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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
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INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG
Assignment OnISLAMIC FINANCIAL SYSTEM
Topic:
SSttrruuccttuurree ooff FFiinnaanncciiaall SSyysstteemm iinn
BBaannggllaaddeesshh
Submitted To:
MR. ABDULLAHIL MAMUNLECTURERDEPARTMENT OF BUSINESS
ADMINISTRATIONINTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG.
Submitted By:MUHAMMAD SHAHINUR EKRAM CHOWDHURYID No:
R093117RMBA, 4th Trimester, Section (B).
Submitted Date: 22 February, 2010.
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Financial System: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.
A financial system is a system that to channels funds from
lenders to borrowers, to
creates liquidity and money, to provides a payments mechanism,
to provides financial
services such as insurance & pensions and to offers
portfolio adjustment facilities.
In Finance, the financial system is the system that allows the
transfer of money
between savers and borrowers. It comprises a set of complex and
closely
interconnected financial institutions, markets, instruments,
services, practices and
transactions.
An economys financial system exists to organize the settlement
of payments, to raise
and allocate finance and to manage the risks associated with
financing and exchange.
So, the government sector and the corporate sector are the users
of financial surplus
of household sector and that the financial sector performs this
vital function of
intermediation. Empirical evidence shows that the growth of
financial markets and
development of the economy are complementary to each other.
A developed financial system is one that has a secure and
efficient payment system,
security market and financial intermediaries that arrange
financing and derivative
markets & financial institutions that provide access to risk
management instruments.
Thus, A financial system consists of a set of organized markets
and institutions
together with regulators of those markets and institutions.
Their main function is to
channel funds between end users of the system: from lenders
(surplus units) to
borrowers (deficit units). In addition, a financial system
provides payments facilities,
a variety of services such as insurance, pensions and foreign
exchange, together with
facilities, which allow people to adjust their existing wealth
portfolios.
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Background of financial system in Bangladesh:The financial
system in Bangladesh includes Bangladesh Bank (the Central
Bank),
scheduled banks, non-bank financial institutions, Microfinance
institutions (MFIs),
insurance companies, co-operative banks, credit rating agencies
and stock exchange.
Among scheduled banks there are 4 Nationalised commercial banks
(NCBs), 5 state-
owned specialized banks (SBs), 30 domestic private commercial
banks (PCBs), 9
foreign commercial banks (FCBs) and 29 non-bank financial
institutions (NBFIs) as of
December 2006 after that total number of institutions are
increasing rapidly.
However, Rupali Bank, an NCB is being sold to a foreign buyer,
and once this
transaction is completed, the country will have only 3 NCBs.,
which are being
corporative. Over and above the institutions cited above, three
development financial
institutions namely House Building Finance Corporation (HBFC),
Ansar-VDP Unnayan
Bank and Karma Shangsthan Bank are operating in Bangladesh, all
of which are state
owned.
The financial system of Bangladesh is mainly bank dependent.
Though in the recent
years, a number of non-banking financial institutions (leasing
and merchant banks)
have been established, yet the banking sector still captures the
lion share of the
financial market.
Financial Sectors in Bangladesh:Bangladesh Bank is the key
player for the financial sector of Bangladesh as well as for
the economy. Bangladesh Bank is the banker to the government as
well as to other
banks. It formulates and implements monetary policy, manages
foreign exchange
reserve and is the authority to supervise and regulate other
banks and non-bank
financial institutions.
The financial sector of Bangladesh has gone through a lot of
reforms in the past two
decades and central bank reform was a key element of the reform
agenda. This study
maps the various reforms that have taken place so far.
Bangladesh Bank has improved in certain areas and yet there are
avenues where
more can be done. The bank plays a dual role in the economy.
Bangladesh Bank
supervises and regulates the countrys banking sector where it
has significant
improvements. On the other hand, the bank underachieves in terms
of autonomous
formulation and implementation of monetary policy in
coordination with the
government.
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Structure of Financial System:
The Main Constituents of Our Countries Financial System Are:
01. Financial Institutions/Intermediaries.
02. Financial Instruments.
03. Financial Markets.
Structure of Financial System
03. Financial Markets
02. Financial Instruments
01. FinancialInstitutions
01-(i). Banks:a) Private Commercial
Banksb) Public Commercial
Banksc) Private Foreign
Commercial Banksd) Specialized Financial
Institutions
01-(ii). Non-BankFinancial Institutions:a) Insurance Companiesb)
Security Firmsc) Investment Banksd) Financial Companiese) Mutual
Fundsf) Pension Funds
02-(ii). Capital MarketInstruments:a) Bondsb) Stocksc) Govt.
Securitiesd) Bank & Consumer
Commercial Papere) Debenturesf) Mortgages
02-(i). Money MarketInstruments:a) Treasure Billsb) Commercial
Paperc) Negotiable Certificate
of depositsd) Banker Acceptances
03-(i). Primary Market
03-(ii). Secondary Market
03-(iii). Money Market
03-(iv). Capital Market
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01. Financial Institutions/Intermediaries:An organization which
borrows funds from lenders and lends them to borrowers onterms
which are better for both parties than if they dealt directly with
each other.
