercial banks that provide various financial services like ATM. Credit cards. Credit rating, stock broking etc. is known as financial service market. Individuals and firms use financial services markets, to purchase services that enhance the working of debt and equity markets.

Depository markets: A depository market consist of depository institutions that accept deposit from individuals and firms and uses these funds to participate in the debt market, by giving loans or purchasing other debt instruments such as treasure bills.

Non-Depository market: Non-depository market carry out various functions in financial markets ranging from financial intermediary to selling, insurance etc. The various constituency in non-depositary markets are mutual funds, insurance companies, pension funds, brokerage firms etc.

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 Securities and Commission (SEC).

3. Foreign Exchange Market :  Towards liberalization of foreign exchange transactions, a number of measures were adopted since 1990s. Bangladeshi

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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 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.

Money market & its instruments

The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper. 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.The developed money market has the following characteristics:

(i) Existence of Central Bank,(ii) Highly organized commercial Banking System(iii) Existence of sub-markets(iv) Healthy competition in sub-markets(v) Integrated structure of money market(vi) Availability of proper credit instruments.(vii) Adequacy and Elasticity of funds(viii) International attraction(ix) Uniformity of interest rates

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(x) Stability of prices and(xi) Highly developed Industrial system

Money Market Instruments:

The common types of money market securities traded in Bangladesh are given below:

i) Treasury Bills(T-Bills)ii)  Repurchase Agreements( Repo or Reverse Repo)iii)  Commercial Papersiv) Certificate of Depositv)  Banker's Acceptance

Treasury Bills or T-Bills:

Treasury Bills, one of the safest money market instrument, are short term borrowing instruments of the Central Government of the country issued through the Central Bank. They are zero risk instruments. It is available both in the primary market as well as secondary market. T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturity periods.

The Central Government issues T-Bills at a price less than their face value (par value). They are issued with a promise to pay full face value on maturity. So, when the T-Bills mature, the government pays the holder its face value. The difference between the purchase price and the maturity value is the interest income earned by the purchaser of the instrument.

T-Bills are issued through a bidding process at auctions. The bid can be prepared either competitively or non-competitively. In case of competitive bidding, the return on maturity is specified in the bid. In case the return specified is too high then the T-Bill might not be issued to the bidder. In case of non-competitive bidding, return required is not specified and the one determined at the auction is received on maturity. Commercial paper:

Commercial paper is short term debt instruments issued by well known, credit worthy firms. It is generally not issued in Bangladesh. But only types of commercial papers available are- the bills of exchange and promissory notes, mutual funds etc.Negotiable Certificates of Deposit (NCDs):

NCDs are certificates that are issued by large commercial banks as a short term source of fund. The nonfinancial corporations often purchase NCDs. The minimum denomination is not fixed in Bangladesh. Maturities on NCDs normally range from 15 to 1 years. It provides return in the form of interest along with the difference between the price at which NCDs is redeemed and the purchase price.

Repurchase Agreements:

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

With RA or repo one party sells securities to another party with an agreement to repurchase it back at a specific date and price. Financial institutions often participate in RA.

Banker’s Acceptance:

It indicates that a bank accepts responsibility for a future payment which is commonly used for international trade. Maturity of it is ranged from 30 to 270 days. The return from it is above t-bill yield.

Capital Markets & its instruments

A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.   Both the stock and bond markets are parts of the capital markets. For example, when a company conducts an IPO, it is tapping the investing public for capital and is therefore using the capital markets. This is also true when a country's government issues Treasury bonds in the bond market to fund its spending initiatives.      

A. Regulatory Bodies

The Securities and Exchange Commission (SEC) exercise powers under the Securities and Exchange Ordinance 1969, Securities and Exchange Commission (SEC) Act 1993, Depository Act, 1999. It regulates institutions engaged in capital market activities.

  B. Participants in the Capital Market

The SEC has issued licenses to   institutions to act in the capital market of these, 52 institutions are Merchant Banker & Portfolio Manager while 16 are the Asset Management Companies and 9 (one) acts as Security Custodians beyond these institutions SEC issuing 9 (nine) registration certificate for   Credit Rating Companies.

