Investment Bank

& Economic Growth

[Bangladesh]
 Role of Investment Banking in Bangladesh

A REPORT ON

PREPARED FOR:
Shaikh Masrick Hasan
Assistant Professor
Department of Finance
Jagannath University, Dhaka.
REPORT PREPARED BY:

Group:
Department of Finance,
7th batch
Jagannath University, Dhaka

DATE OF SUBMMISSION:
9th January, 2016

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 Role of Investment Banking in Bangladesh

Letter of Transmittal

09th January, 2016

Shaikh Masrick Hasan

Assistant Professor,

Department of Finance,

Jagannath University, Dhaka.

Dear Sir,

With great pleasure we have submitted this research paper that we have been assigned

to us as an important requirement of BBA program at Jagannath University. We have

found the study to be quite interesting, beneficial and knowledgeable. We have tried

our level best to prepare an effective & creditable report.

This report is about the role of Investment banking in the economic growth of

Bangladesh. The report was completed on the basis of Theoretical & Analysis learning.

We also want to thank you for your support and patience with us and we appreciate the

opportunity provided by Jagannath University and Department of Finance to work on

this wonderful project.

Yours sincerely,

The members of Group

..

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 Role of Investment Banking in Bangladesh

ACKNOWLEDGEMENT

We would like to express our gratitude to all the people that were

involved both directly and indirectly in the preparation of this report. We

apologize to the people whose names that we have not mentioned, and their

contribution is highly appreciated by us.

At first, we would like to thank our academic supervisor, Shaikh

Masrick Hasan, Assistant Professor, Jagannath University; for guiding us and for

giving us the opportunity to initiate this report. More specifically, we would like

to thank him for imparting her time and wisdom.

Finally, we would like to thank our parents and friends whose

influence and inspiration have enabled us to complete this report.

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 Role of Investment Banking in Bangladesh

GROUP MEMBERS

SL No. ID Name

01 B 120203025 AZMIR HOSSEN

B 120203051
02 SHARIF ASRAFUL HAQUE

B 120203056 SADDAM HOSSAIN

03

B 120203073 SAILA ALAM

04

B 120203111
05 MD. JASIM UDDIN

B 120203113 ABIR AHMED

06

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 Role of Investment Banking in Bangladesh

ABSTRACT

The core objective of the report is to find out the present

performance of Investment banking, how it affects to the current GDP & how to

improve this financial sector to accelerate the development in economic growth

or GDP. Investment bank plays a multifunctional role in our economy. And as

USA term, it is locally known as Merchant Bank. The role & function of

investment banking has changed with the changing of world economy. At first

we have discussed the History of Investment banking in USA & Bangladesh. We

also discussed the origin, Limitations of this research paper. Then we have

discussed the methodology process- Data collection & data analysis process.

In this report, we have found out different roles played by

investment bank (Merchant bank).Various types of data are examined here to

illustrate the relationship between Investment banking & GDP. Various roles are

briefly discussed performed by various Investment banks in Bangladesh. As our

merchant banking sector isnt well established, we put some recommendation

to improve this sector during our findings.

Key words: Investment Bank, Economic Growth.

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 Role of Investment Banking in Bangladesh

INTRODUCTION

Ever since the passage of the Glass-Steagall Act, investment

banking has been narrowly defined as financial services associated with the

issuance of new securities. Investment bank is a financial institution that helps

individuals, organizations and governments to raise capital and money by

underwriting and acting as agent of clients issuing of securities. Unlike

commercial and retail bank, investment bank does not take deposits. This

banking system is concerned with the allocation of financial resources,

basically, how & why money is moved from those who have it (investors) to

those who need it (issuers). Thus, it plays an important intermediary role in

resource allocation.

Background:

In USA, the Glass Stegall Act (1933) imposed a legal definition of

investment banking for the perseverance of strict legal separation between the

activities of investment and commercial banking. The definition of investment

banking has not been significantly changed since then though the GlassStegall

Act has been modified by the GrammLeachBliley Act (1999). This last Act

(1999) weakened the strict legal separation of activities. In the year of 2008; it

marks the bottom of the development of the exceptional banking system since,

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 Role of Investment Banking in Bangladesh

in the course of the financial crisis, all investment banks in US had to change

into commercial banks. In general, in the US definition activities of investment

banks are closely tangled with services relating to money market activities. This

definition has been implemented in the prevailing universal definition of this

banking system in academic literature.