Financial institutions as intermediaries:As a general rule,
financial institutions are all engaged to some degree in what
iscalled intermediation. Rather obviously intermediation means
acting as a go-betweenfor two parties. The parties here are usually
called lenders and borrowers orsometimes-surplus sectors or units,
and deficit sectors or units.As a general rule, what financial
intermediaries do is: to create assets for savers andliabilities
for borrowers which are more attractive to each than would be the
case ifthe parties had to deal with each other directly.
There are two general consequences of financial intermediation.
The first is that therewill exist more financial assets and
liabilities than would be the case if the communitywere to rely
upon direct lending.The second general consequence of the
intervention of financial institutions is thatlending and borrowing
have become easier. It is now no longer necessary for saversto
search out borrowers with matching needs. In this sense financial
intermediarieshave lowered the transaction costs of lending and
borrowing.
01-(i). Banks:Banking is essentially based on the
debtor-creditor relationship between thedepositors and the bank on
the one hand and between the borrowers and the bankon the other.
Interest is considered to be the price of credit, reflecting
theopportunity cost of money.The commercial banking system
dominates Bangladesh's financial sector. BangladeshBank is the
Central Bank of Bangladesh and the chief regulatory authority in
thesector. The banking system is composed of four Public commercial
banks, fivespecialized development banks, thirty private commercial
Banks and nine foreigncommercial banks.Out of 6562 scheduled bank
branches operating in the country, up to end December2006 the NCBs
operate 3384 branches, of which 2146 are in rural areas and 1238
arein urban areas; SBs have 1354 branches of which 1200 are in
rural areas and 154 arein urban areas; PCBs have 1776 branches of
which 488 are in rural areas and 1288are in urban areas; and FCBs
have 48 branches exclusively in urban areas. Out of 30PCBs, six
have been operating as Islamic banks. After the year 2006 that
totalnumber of branches are increasing rapidly up to 2009.List of
All types of banking sectors are:
Central Bank Private Commercial Banks Public Commercial Banks
Foreign Commercial Banks Specialized Development Banks
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a) Private Commercial Banks:Even with all the provisions at
hand, during the interviews many experts opinedthat there could be
separate agencies to regulate and supervise the privatesector
banking activities in Bangladesh. A number of agencies can be set
up andeach would look into a number aspects related to private
sector banking. Underthe current system, the commercial banks and
financial institutions have toreport to and are to a certain extent
supervised by the Securities and ExchangeCommission, when they
register with the stock exchange.
Private banks are the highest growth sector due to the dismal
performances ofgovernment banks (above). They tend to offer better
service and products.
AB Bank Ltd BRAC Bank Limited Eastern Bank Limited Dutch Bangla
Bank Limited Dhaka Bank Limited Islami Bank Bangladesh Ltd Pubali
Bank Limited Uttara Bank Limited IFIC Bank Limited National Bank
Limited United Commercial Bank Limited NCC Bank Limited Prime Bank
Limited SouthEast Bank Limited Al-Arafah Islami Bank Limited Social
Islami Bank Limited Standard Bank Limited One Bank Limited Exim
Bank Limited Mercantile Bank Limited Bangladesh Commerce Bank
Limited Mutual Trust Bank Limited First Security Islami Bank
Limited The Premier Bank Limited Bank Asia Limited Trust Bank
Limited Shahjalal Islami Bank Limited Jamuna Bank Limited ICB
Islami Bank Moon Bank Limited United Commercial Bank Limited
Aziz Co-op Commerce & FinanceBank Ltd.
Eastern Bank Limited Social Investment Bank Limited Uttara Bank
Limited
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b) Public Commercial Banks:The Basel Committee on Banking
Supervision published guidance in 1999 to assistbanking supervisors
in promoting the adoption of sound corporate governancepractices by
banking organizations in their countries. This guidance drew
fromprinciples of corporate governance that were published earlier
that year by theOrganization for Economic Co-operation and
Development (OECD) with the purposeof assisting governments in
their efforts to evaluate and improve their frameworksfor corporate
governance and to provide guidance for financial market
regulatorsand participants in financial markets at public
commercial banks.
Sonali Bank Limited Janata Bank Limited Agrani Bank Limited
Rupali Bank Limited
c) Private Foreign Commercial Banks:The state and nature of
corporate governance has been studied under five generalheadings.
Three types of foreign commercial banks or companies were studied:
a)the public corporations - these are mainly private utility
companies operated by thegovernment with a board of director
consisting of the people of Bangladesh andfew experts, b) financial
institutions like banks which are listed in the Dhaka StockExchange
but related with governmental condition about share distribution
and c)non-financial limited companies also listed in the stock
exchanges in the country butrelated with governmental condition
about share distribution.