 C. Stock Exchanges

There are two stock exchanges: a) The Dhaka Stock Exchange (DSE) and b) The Chittagong Stock Exchange (CSE) which deals in the secondary capital market. DSE was established as a Public Limited Company in April, 1954 thereafter CSE in April, 1995. As on June 15, 2012 the total number of enlisted securities with DSE and CSE were 237 and 204 respectively. Out of 281 listed securities including mutual fund with the DSE, 237 were listed companies, 41 mutual funds.

D. Intermediaries

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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 SEC (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 SEC (Merchant Banker & Portfolio Manager Rules) 1996 and 45 institutions have been licensed by SEC 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 SEC (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 SEC.

7.  Trustees/Custodians: According to rules, all asset backed securitizations and mutual funds must have an accredited trusty and security custodian. For that purpose, SEC 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 SEC. ICB has three subsidiaries:

a. ICB Capital Management Ltd.,b. ICB Asset Management Company Ltd.,c. ICB Securities Trading Company Ltd.

Capital market instruments:

Bonds :

Bonds are long term debt securities issued by corporations & government agencies to support their operations.

Mortgages :

Mortgages are long term debt obligations created to finance the purchase of real estate.

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Stocks:

It is also called equity securities. Stocks are certificates representing ownership in the corporations that issued them. It has higher rate of return but also exhibit a higher degree of risk.

Bangladesh Capital Market Summary

(As on 31 March 2008)

Indicators

Dhaka Stock

Exchang

Chittagong Stock

ExchangeNo. of companies 270 215

No. of mutual funds 14 14

No. of debentures 8 1No. of treasury bonds 75 -

No. of corporate bonds 1 -Total No. of Listed Securities 368 230

Financial institutions in Bangladesh

Banking and Non Banking Financial Institutions

In Bangladesh now different commercial banks and the non banking financial organizations are operating their business. And every organization now involved attracting the retail customers that means the middle income group people of the country. To draw their attention the sells persons of different organization try to knock every possible door. These activities of different organization increase the interest about this sector. As both commercial banks and the non financial institutes are in the market, so it makes confusion to the general people about the activities of these organizations. This article helps the customers to makes differentiate between these.

Depository institutions of Bangladesh

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:

Scheduled Banks : The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are termed as Scheduled Banks.

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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 56 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 4 SOCBs which are fully or majorly owned by the Government of Bangladesh.

Specialized Banks (SDBs): 4 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 39 private commercial banks which are majorly owned by the private entities. PCBs can be categorized into two groups:

Conventional PCBs: 31 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.

Central bank

Bangladesh Bank

Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh

reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of

the country, and named it Bangladesh Bank with retrospective effect from 16

December 1971.

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 1980s banking industry achieved significant expansion with the

entrance of private banks. Now, banks in Bangladesh are primarily of two types:

Scheduled Banks: The banks which get license to operate under Bank Company

Act, 1991 (Amended in 2003) are termed as Scheduled Banks.State-owned

commercial banks, private commercial banks, Islamic commercial banks, foreign

commercial banks and some specialized banks are Scheduled Banks.

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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. Grameen Bank, Probashi Kallyan

Bank, Karmasangsthan Bank, Progoti Co-operative Land Development Bank Limited

(progoti Bank) and Answer VDP Unnayan Bank are Non-Scheduled Banks.