At birth, Bangladesh came into an interest based banking system,

which was introduced here before when the nation was a part of British Colony.

Since its beginning Bangladesh saw a new tendency in banking both at home

and abroad. Investment banking was successfully established in Egypt. After the

Mit Ghamar Model, Naser Social Bank (NCB) was in the process of

establishment. During 1970s, Merchant Development Bank (MDB) and a number

of Merchant Banks at national levels were recognized in the Merchant world. At

home, the Merchant groups were dynamically working for adoption of Islam as

the complete code of life. They found Investment banking in ready form of

immediate opening. Two professional bodies Merchant Economics Research

Bureau (IERB) and Bangladesh Merchant Bankers Association (BIBA) were

taking practical steps for completing training on Merchant Economics &

banking to a group of bankers and organizing some national & international

seminars/workshops to assemble local and foreign participants & attract

investors to come forward to establish Investment bank in Bangladesh.

There are several Investment (Merchant) Banks in Bangladesh-

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 AB Bank Mercantile Bank

Agrani Bank Mutual Trust Bank

AL- Arafah bank NCC Bank

BDBL One Bank

Bank Al-falah Social Islami Bank

Bank Asia Standard Chartered

BASIC Bank Trust Bank

City Bank UCB

Dhaka Bank Uttara Bank

DBBL Fidelity Assets & Securities

EXIM Bank Bay Leasing & Investment

Eastern Bank SIML

First Security Bank LBF LTD.

HSBC BRAC EPL

IIDFC GCML

ICB IDLC

Origin of the Study:

The report has been prepared as a contentment of the part of the

BBA program as authorized by Department of Finance, Jagannath University.

The primary objective of this prospectus is to offer on the job coverage to the

student and an opportunity for alteration of theoretical conceptions in real life

 Role of Investment Banking in Bangladesh

condition. Students are positioned in enterprises, organizations, institutions as

well as development projects.

Purpose of the Study:

As a financial sector, Real Estate has been contributing towards the

development of any economy for a long time and at the moment it is

considered as an important service industry in modern world. Due to

globalization and free market economy the industry is facing saver competition.

Most of the financial banks fail due to lack of proper strategic planning. Thats

why it is very necessary for understanding how investment bank plays a role in

economic growth. Basically the study is conducted to expose the way of

development in this sector.

The goal of this study is to evaluate the contributions of investment

banking to the economy with a specific focus on the BD economy. We study

both the monetary benefits and the costs stemming from investment banking.

The report emphases on investment banks as this part of banking

is mostly linked with financing companies as well as the expansion and use of

precise products to support the requirements of private and professional

clients. The calculation of benefits and costs of investment banking has been

directed from Asian perspective.

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 Role of Investment Banking in Bangladesh

Objectives of the Report:

Broad Objective-

To complete my BBA degree it is a must.

To match my academic knowledge with the real industrial set up.

To enhance my adaptive quality with the real life situation.

Specific Objective-

To know about Investment Banking (Merchant Banking).

To analysis the overall economic growth in BD.

To find out how investment banking plays important role on GDP.

To have knowledge about investment banking services in BD.

Limitations of the Study:

During completing the report we have faced some limitations that

interrupt our goals. And these limitations are-

Basically investment bank is an American term that isnt introduced in

Bangladesh. So, appropriate information cant be found.

It is difficult to make a rich- information based report in a short time.

As Merchant banking isnt well established, proper empirical evidence

cannot be shown.

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 Role of Investment Banking in Bangladesh

METHODOLOGY

The main aim of the research paper is to gain field level experience

in accordance with the theoretical knowledge from our course instructor. But

the bookish knowledge isnt enough to make such a research paper. Thats why

we have analyzed relevant data from personal & secondary sources. In

methodology process, the data were collected from two sources.