Citibank HSBC Standard Chartered Bank Commercial Bank of Ceylon
State Bank of India Habib Bank National Bank of Pakistan Bank
Alfalah
d) Specialized Financial Institutions:Out of the specialized
banks, two (Bangladesh Krishi Bank and Rajshahi KrishiUnnayan Bank)
were created to meet the credit needs of the agricultural
sectorwhile the other two ( Bangladesh Shilpa Bank (BSB) &
Bangladesh Shilpa RinSangtha (BSRS) are for extending term loans to
the industrial sector. TheSpecialized banks are:
Grameen Bank Bangladesh Krishi Bank Bangladesh Development Bank
Ltd Rajshahi Krishi Unnayan Bank Basic Bank Ltd (Bank of Small
Industries and Commerce) Bangladesh Somobay Bank Limited
(Cooperative Bank) Ansar VDP Unnyan Bank
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01-(ii). Non-Bank Financial Institutions:Non-Bank Financial
Institutions (NBFIs) are an important part of financial system
inBangladesh. NBFIs operations are regulated under the Financial
Institutions Act,1993. The NBFIs consist of investment, finance,
leasing companies etc. There were29 financial institutions
operating in Bangladesh as of 31 December 2006. Of theseone is
government owned, 15 are local (private) and the other 13 are
establishedunder joint venture with foreign participation.
Bangladesh Bank has introduced apolicy for loan and lease
classification and provisioning for NBFIs from December2000 on a
half-yearly basis. Among the 29 financial institutions, 12 have
been listedin the stock exchanges up to 31 December 2006 to
strengthen financial capability andthe rest are under process to be
listed in due course after the year 2006 that the totalnumber of
institutions are increasing rapidly.Products and Services Offered
by NBFIs Non-Bank Financial Institutions play a keyrole in
fulfilling the gap of financial services that are not generally
provided by thebanking sector. The competition among NBFIs is
increasing over the years, which isforcing them to diversify to a
wider range of products and services and to provideinnovative
investment solutions. NBFIs appear to offer flexible options and
highlycompetitive products to help customers meet their operational
and financial goals.The table below provides a summary of the
product range offered by existing NBFIsof Bangladesh.
Different Products and Services of NBFIs
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a) Insurance CompaniesThe 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 of
62 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.
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.
Progressive Life Insurance Co. Ltd. Rupali Life Insurance Co.
Ltd. Sun Life Insurance Co. Ltd.
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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 Meghna Insurance Co. Ltd Mercantile
Insurance Co. Ltd Northern General Insurance Co. Ltd People's
Insurance Co. Ltd Phoenix Insurance Co. Ltd Pioneer Insurance Co.
Ltd Prime Insurance Co. Ltd Progoti General Insurance Co. Ltd
Provati Insurance Co. Ltd Purabi General Insurance Co. Ltd Reliance
Insurance Co. Ltd Rupali Insurance Co. Ltd United Insurance Co. Ltd
Takaful Islami Insurance Company Limited Crystal Insurance Co. Ltd
Republic 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.
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b) Security FirmsFinancial institutions that underwrite
securities and engage in related activities suchas securities
brokerage, securities trading and making a market in which
securitiescan trade.
Nabiul Karim Securities Ltd. Haji Mohammad Ali Securities Ltd.
GMF Securities Limited Quaiyum Securities Ltd. Dragon Securities
Ltd. TA Khan Securities Co. Ltd., Md. Fokhrul Islam Securities
Limited. Shahiq Securities Ltd. Habibur Rahman Securities Limited
Ershad Securities Ltd. Mian Abdur Rashid Securities Ltd. Khurshid
Securities Ltd. Rapid Securities Limited Dawn Securities Limited.
Arafat Securities Ltd. Shahed Securities Ltd. Tobarak Securities
Ltd. Midway Securities Ltd. Parkway Securities Ltd. HR Securities
& Investment Limted Kazi 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 Limited Nabiul Karim Securities Limited Jalalabad
Securities Limited Haji Mohammad Ali Securities Akij Securities
Limited Mian Abdur Rashid Securities
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c) Investment BanksIt primarily helps net suppliers of funds
transfer funds to net users of funds at a lowcost 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.
d) Financial CompaniesThe primary function of finance companies
is to make loans to both individuals andbusiness. Finance companies
provide such services as consumer lending, businesslending and
mortgage financing.
Industrial Development Leasing Company of Bangladesh (IDLC)
Infrastructure Development Company Limited (IDCOL) GSP Finance
Limited Delta Brac Housing Finance Corporation Ltd. Fidelity Assets
& Securities Company Limited. Fareast Finance & Investment
Ltd. LankaBangla Finance Ltd. Prime Finance & Investment
Limited Bangladesh Industrial Finance Co. Ltd.
e) Mutual FundsMutual funds are portfolios of different
securities such as stocks, bonds, treasuries,derivatives, etc.