State-owned commercial banks

State-owned are functioning as nationalist. Here is the list -

1. Sonali Bank2. Janata Bank3. Agrani Bank4. Rupali Bank

Private commercial banks

Private banks are the highest growth sector due to the dismal performances of

government banks (above). They tend to offer better service and products. Here is

the list -

1. AB Bank Limited2. Bangladesh Commerce Bank Limited3. Bank Asia Limited4. BRAC Bank Limited5. Dhaka Bank Limited6. Dutch Bangla Bank Limited7. Eastern Bank Limited8. Farmers Bank Limited9. IFIC Bank Limited10.Jamuna Bank Limited11.Meghna Bank Limited12.Mercantile Bank Limited13.Midland Bank Limited14.Modhumoti Bank Limited15.Mutual Trust Bank Limited16.National Bank Limited17.NCC Bank Limited18.NRB Bank Limited19.NRB Commercial Bank Limited20.NRB Global Bank Ltd21.One Bank Limited22.Prime Bank Limited23.Pubali Bank Limited24.South Bangla Agriculture and Commerce Bank Ltd25.Southeast Bank Limited26.Standard Bank Limited27.The City Bank Limited

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

28.The Premier Bank Limited29.Trust Bank Limited30.United Commercial Bank Ltd31.Uttara Bank Limited

There are 8 Islamic Commercial Banks:

1. Al-Arafah Islami Bank Limited2. Export Import Bank of Bangladesh Limited3. First Security Islami Bank Limited4. ICB Islamic Bank5. Islami Bank Bangladesh Limited6. Shahjalal islami bank Limited7. Social Islami Bank Limited8. Union Bank Limited

Foreign commercial banks

10 foreign commercial banks are operating in Bangladesh. These are:

1. Bank Alfalah2. Citibank NA3. Commercial Bank of Ceylon4. Habib Bank Limited5. HSBC ( The Hong Kong and Shanghai Banking Corporation Ltd. )6. National Bank of Pakistan7. Standard Chartered Bank8. State Bank of India9. Woori Bank10.ICICI Bank

Specialized banks

Specialized Banks (SDBs): 4 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.

1. Bangladesh Krishi Bank2. Rajshahi Krishi Unnayan Bank3. Bangladesh Development Bank Ltd4. BASIC Bank Limited5. Probashi Kallyan Bank

Non-banking financial institutions

Non-banking financial institutions which are not banks.These institutions cannot

perform all functions of banks, which get license to operate under Financial Institution

Act, 1993 are termed as Non-banking financial institutions.

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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, 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.

Non-banking financial institutions

1. Investment Corporation of Bangladesh (ICB)2. Uttara Finance and Investments Limited3. United Leasing Company Limited (ULCL)4. Union Capital Limited5. The UAE-Bangladesh Investment Co. Ltd6. Saudi-Bangladesh Industrial & Agricultural Investment Company Limited

(SABINCO)7. Reliance Finance Limited8. Prime Finance & Investment Ltd9. Premier Leasing & Finance Limited10.Phoenix Finance and Investments Limited11.People's Leasing and Financial Services Ltd12.National Housing Finance and Investments Limited13.National Finance Ltd14.MIDAS Financing Ltd. (MFL)15.LankaBangla Finance Ltd.16.Islamic Finance and Investment Limited17.International Leasing and Financial Services Limited18.Infrastructure Development Company Limited (IDCOL)¿19.Industrial Promotion and Development Company of Bangladesh Limited (IPDC)20.Industrial and Infrastructure Development Finance Company (IIDFC) Limited21.IDLC Finance Limited22.Hajj Finance Company Limited23.GSP Finance Company (Bangladesh) Limited (GSPB)24.First Lease Finance & Investment Ltd.25.FAS Finance & Investment Limited26.Fareast Finance & Investment Limited27.Delta Brac Housing Finance Corporation Ltd. (DBH)28.Bay Leasing & Investment Limited

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

29.Bangladesh Industrial Finance Company Limited (BIFC)30.Bangladesh Finance & Investment Co. Ltd.31.Agrani SME Finance Co. Ltd.32.CAPM Venture Capital and Finance Ltd.33.Meridian Finance and Investment Ltd.34.The Dhaka Mercantile Co-Operative Bank Ltd.