Secondary Sources:

Due to shortage of data from primary sources, we have prepared

the report greatly based on the data from secondary sources. We have collected

data (Research Papers, Annual Report, & Statistical Data) from various sources

such as-

World Bank:

The World Bank provides several research papers on BD economy

which refers the different aspects, parameters & findings on economic

growth.

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 Role of Investment Banking in Bangladesh

Bangladesh bank:

Bangladesh bank publishes some annual reports, research papers,

analysis paper related to GDP. These articles are used to make the

research paper.

Bangladesh Merchant bankers Association (BMBA):

It is an organization of the Merchant bankers in Bangladesh. The main

function of this organization is to control the overall merchant banks

according to Bangladesh Bank.

The Financial Express:

It is the leading financial analyst newspaper in Bangladesh. It provides

financial relevant articles, reports, research paper & so on.

Investment corporation of Bangladesh

Bangladesh bureau of Statistics (BBS)

Center for Policy Dialogue (CDP)

Wikipedia

Investopedia

Different Financial Newspaper articles such as The independent, The

Daily Star etc.

Webpage of different Investment banks such as BRAC epl, Mutual Trust

Bank, IIDFC, NDB etc.

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 Role of Investment Banking in Bangladesh

INFLUENCES OF INVESTMENT BANKs Role IN

ECONOMIC DEVELOPMENT OF BANGLADESH
(MERCHANT BANK)

Investment bank is one of the financial intermediaries which

basically sell securities & underwrite to issue the new equity share to raise

capital. Generally there are three types of services providing by investment

bank. At first it marks investment banks activities in primary money markets

which used by investors to collect financial source by issuing shares & bonds.

Secondly, it describes their trading performance including buying & selling of

securities. Finally, it specifies the roles that investment banks play in monetary

market transportation, & in markets where financial institutions borrow and

lend cash or securities in transactions.

Investment banks play many roles in primary & secondary markets,

basically in three categories -

Underwriting Stocks & bonds

Equity debt financing

Mergers & acquisitions Advisory

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 Role of Investment Banking in Bangladesh

Economic growth can be influenced by different parameters which

are known as Economic Determiners. They are

Gross Domestic Product(GDP) Foreign Currency Reserve

Inflation Technology

Employment Women Empowerment

Infrastructure Per Capita Income

Industrial Development Export

Political Economy etc.

The economic determiners that is affected by Investment Banks are-

Infrastructural Development & role of Investment Bank

Infrastructural improvement helps a country boost up its economy

by providing facility to use the public infrastructure by the business

organization thus enhancing productivity. Not only infrastructure itself

enhances the efficient production, transportation, and communication, but it

also helps providing economic incentives to public and private sector

applicants. The accessibility and quality of infrastructure of helps shape local

firms' investment decisions and determines the countrys attractiveness to

foreign investors. The developing world faces the more challenging task of

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 Role of Investment Banking in Bangladesh

creating new transportation, communication, water, and energy networks to

accelerate economic growth, improvement in public health systems, and reduce

poverty. The investment bank helps the government to raise fund from capital

market to finance the infrastructural activities.

Construction of world-class infrastructure has been renowned as a

key importance essential condition to accelerate the growth motion of

Bangladesh. Though Bangladeshs current capital market is not in an opposite

state to support infrastructure financing but this market is gradually maturing

and has the potential to address the current infrastructure project financing

limitation. By taking careful long term planning, its possible to provide an exit

method for infrastructure project promoters and ensure substitute financing

channel through Bangladeshs capital market. However, to reach that level,

Bangladeshs regulators need to take initiatives.

For improving energy efficiency of the country's industries the Asian

Development Bank (ADB) has signed a deal with the Industrial and

Infrastructure Development Finance Company Limited (IIDFC) to lend

US$ 6.0 million as loan. The agreement will pave the way for improving

energy efficiency and reducing greenhouse gas (GHG) emissions in

seven broad industrial sectors include steel, cement, brick-making,

ceramics, textiles, chemicals and agricultural industries in Bangladesh.

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 Role of Investment Banking in Bangladesh

Role of Investment Bank in Primary Market

The primary market deals with issuing of new financial securities.

Companies, governments or public sector institutions obtain funds through the

sale of new securities like stock or bond issues through primary market. These

fund raising activities are typically done through an investment bank or

merchant bank. The process of selling new issues to investors is underwriting.