Mutual funds pool money of both individual and
institutionalinvestors allowing the funds to achieve: (i) economies
of scale by reducing costs andincreasing investment returns; (ii)
divisibility and diversification; (iii) activemanagement with
superior stock picking and market timing; (iv) reinvestment
ofdividends, interest and capital gains; (v) tax-efficiency; and
(vi) buying and sellingflexibility. There might be varieties of
mutual funds that differ in terms of theirinvestment objectives,
underlying portfolios of shares, risks and returns, fees
andexpenses, etc.Mutual funds are professionally managed investment
schemes that collect fundsfrom small investors and invest in
stocks, bonds, short term money marketinstruments, and other
securities. This ensures a diversified portfolio for theinvestors
at much less efforts than through purchasing individual stocks and
bonds.Fund managers who undertake trading of the pooled money and
are responsible formanaging the portfolio of holdings usually
manage mutual funds. Generally, mutualfunds are organized under the
law as companies or business trusts and managed byseparate
entities. Mutual funds fall into two categories: open-end funds and
closed-end funds.
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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,
7thICB Mutual Fund
ICB Mutual Fund 1st BSRS Mutual Fund AIMS First Granted Mutual
Grameen Mutual Fund One Grameen One: Scheme Two ICB AMCL 1st Mutual
Fund ICB AMCL Islamic Mutual Fund ICB 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).
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02. Financial Instruments:A financial instrument is any contract
that gives rise to a financial asset of one entityand a financial
liability or equity instrument of another entity.A financial asset
is any asset that is:(i) Cash;(ii) An equity instrument of another
entity;A contractual right:(i) To receive cash or another financial
asset from another entity; or(ii) To exchange financial assets or
financial liabilities with another entity underconditions that are
potentially favorable to the entity.A contract that will or may be
settled in the entitys own equity instruments and is:(i) A
non-derivative for which the entity is or may be obliged to receive
a variablenumber of the entitys own equity instruments; or(ii) A
derivative that will or may be settled other than by the exchange
of a fixedamount of cash or another financial asset for a fixed
number of the entitys ownequity instruments. For this purpose the
entitys own equity instruments do notinclude instruments that are
themselves contracts for the future receipt or delivery ofthe
entitys own equity instruments.The specific form, which a claim
takes, is a financial instrument. The range ofinstruments is
existence and also because it enables us to distinguish certain
broadcategories of instrument.Selections of instruments are:
Treasure Bills
Commercial Paper
Negotiable Certificate of deposits
Banker Acceptances
Bonds Stocks Govt. Securities Bank & Consumer Commercial
Paper Debentures Mortgages
Company shares and government stock, for example, once created
can be boughtand sold in organized markets without their original
issuers ever again being involved.Instruments that are issued with
a fixed rate of interest for as long as they exist government
bonds, for example from those assets whose yield varies according
tomarket conditions. The latter category includes a wide range of
claims from bankdeposits to company shares.
A very popular basis for distinguishing types of instrument is
maturity. This meansthe length of time, which has to elapse before
the claim is repaid. This may be verylong. With company shares, for
example, it is theoretically infinity. Some governmentstocks are
issued with twenty-five years to maturity. Contrast this with
treasury bills,which are issued for ninety-one days or even bank
deposits that can be demandedimmediately or at sight.
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02-(i). Money Market Instruments:The Money Market is an
instrument of the fixed income market. Generally speaking,the term
"fixed income" is synonymous with bonds. In reality, a bond is just
one typeof fixed income security. The difference between the money
market and the bondmarket is that the money market specializes in
very short-term debt securities (debtthat matures in less than one
year). Money market investments are also called cashinvestments
because of their short maturities, and their near-liquid nature
(almostimmediate access upon request).Money market securities are
essentially IOU's issued by governments, financialinstitutions, and
large corporations. These instruments are very liquid and
consideredextraordinarily safe. Because they are extremely
conservative, money marketsecurities offer significantly lower
return than most other securities.One of the main differences
between the money market and the stock market is thatmost money
market securities trade in awfully high denominations. This limits
theaccess of the individual investor. Furthermore, the money market
is a dealer market,which means that firms buy and sell securities
in their own accounts, at their ownrisk. Compare this to the stock
market where a broker receives commission to acts asan agent, while
the investor takes the risk of holding the stock. Another
characteristicof a dealer market is the lack of a central trading
floor or exchange. Deals aretransacted over the phone or through
electronic systems.The easiest way for us to gain access to the
money market is with a money marketmutual funds, or through money
market bank account, which are offered at thiswebsite.. These
accounts and funds pool together the assets of thousands
ofinvestors in order to buy the money market securities on their
behalf. However, somemoney market instruments, like treasury bills,
may be purchased directly. Failing that,they can be acquired
through other large financial institutions with direct access
tothese markets.Call money rate -the rate at which short term funds
are lent and borrowed amongbanks- is the core of an overnight money
market for credit. Volatility of the overnightmoney market rate
(call money rate) is a very usual phenomenon for a well-functioning
market. Market participants determine the rate according to
theirperceptions of the current and future liquidity condition in
the market. Thus this ratereflects the supply and demand behavior
of bank reserves, and hence, givesimportant signals to the central
bank to understand the market pressure.Call money rate in
Bangladesh can be viewed as a market-clearing rate. Fluctuationsin
the overnight rates come mainly from supply and demand for
liquidity in themoney market. Periodic change in reserve
requirements as well as economic andseasonal factors may cause the
demand to rise. The overnight money market ratecan also be impacted
on the days when Bangladesh Bank (BB) conducts open
marketoperations.