Credit unions:

1. The Christian Co-operative Credit Union Ltd.

2. Mausaid Christian Co-operative Credit Union Ltd Dhaka Dhaka City

3. Nagori Christian Co-operative Credit Union Ltd Gazipur Kaliganj

4. Rangamatia Christian Co-operative Credit Union Ltd Gazipur Kaliganj

5. Tumilia Christian Co-operative Credit Union Ltd Gazipur Kaliganj

6. Mathbari Christian Samabaya Rindan Samity Ltd Gazipur Kaliganj

7. Tuital Christian Co-operative Credit Union Ltd Dhaka Nawabganj

8. Dhorenda Christian Samabaya Rindan Samity Ltd. Dhaka Savar

9. Hasnabad Christian Samabaya Rindan Samity Ltd. Dhaka Nawabganj

10. Solepur Christian Samabaya Rindan Samity Ltd. Munshiganj Sirajdikhan

11. Golla Christian Samabaya Rindan Samity Ltd. Dhaka Nawabganj

12. Bonpara Christian Co-operative Credit Union Ltd. Natore Baraigram

13. Jonail Christian Agriculture Co-operative Credit Union Ltd. Natore Baraigram

14. Rajshahi Sahar Christian Co-operative Credit Union Ltd. Rajshahi Rajshahi City

15. Notre Dame College Karmachari S.R. Samity Ltd.

16. Mathurapur Christian Co-operative Credit Union Ltd. Pabna Chatmohar

17. Jessore Christian Sam.Rindan Samity Ltd. Jessore Jessore Sadar

Non-depository institutions of Bangladesh

Finance companies:

Organisations

Agrani SME Finance Co. Ltd.

Bangladesh Finance & Investment Co. Ltd.

Bangladesh Industrial Finance Company Limited (BIFC)

Bay Leasing & Investment Limited

Delta Brac Housing Finance Corporation Ltd. (DBH)

Fareast Finance & Investment Limited

FAS Finance & Investment Limited

First Lease Finance & Investment Ltd.

GSP Finance Company (Bangladesh) Limited (GSPB)

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

Hajj Finance Company Limited

IDLC Finance Limited

Industrial and Infrastructure Development Finance Company (IIDFC) Limited

Industrial Promotion and Development Company of Bangladesh Limited(IPDC)

Infrastructure Development Company Limited (IDCOL)

International Leasing and Financial Services Limited

Islamic Finance and Investment Limited

LankaBangla Finance Ltd.

MIDAS Financing Ltd. (MFL)

National Finance Ltd

National Housing Finance and Investments Limited

People's Leasing and Financial Services Ltd

Phoenix Finance and Investments Limited

Premier Leasing & Finance Limited

Prime Finance & Investment Ltd

Reliance Finance Limited

Saudi-Bangladesh Industrial & Agricultural Investment Company Limited (SABINCO)

The UAE-Bangladesh Investment Co. Ltd

Union Capital Limited

United Leasing Company Limited (ULCL)

Uttara Finance and Investments Limited

a) Insurance Companies

The insurance sector is regulated by the Insurance Act, 1938 with regulatory oversight provided by the Controller of Insurance on authority under the Ministry of Commerce. A separate Insurance Regulatory Authority is being established. A total of62 insurance companies have been operating in Bangladesh, of which 19 provide life insurance and 43 are in the general insurance field. Among the life insurance companies, except the state-owned Jiban Bima Corporation (GBC) foreign owned American Life Insurance Company (ALlCO), and the rest of the private. Among the general insurance companies, state-owned Shadharan Bima Corporation (SBC) is the most active in the insurance sector. A total of 31 insurance companies are listed in the capital market, of which 8 offer life insurances.

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-

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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.

i) Life Insurance Company (Public) Jiban Bima Corporation

ii) Life Insurance Company

(Foreign) American Life

Insurance Co.iii) Life Insurance Company (Private) National Life Insurance Co. Ltd. Delta

Life Insurance Co. Ltd.Fareast Islami Life Insurance Co. Ltd. Homeland Life Insurance Co. Ltd. Meghna Life Insurance Co. Ltd. Padma Islami Life Insurance Co. Ltd. Sandhani Life Insurance Co. Ltd. Sunflower Life Insurance Co. Ltd. Baira Life Insurance Co. Ltd.