For a new stock issue, this sale is an initial public offering (IPO). Investment

banks as dealers earn a commission which is made into the price of the security

offering, however it can be found in the brochure. Primary markets create long

term instruments through which corporate entities borrow from capital market.

Primary market issues securities for new companies to fund their

activities thus facilitating new entrepreneurs to innovate the new business plan

and creating employment opportunity. Government sometimes funds their

development projects through primary market by issuing securities which

contributes to economic development, GDP and employment generation.

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 Role of Investment Banking in Bangladesh

Formation of capital in Bangladesh through the market is

insignificant compared to bank loans. Most businesses in Bangladesh fund their

activities bank borrowing and equity financing. The total fund collected from

the market is very low compared to bank financing.

Even though market activity has increased, the contribution of the

capital market in channeling capital for industrial development has been very

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 Role of Investment Banking in Bangladesh

low. But no of listed companies and capital formation from primary market is

increasing over times and now government is trying to increase the activity of

capital market by providing incentives like 10% tax benefit in 2016 for

investment in primary market.

GDP Growth & Role of Investment Bank

Gross Domestic Product (GDP) is the market value of total

production of goods and services within a country in a specific time period. It is

usually calculated on a yearly basis. GDP is the sum of all public and private

consumption, government outlays, investments and exports minus imports that

occur within a defined territory. It measures the overall economic activity of a

country.

Investment banks raise fund for the business corporations and

government through IPO which is used in production and development works

which accelerate the GDP growth. Investment banks are also helping the

business organization in borrowing from the financial institutions by

channeling and advising the cheapest sources which also contribute big volume

production thus increasing GDP growth.

Bangladesh has recorded GDP growth in excess of 6 per cent for

almost 10 consecutive years. The country ranks 33rd in terms of GDP

Purchasing Power Parity and 44th in terms of nominal GDP. The broad

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 Role of Investment Banking in Bangladesh

secretarial contribution to GDP is agriculture (19 per cent), industry (30 per

cent) and service (51 per cent). With the attainment of self-sufficiency in food

by way of contribution, the exports doing well from our RMG sector and

remittances from our hard working Non Resident Bangladeshi workers abroad;

the major area of investment is infrastructural development. There is a huge

requirement of funds which can be raised from the domestic sources. Capital

market can play a pivotal role.

Debt-equity Financing & Role of Investment Bank

Business organizations often need to raise fund from debt or equity

financing for their expansion. Debt financing means borrowing of fund that is

to be repaid with interest. Equity financing refers to collect funds by selling the

interests of the firm.

Investment banks provide advisory service whether the business

organization should go for debt or equity financing. It also provides channel for

debt or equity financing. They provide advisory service based on the debt or

equity ratio. Different industry maintains different standard of debt equity ratio.

Some companies maintain more debt than equity. Debt equity ratio affects the

security of an investment.

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 Role of Investment Banking in Bangladesh

Relation between Capital Market & Investment Bank

In this regard capital market acts as an intermediary to transfer

fund from people to who need the fund. This task is performed by investment

banks through selling securities in the capital market after setting a price

considering potential buyers.

In Bangladesh in 2015 DSE general index decreased 15.99 points or

0.35% to 4596.81 on December 2015 from 4592.33 in the previous session.

Looking back Bangladesh DSE general index lost 231.2 points or 4.79% during

the last 12 months from 4823.57 points in December of 2014. Historically the

Bangladesh stock market reached an all-time high of 891.51 in December 2010

and a record low of 282.43 in October of 1991.

Market capitalization of listed companies (% of GDP) in Bangladesh

was last measured at 15.06% in 2012, according to the World Bank. Market

capitalization (also known as market value) means the share price times the

number of shares outstanding.

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 Role of Investment Banking in Bangladesh

No of listed companies and amount of fund raised from capital

market have increased over time. This fund raising activity was executed with

the help of investment bank which contributes the higher productivity and

higher GDP.

Generation of Employment & Role of Investment Banking

The field of investment banking is mainly related to make a suitable

market for the firm who collects fund through selling securities in the

respective market. And no doubt it has a great effect in generating

employment. Employment and unemployment rate data is collected by the

bureau of statistics of a country.