a) Treasure BillsDept obligations of the Government used to
finance fiscal deficits. Bangladesh Bank
treasure bills are issued in one three, six, twelve month and
two year maturity. They
pay a set amount at maturity.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
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b) Commercial PaperIt is an unsecured short-term promissory
notes issued by a corporation to raise short-
term cash, often to finance working capital requirements. A
Sample copy of
Commercial Paper is given below:
TERMS & CONDITIONS01. PARTNERSHIP ACCOUNT:
We request and authorize you until any one of us shall give you
notice in writing to the contrary, to honourand debit to the firms
account all Cheques, Guarantees, Negotiable Instruments, or other
Orders which maybe drawn, or Bills Accepted or Notes made or
Receipts for Money owing by you to the firm signed by any oneof us
in the name or on behalf of the firm, whether the firms Account be
for the time being in credit oroverdrawn or may become overdrawn in
consequence of such debit and we will be jointly and
severallyresponsible for the repayment of any such overdraft and
interest there against.
-We also request and authorize you to accept the endorsement of
any one of us in the name or on behalf of thefirm on Cheques,
Orders, Bills, Notes or other Negotiable Instruments.
-You are hereby authorized to carry out any instruction in
connection with the account (including instruction ofcountermanding
payment of Cheques, Bills of Exchange, Promissory Notes or order
for payment) when suchinstructions are given by all or any one of
us.
-Any security or other property of or deposited in the name of
the firm may be withdrawn and any moneymay be borrowed from you in
the name or on behalf of the firm and may be secured in any manner
upon anysecurity money or property of or deposited in the name of
the firm by any one of us and we will jointly andseverally be
responsible for repayment of such money with interest, costs,
charges and expenses.
-Any liability whatsoever incurred in respect of the account
shall be joint and several.
-This authority shall remain in force until revoked
notwithstanding any change in the constitution or name ofthe firm
and shall apply notwithstanding any change in the membership of the
firm by death, bankruptcy, andretirement or otherwise or the
admission of any new partner(s). (This account opening form must
besigned by all the Partners)
Partners Signature Partners Signature Partners Signature
Partners SignatureName: Name: Name: Name:
02. LIMITED COMPANY:
At General Meeting/a Meeting of the Board or Directors of
Limited heldat its office aton..,the company decided to open a
Current/ Account with ONE BankLimited.. Branch and we have been
authorized to advise the Bank accordingly.We enclose the following
Documents for the purpose:
a. Certified copy of the Memorandum & Articles of
Association of the Company.b. Certificate of Incorporation of the
Company for inspection and return, and a duly certified photocopy
for
Banks recordc. Certificate from the Registrar of Joint Stock
Companies that the company is entitled to commence
business (in case of Public Ltd. Co.) for inspection and return,
and a duly certified Photocopy for Banksrecord.
d. Latest copy of Balance sheet.e. Extract of resolution of the
Board/General Meeting of the Company for opening the account
and
authorization for its operation duly certified by the
Chairman/Managing Director of the Company.List of Directors with
addresses (a latest certified copy of the form-xii)
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We would now request you to open a Current/..Account in the name
of the Company.We undertake to advise the Bank, of changes in the
authorized signatures and these will be supported byfurther
Resolution of the Company. We agree to comply with the rules
governing the account of ONE BankLimited and agree to comply with
the Schedule of Charges of the Bank.
Authorized Signature Authorized Signature Authorized Signature
Authorized SignatureName: Name: Name: Name:
03. GENERAL CONDITIONS OF GOVERNING ACCOUNTS:
a) The law, rules and regulations of Bangladesh, usual customs
and procedures common toBanks in Bangladesh will apply to and
govern the conducts of the account opened with theBank.
b) Any person opening an account will be deemed to have read,
understood and accepted therules governing the account.
c) A suitable introduction by an introducer acceptable to the
Bank is required prior to opening of any account.Recent photographs
of the account openers duly attested by the introducer must be
produced.
d) Each account will be given one account number. This number is
to be properly quoted on all letters and /or documents addressed to
the Bank and on all deposit slips. The Bank will not be responsible
for anyloss or damage occurring as a result of wrong quotation of
account number.
e) Interest/commissions/service or maintenance of account
charges will be levied by the Bank as determinedby the Bank from
time to time and as per Bangladesh Bank regulation.
f) The funds available in any of the account holders account
(the customer) with the Bank will beconsidered by the Bank to be a
security for any commitment(s), the Bank is entitled without giving
priornotice to the customer to utilize such funds against the
obligation(s) and/or commitment(s) of thecustomer to the Bank.
g) Any statement of account dispatched to the customer will be
considered as approved unless anydiscrepancy (-ies) is/are notified
in writing to the Bank within 15 days from the date of dispatch.