Golden Life Insurance Co. Ltd.Progoti Life Insurance Co. Ltd. Prime Life Insurance Co. Ltd. Popular Life Insurance Co. Ltd.

iv) General Insurance Company

(Public) Sadharan Bima

Corporation

v) General Insurance Company (Private) Agrani Insurance Company Limited.

Bangladesh Co-operative General Insurance Ltd.Bangladesh General Insurance Co. Ltd. Bangladesh National Insurance Co. Ltd. Central Insurance Co. Ltd.City General Insurance Co. Ltd Eastern Insurance Co. Ltd Eastland Insurance Co. Ltd Federal Insurance Co. Ltd Green Delta Insurance Co. Ltd Janata Insurance Co. Ltd Karnafully Insurance Co. Ltd

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

Meghna Insurance Co. Ltd Mercantile Insurance Co. LtdNorthern General Insurance Co. LtdPeople's Insurance Co. Ltd Phoenix Insurance Co. Ltd Pioneer Insurance Co. Ltd Prime Insurance Co. LtdProgoti General Insurance Co. LtdProvati Insurance Co. LtdPurabi General Insurance Co. LtdReliance Insurance Co. Ltd Rupali Insurance Co. Ltd United Insurance Co. LtdTakaful Islami Insurance Company LimitedCrystal Insurance Co. LtdRepublic Insurance Company Limited Global Insurance Company Limited Paramount Insurance Co. Ltd. Standard Insurance Co. Ltd.Asia Pacific Insurance Co. Ltd. South Asia Insurance Co. Ltd. Express Insurance Ltd. Continental Insurance Ltd. Desh General Insurance Ltd.

b) Security Firms

Financial institutions that underwrite securities and engage in related activities such as securities brokerage, securities trading and making a market in which securities

can trade.

Nabiul Karim Securities Ltd.

Haji Mohammad Ali Securities Ltd. GMF Securities LimitedQuaiyum Securities Ltd. Dragon Securities Ltd.TA Khan Securities Co. Ltd.,

Md. Fokhrul Islam Securities Limited. Shahiq Securities Ltd.Habibur Rahman Securities LimitedErshad Securities Ltd.

Mian Abdur Rashid Securities Ltd. Khurshid Securities Ltd.Rapid Securities Limited

Dawn Securities Limited. Arafat Securities Ltd. Shahed Securities Ltd. Tobarak

20

FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

Securities Ltd. Midway Securities Ltd. Parkway Securities Ltd.HR Securities & Investment LimtedKazi Feroz Rashid Securities Ltd. MAH Securities Ltd.DMR Securities Services Ltd. Alhaj Jahanara Securities Ltd. RNI Securities Ltd.GQ Securities Ltd.

Crest Securities Limited. Asenz Securities Ltd. Finvest Securities Ltd. MAH Securities LimitedNabiul Karim Securities Limited

Jalalabad Securities Limited Haji Mohammad Ali Securities Akij Securities LimitedMian Abdur Rashid Securities

c) Investment Banks

It primarily helps net suppliers of funds transfer funds to net users of funds at a low cost and with maximum degree of efficiency.

Bay Leasing & Investments Limited.Union Capital Ltd.

First Lease International Limited

Phoenix Leasing Co. Ltd.Peoples Leasing & Financial Services Ltd.

e) Mutual Funds

Mutual funds are portfolios of different securities such as stocks, bonds, treasuries, derivatives, etc. Mutual funds pool money of both individual and institutional investors allowing the funds to achieve: (i) economies of scale by reducing costs and increasing investment returns; (ii) divisibility and diversification; (iii) active management with superior stock picking and market timing; (iv) reinvestment of dividends, interest and capital gains; (v) tax-efficiency; and (vi) buying and selling flexibility. There might be varieties of mutual funds that differ in terms of their investment objectives, underlying portfolios of shares, risks and returns, fees and expenses, etc.

