Background:

Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse financial
needs of various sectors of an economy and thus contribute to the economic development of the
country as well as to the deepening of the country’s financial system. According to Goldsmith
(1969), financial development in a country starts with the development of banking institutions. As
the development process proceeds, NBFIs become prominent alongside the banking sector. Both
can play significant roles in influencing and mobilizing savings for investment. Their involvement
in the process generally makes them competitors as they try to cater to the same needs. However,
they are also complementary to each other as each can develop its own niche, and thus may venture
into an area where the other may not, which ultimately strengthens the financial mobility of both.
In relatively advanced economies there are different types of non-bank financial institutions
namely insurance companies, finance companies, investment banks and those dealing with pension
and mutual funds, though financial innovation is blurring the distinction between different
institutions. In some countries financial institutions have adopted both banking and non-banking
financial service packages to meet the changing requirements of the customers. In the Bangladesh
context, NBFIs are those institutions that are licensed and controlled by the Financial Institutions
Act of 1993 (FIA ’93). NBFIs give loans and advances for industry, commerce, agriculture,
housing and real estate, carry on underwriting or acquisition business or the investment and re-
investment in shares, stocks, bonds, debentures or debenture stock or securities issued by the
government or any local authority; carry on the business of hire purchase transactions including
leasing of machinery or equipment, and use their capital to invest in companies.

The importance of NBFIs can be emphasized from the structure of the financial system. In the
financial system of Bangladesh, commercial banks have emerged in a dominant role in mobilizing
funds and using these resources for investment. Due to their structural limitations and rigidity of
different regulations, banks could not expand their operations in all expected areas and were
confined to a relatively limited sphere of financial services. Moreover, their efforts to meet long
term financing with short term resources may result in asset-liability mismatch, which can create
pressure on their financial base. They also could not broaden their operational horizon appreciably
by offering new and innovative financial products. These drawbacks led to the emergence of
NBFIs in Bangladesh for supporting industrialization and economic growth of the country.
1
Initially, NBFIs were incorporated in Bangladesh under the Companies Act, 1913 and were
regulated by the provision relating to Non-Banking Institutions as contained in Chapter V of the
Bangladesh Bank Order, 1972. But this regulatory framework was not adequate and NBFIs had
the scope of carrying out their business in the line of banking. Later, Bangladesh Bank promulgated
an order titled ‘Non-Banking Financial Institutions Order, 1989’ to promote better regulation and
also to remove the ambiguity relating to the permissible areas of operation of NBFIs. But the order
did not cover the whole range of NBFI activities. It also did not mention anything about the
statutory liquidity requirement to be maintained with the central bank. To remove the regulatory
deficiency and also to define a wide range of activities to be covered by NBFIs, a new act titled
‘Financial Institution Act, 1993’ was enacted in 1993. Industrial Promotion and Development
Company (IPDC) was the first private sector NBFI in Bangladesh, which started its operation in
1981. Since then the number has been increasing and as of September, 2016 the number is 33.

Theoretical Overview of the Financial System of Bangladesh:

The Financial System is a set of institutional arrangements through which financial surpluses in
the economy are mobilized from surplus units and transferred to deficit spenders. The financial
system of Bangladesh is dominated by banking system followed by NBFIs and insurance
companies as well as microfinance institutions (MFIs). Financial system of any country has three
main components –

1. Financial Institutions: The modern name of financial institution is Financial Intermediary

(FI), because it mediates or stands between ultimate borrowers and ultimate lenders. They
receive request from the surplus and deficit units on what securities to be purchased or sold,
and they use this information to match up the demand of buyers and sellers of funds. Financial
institutions are generally classified under two main heads-
 Banks – All so-called commercial & specialized banks are clubbed under Banking
Financial Institutions (BFIs).
 Non-Bank Financial Intermediaries/Institutions – The investment/merchant companies,
leasing companies, house finance companies, insurance companies, finance companies etc.
are included under Non-Bank Financial Institutions (NBFIs). According to Bangladesh
Bank non-bank financial institutions (FIs) are those types of financial institutions which