TheBank is not responsible for delays or non-delivery due to mail
problems. Statement of account to bepicked up will be considered as
approved even if not picked up 15 days after the date they are
produced.Statements of account are not produced when there is no
operation during the month. Those can beobtained on special
request.
h) Account holders must provide maximum security to the cheque
books in their possession and the Bank isnot responsible for any
loss occurring due to inadequacy of security. Any chequebook loss
or misuse mustbe immediately reported to the Bank and confirmed in
writing without any delay.
i) When cheque deposited are payable by other Banks or
outstation, they are available after clearing orcollection only.
Service charge will be charged @ Tk. 100/- in Current A/C and
Savings A/C Half yearly oras changed by the bank from time to time
as and when required.
j) The Bank reserves the right to close any account without
giving prior notice if the conduct of the account isunsatisfactory
in the opinion of the Bank or for any other reason(s)
whatsoever.
k) The balance in the account(s) is payable solely at ONE Bank
Limited and shall be governed by andsubject to laws in effect in
Bangladesh. As used herein laws will include Bank Circulars,
Modifications,Regulations and Orders of the Government and
Bangladesh Bank including practice of banking.
l) The Bank reserves the right to amend the present rules at any
time in any manner with or without givingprior notice to the
account holder(s) separately or to the public. The chequebook will
not be issuedunless and until all the required formalities are
completed.
04. AGREEMENT:
I/We hereby agree to the above general conditions.
Signature of the applicant/ Signature of the applicant/
Signature of the applicant/ Signature of the applicant/Authorized
signature Authorized signature Authorized signature Authorized
signature
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
21
c) Negotiable Certificate of deposits
Negotiable certificate of deposit means a short-term security,
typicallyissued by a bank to raise funds. A Negotiable Certificate
of Deposit is ashort-term investment in a security, being a
negotiable certificate of depositissued by NAB.If you choose to
invest in a Negotiable Certificate of Deposit, you pay thepurchase
price on the purchase date. On the maturity date, NAB pays youthe
face value of the Negotiable Certificate of Deposit. The return on
yourinvestment is equal to the difference between the purchase
price and theface value.
d) Banker AcceptancesIt is a time draft payable to a seller of
goods, with payment guaranteed bya bank. Time drafts issued by a
bank are orders for the bank to pay aspecified amount of money to
the bearer of the time draft on a given date.
02-(ii). Capital Market Instruments:Capital Market Instruments
are a number of capital market instruments usedfor market trade,
including stocks, bonds, debentures, foreign exchange,fixed
deposits, and others. The investors to make a profit out of
theirrespective markets use these.All of these are called capital
market instruments because these areresponsible for generating
funds for companies, corporations, andsometimes national
governments. This market is also known as securitiesmarket because
long-term funds are raised through trade on debt andequity
securities. Both companies and governments may conduct
theseactivities.This market is divided into primary capital market
and secondary capitalmarket. The primary market is designed for the
new issues and thesecondary market is meant for the trade of
existing issues. Stocks andbonds are the two basic capital market
instruments used in both the primaryand secondary markets. There
are three different markets in which stocksare used as the capital
market instrument: the physical, virtual, and auctionmarkets.Bonds,
however, are traded in a separate bond market. This market is
alsoknown as a debt, credit, or fixed income market. Trade in debt
securities aredone in this market. There are also the Debentures
that are used as capitalmarket instruments by the investors.These
instruments are more secured than the others, but they also
provideless return than the other capital market instruments. While
all capitalmarket instruments are designed to provide a return on
investment, the risk
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
22
factors are different for each and the selection of the
instrument depends onthe choice of the investor. The risk tolerance
factor and the expected returnsfrom the investment play a decisive
role in the selection by an investor of acapital market instrument.
Capital market instruments should be selectedonly after doing
proper research in order to increase one.
Bangladesh Capital Market Summary(As on 31 March 2008)
Indicators Dhaka StockExchange
Chittagong StockExchange
No. of companies 270 215No. of mutual funds 14 14No. of
debentures 8 1No. of treasury bonds 75 -No. of corporate bonds 1
-Total No. of Listed Securities 368 230
a) BondsBond market links issuers having long term financing
needs with investorswilling to place funds in a long term, interest
bearing securities. A matureddomestic bond market offers wide range
of funding for the government andthe private sector. While fixed
income instruments are the epitome of longterm finance options, the
size of tradable government bonds is small,secondary trading is
rare, and more critically, public issue of corporatebonds may
remain suspended, as it has been the case in Bangladesh since1996
[Hossain and Azim, 2005].
Bangladesh Bank has taken a number of initiatives to promote
bond marketdevelopment, such as changing legal and regulatory
framework and alsothe tax system for securing, or issuing of
zero-coupon bonds. But there aresome major problems in development
of bond market in the country: weakgovernance at the institutional
and market levels; high non-performingassets of the nationalized
commercial banks (NCBs); poorly defined andoverlapping
responsibilities of Securities and Exchange Commission (SEC)and
Ministry of Finance; and the lack of incentives and private
initiatives todrive market developments.