Some categories of mutual funds are:

ICB, 1st ICB Mutual Fund, 2nd ICB Mutual Fund, 3rd ICB Mutual Fund,4th ICB Mutual Fund, 5th ICB Mutual Fund, 6th ICB Mutual Fund, 7th

ICB Mutual Fund

21

FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

ICB Mutual Fund

1st BSRS Mutual Fund AIMS First Granted Mutual Grameen Mutual Fund One Grameen One: Scheme Two ICB AMCL 1st Mutual FundICB AMCL Islamic Mutual FundICB AMCL Unit Fund

ICB AMCL Pension Holder Unit Fund

ICB AMCL First NRB Mutual Fund

ICB AMCL Second NRB Mutual Fund

f) Pension FundsPension funds are analyzed as financial intermediaries using a functional

approach to finance, which encompasses traditional theories of

intermediation. Funds fulfill a number of the functions of the financial system

more efficiently than banks or direct holdings. Their growth complements that of

capital markets and they have acted as major catalysts of change in the

financial landscape. Financial efficiency in this functional sense is not the only

reason for growth. It is also a consequence of fiscal incentives and benefits to

employers, as well as growing demand arising from the ageing of the population.

Employers, such as companies, public corporations, and industry or trade groups,

typically sponsor pension funds; accordingly, employers as well as

employees typically contribute. Funds may be internally or externally

managed. Returns to members of pension plans backed by such funds may be

purely dependent on the market (defined contribution funds) or may be overlaid

by a guarantee of the rate of return by the sponsor (defined benefit funds).

Key Financial Indicators

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

BanksAs on June 2011

Deposits Advances Total Capital* No. of Branches

4115855.50 Million

3212848.70 Million

461697.00 Million

7772

FIsAs on December 2010

Deposits Loans and leases

Assets Share Capital & Reserve

No. of Branches

94374.80 Million

321284.87 Million

251527.34 Million

44689.29  Million 115

InsuranceAs on December 2009

  Asset Share Capital Reserve

Life Insurance

118020.15 Million 1245.54 Million 106098.88 Million

Non-Life Insurance

42622.90 Million 6653.83 Million 12133.30 Million

Capital MarketMarket Capitalization of Dhaka Stock Exchange As on September 2011

All Listed Securities 2,782,901Million

All Listed Companies Shares 2,202,274 Million

All Listed Mutual Funds 35,733 Million

All Debentures 576 Million

All Listed Govt. T-Bonds 537,381 Million

All Listed Corporate Bonds 6,937 Million

MFIsAs on June 2009

Total OutstandingNumber of

ClientsNumber of Borrowers

No. of Branches

1,21,881.85 Million 24.77 Million 19.50Million 18,022

* Sum of Tier-I, Tier-II and Tier-II Capital Components.

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

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FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

(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.

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. Through the financial services of microcredit, the poor people are engaging themselves in various income generating activities and around 30 million poor people are directly benefited from microcredit programs. 

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

24

FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

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.

Key Financial Indicators

BanksAs on June 2011

Deposits Advances Total Capital* No. of Branches

4115855.50 Million

3212848.70 Million

461697.00 Million

7772

FIsAs on December 2010

Deposits Loans and leases

Assets Share Capital & Reserve

No. of Branches

94374.80 Million

321284.87 Million

251527.34 Million

44689.29  Million 115

InsuranceAs on December 2009

  Asset Share Capital Reserve

Life Insurance

118020.15 Million 1245.54 Million 106098.88 Million

Non-Life Insurance

42622.90 Million 6653.83 Million 12133.30 Million

Capital MarketMarket Capitalization of Dhaka Stock Exchange As on September 2011

All Listed Securities 2,782,901Million

All Listed Companies Shares 2,202,274 Million

All Listed Mutual Funds 35,733 Million

All Debentures 576 Million

All Listed Govt. T-Bonds 537,381 Million

All Listed Corporate Bonds 6,937 Million

MFIsAs on June 2009

Total OutstandingNumber of

ClientsNumber of Borrowers

No. of Branches

25

FINANCIAL SYSTEM OPERATIVE IN BANGLADESH

1,21,881.85 Million 24.77 Million 19.50Million 18,022

* Sum of Tier-I, Tier-II and Tier-II Capital Components.