Institute of Business Administration

University of Dhaka

Course: Financial Markets and Institutions (F403)

Assignment 01
Financial System of Bangladesh

Submitted to:
Syeda Mahrufa Bashar
Assistant Professor
Institute of Business Administration

Submitted by:
Nuzhat Tabassum Ahmed (RH-18)
Anika Shahjabin (RH-38)
Mohaiminul Islam Riaz (ZR-47)
Syed Ahmad Nafisul Abrar (ZR-89)
Mohammed Shahriar Sharif (ZR-97)

BBA 23rd

Date of Submission:
1st February, 2018
Introduction
The present structure of the financial system in Bangladesh comprises of various types of banks,
insurance companies, and non-bank financial institutions. Bangladesh Bank is at the top of the
banking system and is accountable for assuring prudential administration and central banking
activities for all types of banks operating within the banking industry. On the other hand, the
Securities and Exchange Commission (SEC) of Bangladesh is the regulatory body for stock-
market related activities.

Overview of Financial System

The sectors have been categorized in accordance with their degree of regulation (Appendix 1).
The financial system of Bangladesh is comprised of three broad fragmented sectors:

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

The Formal Sector

Formal Sector consists of three major markets- Money market, capital market and foreign
exchange market.

 Money Market
It provides a medium for the redistribution of short-term loanable funds among financial
institutions. The participants in the money market consists of banks, non-banking financial
Institutions (NBFI), primary dealers, insurance companies, saving and loans associations, etc.
and the instruments traded constitutes of treasury bills, government bonds and commercial
papers (Banglapedia, 2015). Among the 15 primary dealers in Bangladesh 12 are banks and 3 are
Non-banking Financial Institutions (Appendix 2). Overnight call money market has scheduled
banks and non-banking financial institutions actively participating in the secondary market.

 Capital Market
It is the market for debt and equity securities where companies and government can raise funds
through the sale of new stock or bonds. It includes investment banks, Stock Exchanges, credit
rating companies, etc. and is regulated by Bangladesh Securities and Exchange Commission
(SEC). The SEC has issued licenses to 27 institutions to act in the capital market, among these
19 are Merchant Banker and Portfolio Manager, 7 are Issue Managers and 1 acts as Issue
Manager and Underwriter (Bangladesh Bank, 2017). The secondary sector of the capital market
are institutionalized by Dhaka Stock Exchange and Chittagong Stock exchange and the
instruments in these exchanges are equity securities, debentures, corporate bonds and treasury
bonds. This alternative source of long-term finance helps in diffusing stress on the banking
system by matching long term investments with long-term capital.

 Foreign Exchange Market

At present, the system of exchange rate management in Bangladesh is to monitor the movement
of the exchange rate of taka against a basket of currencies through a mechanism of Real
Effective Exchange Rate (REER) intended to be kept close to the equilibrium rate. The players in
the foreign exchange market of Bangladesh are the Bangladesh Bank, authorised dealers, and
customers. Bangladesh Bank has fixed the open position limit for the banks by which, banks are
to operate in the interbank market (Banglapedia, 2014).

The Semi Formal Sector

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 (Ahmed, 2016).
The Informal Sector
The informal sector includes private intermediaries which are completely unregulated.

Regulatory Bodies

Bangladesh Bank (BB)

Bangladesh Bank is the nation’s central bank and the top regulatory authority for managing the
monetary and financial system. Some of the functions of Bangladesh Bank are:

● Development and implementation of monetary and credit policies.

● Regulation and supervision of banks and non-bank financial institutions, promotion and
development of domestic financial markets.
● Management of the country's international reserves. (Alam, n.d.)
● Issuance of currency notes.

Insurance Development and Regulatory Authority (IDRA)

Insurance Development and Regulatory Authority (IDRA) was established on January 26, 2011 as
the regulator of insurance industry under the Insurance Development and Regulatory Act, 2010.
The mission of IDRA is to protect the interest of the policyholders and the stakeholders under the
insurance policy, supervise and regulate the insurance industry. (IDRA, n.d.) Roles of IDRA are:

 To protect the interest of the policy holders related to surrender value of policy, settlement
of insurance claims, insurable interest, nomination by policyholders, other terms &
conditions of insurance contract.
 To promote proficiency in the conduct of insurance business;
 To promoting and regulate professional organizations connected with the insurance and
reinsurance business
 To call for information from, undertaking inspection of, conducting inquiries including
audit of the insurers
Securities and Exchange Commission (SEC)
Securities and Exchange Commission (SEC) regulates the capital market intermediaries as well as
the issuance of capital and financial instruments by public limited companies of Bangladesh. It
was established on June 8, 1993 under the Securities and Exchange Commission Act, 1993.
(Securities and Exchange Commission, n.d.) The main functions of SEC are:

 To regulate the business of Stock Exchanges or any other securities market

 To register, monitor and regulate collective investment schemes such as mutual funds
 To prohibit fraudulent and unfair practices in the securities market

Microcredit Regulatory Authority

Micro-credit Regulatory Authority (MRA) was established under the "Microcredit Regulatory
Authority Act, 2006. (Microcredit Regulatory Authority, n.d.) MRA was established in order
ensure transparency as well as accountability of microcredit services of NGO MFI of the country.
The three primary functions of MRA are:

 Licensing of Microfinance Institutions (MFI) with explicit legal powers;

 Supervision of MFIs to ensure that they continue to comply with the licensing
requirements; and
 Enforcement of sanctions in the event of any MFI failing to meet the licensing and ongoing
supervisory requirements.
Appendix
Appendix 1
Appendix 2
References
(n.d.). Retrieved from IDRA: http://www.idra.org.bd/

Ahmed, M. (2016, June 25). Slideshare. Retrieved from https://www.slideshare.net:

https://www.slideshare.net/MashfiqAlbartross/overview-of-financial-system-of-
bangladesh

Alam, A. K. (n.d.). Department of financial institutions and marketsbangladesh-bank. Retrieved

from http://www.assignmentpoint.com/business/banking/department-of-financial-
institutions-and-markets-bangladesh-bank.html

Bangladesh Bank. (2017, December 12). Retrieved from https://www.bb.org.bd:

https://www.bb.org.bd/fnansys/index.php

Banglapedia. (2014, May 5). Retrieved from http://en.banglapedia.org:

http://en.banglapedia.org/index.php?title=Foreign_Exchange_Market

Banglapedia. (2015, March 4). Retrieved from http://en.banglapedia.org:

http://en.banglapedia.org/index.php?title=Money_Market

Microcredit Regulatory Authority. (n.d.). Retrieved from MRA: http://www.mra.gov.bd/

Rocky, T. (n.d.). Overview of Financial System in Bangladesh. Retrieved from Academia:

https://www.academia.edu/11705814/Overview_of_Financial_System_in_Bangladesh?au
to=download

Securities and Exchange Commission. (n.d.). Retrieved from Banglapedia:

http://en.banglapedia.org/index.php?title=Securities_and_Exchange_Commission