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 Role of Investment Banking in Bangladesh

From the experiment we have noticed that In Bangladesh the

unemployment rate from 2004 to 2006 is 4.3%, from 2006 to 2008 is 5.1%,

from 2008 to 2010 is 4.5%, from 2010 to 2012 is 4.5%, and from 2012 to 2014

is 4.3%. This rate decreased as follows 4%, 4.5%, 4.1%, 4.15% &4.25%

correspondingly. As investment banks have increased over time in Bangladesh

and also contributed to capitalization thus facilitating in higher production

activities in the economy which are creating higher employment opportunity.

Political Economy & Investment Banking

Political economy is the interplay between economics, law and

politics, and how institutions develop in various social and economic systems,

such as capitalism, socialism and communism. Political economy investigates

how public policy is created and implemented in an economy. Though there

exist many political problems in developing Investment Banking in Bangladesh

but being some lucrative amenities of investment banking in the economic

development it is becoming more popular day by day.

According to CPD report in FY 2014-2015 we find that about 60%

of the entrants made new investment though financial year while the rest did

not so because of being political instability. Bank loan was not available. Yet

they made immense progress in the field of readymade garments,

pharmaceuticals, medical services, IT, jute, printing and publishing, light

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 Role of Investment Banking in Bangladesh

engineering, plastic and construction sectors. Furthermore production growth

in FY wasnt very impressive with only 30% but mentioned 50% and the rest 20%

is regarded production slumped the respective enterprises because of suitable

finance source. The analysts termed the existing 6% GDP is deliberated as

Bangla Growth & it considered Bangladesh needed Super Bangla Growth from

8% to 10s%.

The Small & Medium Enterprise (SME) Sector Development and Investment Banking

Small and Medium Enterprise (SMEs) sector is performing as strong

drivers of national economic growth through balanced development in urban

and rural areas. In Bangladesh SMEs provide a satisfactory record over 98% of the

industrial establishments, 80% of total industrial employment, 25-30% of gross

domestic product (GDP), and close to 15% of manufacturing GDP. According to

the provisional employment figures (18.25 million) available from the 2013

Economic Census of the BBS, the non-farm economic activities currently employ

over 30% of the country's total civilian labor force (56.4 million as per 2010

labor Force Survey).

The Cooperation Agreement between National Small Industries

Corporation, Government of India and Industrial and Infrastructure

Development Finance Company Limited (IIDFC), Bangladesh has been

renewed for further 3 years at a simple ceremony held at IIDFC Office in

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 Role of Investment Banking in Bangladesh

Dhaka on March 24, 2013. The agreement deals with learning and

sharing best practices in SME sector both in Bangladesh & India. These

include creating business incubation centers, demonstration & training

on technologies, sustainable business alliances between enterprises in

India and Bangladesh, setting up of technology parks for SMEs. Such

share of knowledge and experience will help establishing direct linkage

of SME entrepreneurs of both the countries which will ultimately boost

total trade and commerce.

Within a span of 7 years, MTB has secured two highly prestigious

awards: Women Entrepreneur Friendly Bank of the Year 2014 and SME

Bank of the Year 2014 at the SME Financing Fair-2014 organized for the

first time by Bangladesh Bank and SME Foundation jointly.

Role of Investment Banks in Loan Syndication

Syndicated Loan means loan offered by a group of lenders called a

syndicate who work together to provide funds for a single borrower. The

borrower may be a corporation, a large project, or government.

Due to loan syndication risk sharing, innovative financial structuring

and meeting large financing requirement in diversified development

sectors have become possible. A common lender group involving

process also results in better appraisal of projects. Identifying the

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 Role of Investment Banking in Bangladesh

demand and requirement of large funding, IDLC has been involved in

different loan syndication deals of various sectors since the year 2000.

IDLC has risen around BDT 41.2 billion for 31 projects in diverse

sectors.

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 Role of Investment Banking in Bangladesh

RECOMMENDATION

As it is not an emerged sector in Bangladesh, we have found out

some gaps & provided some recommendations for developing this sector -

At present, there is no deposit insurance coverage for the depositors of

Investment Banks and it is recommended that the depositors be brought

under the umbrella of insurance coverage. The deposit insurance system

should aim at minimizing the risk of loss of depositors funds with

Investment Banks.