The government is aware of these problems, and international
organizationssuch as World Bank, IMF and some agencies such as IFC
or ADB have beenobserving to push for possible solutions.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
23
b) Stocks
The stock market is an important ingredient of the financial
system in
Bangladesh. It is an important avenue for channeling funds to
investors
through mobilizing resources from individuals. In view of the
rapidly
increasing role of the stock market, volatility in stock prices
can have
significant implications on the performance of the financial
sector as well as
the entire economy. There exists important link between stock
market
uncertainty and public confidence in the financial market.
c) Govt. Securities
The government has initiated reforms program in the area of
debt
management since 2005. It has enacted the Bangladesh
Government
Treasury Bonds (BGTB) Rules, 2003 under which T. Bonds are
being
marketed on a regular basis. Development of a primary market for
buying
and selling of Government bonds of varying maturity (5 year,
10-year, 15-
year and 20-year) to raise fund from the domestic market is one
of the
significant achievements of such reforms initiatives.
Treasury Bills and Treasury Bonds auctions are being held on the
basis of a
pre-announced Auction Calendar. This ensures higher degree of
competition
resulting a steady decline in the cost of borrowing for the
government from
domestic source.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
24
d) Bank & Consumer Commercial PaperThe paper intends to
provide an overview of key issues pertaining toconsumer confidence
in financial markets in Bangladesh. The formalfinancial sector in
Bangladesh includes: (a) Bangladesh Bank as the centralbank (b) 43
commercial banks, including four nationalized commercialbanks, 30
domestic private commercial banks, 9 foreign commercial banks(c) 5
government-owned specialized banks (d) 28 non-bank
financialinstitutions (e) one government-owned investment company
(f) twogovernment-owned insurance companies and a quite good number
ofprivate insurance companies and (g) two stock exchanges. The
bankingsector, however, dominates the countrys financial
system.
Consumer confidence may be defined as the consumers appraisal of
thecurrent economic conditions and his expectations of future
economicconditions. A silent revolution had occurred in financial
services legislationand regulation in the direction of building
consumer confidence in themarkets, it is felt that there is a need
for exploring ways for furtherimprovement of market conditions to
meet the expectation of consumers offinancial services. In this
backdrop the paper will discuss various factorsundermining consumer
confidence in the financial markets, retrace thelegislative and
regulatory measures undertaken in the past to protectconsumer
interest and suggest further actions needed to enhance
consumerconfidence in the financial services sector in
Bangladesh.
e) DebenturesWhen any duly stamped debenture is renewed by the
issue of a newdebenture in the same terms, the Collector shall,
upon application madewithin one month, repay to the person issuing
such debenture, the value ofthe stamp on the original or on the new
debenture,Provided that the original debenture is produced before
the Collector andcancelled by him in such manner as the Government
may direct.
A debenture shall be deemed to be renewed in the same terms
within themeaning of this section notwithstanding the following
changes: -(a) The issue of two or more debentures in place of one
original debenture,the total amount secured being the same;(b) The
issue of one debenture in place of two or more original
debenture,the total amount secured being the same;(c) The
substitution of the name of the holder at the time of renewal for
thename of the original holder; and(d) The alteration of the rate
of interest or the dates of payment thereof.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
25
f) MortgagesMortgage markets means lending institutions &
mortgage brokers.
According to Ministry of law, Bangladesh - Chapter IV:
Sec. (58) Mortgage, mortgagor, Mortgagee, Mortgage-money and
mortgage-deed defined as: Simple mortgage, mortgage by
conditional
sale, usufructuary mortgage, english mortgage, mortgage by
deposit of title
deeds anomalous mortgage.
Sec. (59) Mortgage when to be assurance.
Sec. (59.A) References to mortgagors and mortgages to include
persons
driving title from them.
Mortgage loan taken out to buy the family home from the mortgage
market.
Thirty years ago, such a loan would almost certainly have come
from a
building society. The borrower would probably have had to wait
in a queue,
which he or she could join only after having saved for some
period with the
society. The loan would have been in sterling and the borrower
would have
paid a rate of interest that varied at short notice (broadly)
with changes in
the level of official interest rates imposed by the monetary
authorities.
The interest would have been paid monthly together with a small
additional
sum calculated to repay the loan over a scheduled period, such
loans were
instantly available from a range of institutions. They could be
repaid by the
method described above or they could be interest-only mortgages
in which
the borrower pays only the interest but makes simultaneous
payments into a
long-term savings scheme (typically an endowment insurance
policy), which
is designed to repay the mortgage when the policy matures. The
mortgage
may have a rate of interest that can be fixed for long
periods.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
26
03. Financial MarketsAn organizational framework within which
financial instruments can be
bought and sold. In economics a market is an organizational
device that
brings together buyers and sellers. Textbooks usually hurry on
to point out
that a market does not have to have a physical location, though
plainly it
could do so.