A more Investment friendly policy of Bangladesh Bank for Investment

Banks, more organization with Bank financial institution, and easy

procedures of reporting to Bangladesh Bank etc. will help in the growth of

Investment Banks.

The Investment Banks need to streamline their loan disbursement

methods with focus on low risk industrial segments and adopt better

monitoring mechanisms in order to reduce risks associated with their

assets.

Investment Banks are permitted to undertake a wide array of activities

and should therefore not restrict themselves to a restricted number of

products only. Diversifying the product range is a strategic challenge for

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 Role of Investment Banking in Bangladesh

Investment Banks in order to become competitive in the rapidly growing

market.

Dynamic participation of merchant banks is crucial to accelerate the

capital market activities that can accelerate the economic growth of the

country.

An integrated products and services management system can strengthen

the role of FIs in developing, redesigning, offering and marketing of

existing as well as new financial products and services in more prudent

way.

Clientele protection can be enhanced by ensuring the availability of

information, proper understanding, and regular feedback.

Government should formulate investment banking friendly rules and

regulation to facilitate the industry to boost up to meet up the required

fund for productive sectors.

Innovative products should be introduced so that new investors are

interested to this sector.

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 Role of Investment Banking in Bangladesh

CONCLUSION

Not all financial innovation can be benefited in perspective to

economy of Bangladesh. This will take long period of time and regulation from

Bangladesh Bank Investment bank plays an important role in transferring or

supplying the financial surplus of the economy into productive investment

sectors. Thus before selecting an investment banker, one must decide financial

services for which he is being moved toward. Choosing the right intermediary

who has the essential skills to achieve the requirements of the client will make

sure success. It can be said that this report helped us to understand every

details about Investment Banking and in future how its going to get well-

settled in Bangladesh economy. Thats why Investment Banking can be

considered as essential financial body in BDs financial system. Market

development is forecasted on a sound, fair and transparent regulatory

framework. To continue the growth of the market and shape up the growing

awareness & interest into a committed, discerning sector, several steps is

needed to remove the trading malpractice and structural shortage prevailing in

the market & provide the investors an organized, well regulated market in

Bangladesh.

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 Role of Investment Banking in Bangladesh

REFERENCE

John F. Marshall, M. E. (2013-14). Investment Banking & Brokerage. McGraw-Hill

BRAC EPL. (2016). Retrieved from www.bracepl.com:

http://www.bracepl.com/investments/structured-finance/loan-
syndication

Bangladesh Bank. (n.d.). Retrieved from http://www.bb.org

Dialauge, C. F. (n.d.). Center for Policy Dialogue (CDP), Press report on the
media briefing on state of the Bangladesh Economy in fiscal year 2015,
3rd January 2015, the financial Express. The Financial Express.

Financial Express. (n.d.). Retrieved from http://old.thefinancialexpress-

bd.com/2014/08/02/48121#sthash.nyARejBv.dpuf

Financial Express. (n.d.). Retrieved from http://old.thefinancialexpress-

bd.com/2014/11/01/63882/print

IIFDC. (n.d.). Retrieved from http://www.iidfc.com/news

Investment Corporation of Bandladesh. (n.d.). Retrieved from

http://www.icb.com

Mutual Trust Bank. (n.d.). Retrieved from

http://www.mutualtrustbank.com/sme/

The Daily Star. (n.d.). Retrieved from http://www.thedailystar.net/syndication-

financing-in-bangladesh-past-present-and-beyond-16882

The Daily Star. (n.d.). Retrieved from http://www.thedailystar.net/syndication-

financing-in-bangladesh-past-present-and-beyond-16882

Trade Economics. (n.d.). Retrieved from

http://www.tradingeconomics.com/bangladesh/market-capitalization-of-
listed-companies-percent-of-gdp-wb-data.html

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 Role of Investment Banking in Bangladesh

Trade Economics. (n.d.). Retrieved from

http://www.tradingeconomics.com/bangladesh/market-capitalization-of-
listed-companies-percent-of-gdp-wb-data.html

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