In fact, financial markets offer some of the best examples of
buyers and
sellers interacting over a widely dispersed geographical
area.
Financ ial market of an economy comprises the banking
sector,other financial institutions and capital market. At present,
4SCBs, 5 national ized special ized banks, 30 private
commercialbanks, 9 foreign commercial banks and 29 non-bank
financialinstitutions, Investment Corporation of Bangladesh
(ICB),Bangladesh House Building Finance Corporation (BHBFC),
DhakaStock Exchange (DSE) and Chittagong Stock Exchange (CSE)
areworking in the financial market of Bangladesh.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
27
Banks and other financ ial institutions (OFIs) have been playing
akey role in activating the financial sector that in turn
infusesdynamism to the economy. Banks are engaged in upgrading
thesocio-economic status of the country by investing money
toproductive sectors. However, in the context of
globalization,importance has been given to the development of the
financialmarket through banking sector. In order to uphold the rule
ofbanking sector in financial market development, the governmenthas
taken a range of measures, which include further deploymentof bank
branches and evaluation of their performance,classification of
loans following the international standards,assessment of capital
adequacy, determination of quality ofassets and earning of
impressive profit.
03-(i). Primary Market
Means new capital rose in the financial markets.Primary market
services are included: -
The investment banking & The financial intermediation
etc.
(Tk)
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
28
03-(ii). Secondary Market
Markets in which existing securities are traded; as opposed to
aprimary market where securities are sold for the first time.
Inmost cases a stock exchange largely fulfi ls the role of
asecondary market, with the flotation of new issues
representingonly a small proportion of its total business. However,
it is theexistence of a flourishing secondary market, providing
liquidityand the spreading of risk.Means exchange of ownership in
the financial markets.Secondary market services included:
Brokerage services
Tk
Tk
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
29
03-(iii). Money Market
Monetary policy framework refers to a logical and sequential
setof actions that a centra l bank has to design to conduct
monetarypol icy. The central bank wants to achieve certain goals
butcannot directly influence the goals. It has a set of tools at
itsdisposal that can affect the goals indirectly after long
andvariable lags.
So, if central bank waits to see the effect of the tools on
thegoals it wil l be too late to make any correction to the
policy.That is why it aims at some variables that l ie between
tools andgoals, which it can influence and monitor very
shortly.
Thus a central bank decides on the strategy for
conductingmonetary policy. The variables that the central bank
addressescan be classified as instruments, targets and goals. If
theframework is expressed in a flow chart instruments (i .e.
tools)and goals are on the two ends and targets are in between.
Thetargets are further classified as operational target
andintermediate target. The central bank also keeps an eye on
someinformation variables to make any policy decision.
03-(iv). Capital MarketThe capital market in Bangladesh is
regulated and supervised by the
Securities and Exchange Commission (SEC) under the SEC Act,
1993. The
SEC so far has issued licenses to 27 non-bank institutions to
participate in
the capital market of which 19 institutions are Merchant Banker
and Portfolio
Manager while 7 are Issue Managers and (one) acts as Issue
Manager and
Underwriter.
The Dhaka Stock Exchange (DSE), which was established as a
public limitedcompany in April 1954, and the Chittagong Stock
Exchange (CSE),established in April 1995, dealing in the secondary
capital market. As of endDecember 2006 the total number of enlisted
securities with DSE stood at310 of which 255 are listed companies,
13 mutual funds, 8 debentures and34 treasury bonds after the year
2006 that the total number of institutionsare increasing
rapidly.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
30
Recently, two (2)-power sector companies namely Dhaka Electric
Supply
Company (DESCO) and Power Grid Company of Bangladesh (PGCB)
have
been listed in the capital market under the newly introduced
direct listing
regulation. The Investment Corporation of Bangladesh (ICB) was
established
in 1976 with the objective of encouraging and broadening the
base of
industrial investment. ICB underwrites issues of securities,
provides
substantial bridge financing programs, and maintains investment
accounts,
floats and manages closed-end and open-end mutual funds and
closed-end
unit funds to ensure supply of securities as well as generating
demand for
securities. ICB also operates in both DSE and CSE as dealer.
Some SBs, such
as Bangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha
(BSRS),
Bangladesh Small Industries and Commerce (BASIC) Bank Ltd. As
well as
NCBs and some foreign banks are engaged in long-term industrial
financing.
Capital Market product in Bangladesh:
Share: Ordinary Share, Preference Share
Mutual Fund
Debt Securities
Debenture
Bond
A well-developed tradable bond market is critical to ensuring
stability and
efficiency of the financial market in Bangladesh. In the
country, most of the
available savings are held by the banks in the form of deposits
that are
channeled through lending to the investors.
The dominance of banks, with high bad loan portfolios and
non-
transferability of most of their debt/savings instruments, is a
prime
hindrance to developing a well-performing bond market. The
absence of
such a market makes the financial market less competitive as it
fails to
generate market interest rates that reflect the opportunity cost
of funds at
different maturities and results in excessive reliance on the
banking system.