2
 are regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank.
Now, 33 FIs are operating in Bangladesh while the maiden one was established in 1981.
Out of the total, 3 is fully government owned, 1 is the subsidiary of a SOCB, 13 were
initiated by private domestic initiative and 16 were initiated by joint venture initiative.
Major sources of funds of FIs are term deposit (at least three months tenure), credit facility
from banks and other FIs, call money as well as bond and securitization. The major
difference between banks and FIs are as follows:
i. FIs cannot issue cheques, pay-orders or demand drafts.
ii. FIs cannot receive demand deposits,
iii. FIs cannot be involved in foreign exchange financing
iv. FIs can conduct their business operations with diversified financing modes like
syndicated financing, bridge financing, lease financing, securitization instruments,
private placement of equity etc.
2. Financial Instruments: Financial Instruments are the evidences of financial claims of one
party (holders) against another party (issuers). Alternatively these are the documents with the
help of which funds from surplus units are mobilized to deficit units. There are two broad types
of financial instruments – Primary or Direct Financial Instruments (claims against real-sector
units) & Secondary or Indirect Financial Instruments (claims against financial institutions or
intermediaries). Financial Instruments can also be classified into Money Market Instruments
& Capital Market Instruments.
3. Financial Markets: Financial markets are the markets where financial instruments are bought
& sold. Financial markets facilitate the flow of funds from surplus units to deficit units. These
are of two types – Money Market (deals with short term financial instruments) & Capital
Market (deals with long term financial instruments). It can also be categorized into - Security
Market (comprising new issue market or NIM and secondary market) & Non Security Market
(comprising banking and non-banking financial institutions).

For regulating the whole financial system, there are some financial regulators and supervisors in
the country. Various financial institutions operating in Bangladesh have their distinctive
characteristics and operational areas which are serving for the economic development of the
country.

3
Necessity of NBFI for Economic Development:

Building a sound financial system is an immense necessity for the economic development of a
country. The main task of the financial system is to mobilize funds from the surplus budget unit to
deficit budget unit. Financial system provides a strong mechanism for collection and allocation of
financial resources among the various alternatives. However, in a developing country like
Bangladesh it is very hard to reach in a sound financial system due to the lack of requisite
institutions, expertise and resources. Many legal and regulatory frameworks are needed to ensure
discipline in the financial system. For a well-functioning financial market along with the BFIs,
NBFIs have an important role to uplift the economic activity. These two financial sectors can
simultaneously build up and strengthen the financial system of the country. Development of the
NBFIs in a sustainable basis contributes to the speed and efficiency of the financial system. The
necessity for the development of NBFIs could be best judged with the following issues.

Firstly, the NBFIs are markedly different from the banking institutions and with different
phenomena. These two kinds of financial institutions are complementary rather than substitute
organs in the financial system. Existence of banking and non-banking financial institutions, money
market and capital market keep the financial sector complete and enhance the overall growth of
the economy. Secondly, there is a maturity mismatch in the sources and uses of funds in our
financial system, which leads inefficiency in the financial system. Commercial banks by their
definition are unsuited for long term lending. Inefficiency of BFIs in long-term loan management
has already leaded an enormous volume of outstanding loan in our economy. However, with the
present status, expertise and efficiency, the NCBs are barely able to serve the future investment
demand of the country. Private commercial banks are less experienced and less equipped in this
regard and they would not take the load or be able to take future challenges of term lending of the
country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap,
development of NBFIs is a compelling necessity for the economy. Thirdly, sophisticated and well-
developed capital market is considered as the hallmark for a market economy worldwide. Although
our country is moving toward a full market based economy, capital markets are still in infancy.
This is due to lack of requisite institutions those are needed in the system. In the last thirty years
there has been a tremendous growth worldwide of non-bank financial institutions to provide
support services to the capital market. These range from broker dealer to investment banker. The

4
health of the capital market is largely relied upon the health of the banking and non-banking
financial institutions. The key players are the non-bank financial institutions in the development
of the capital market.

NBFIs contribute to economic growth and poverty reduction through providing multiple
alternatives to transform an economy’s savings into investment. Banks usually offer a set of
financial services as a package deal, NBFIs unbundle these services for tailoring their services to
particular groups. Additionally, individual NBFI may specialize in a particular sector and is
therefore gaining an informational advantage. By these unbundling, targeting, & specializing,
NBFIs promote competition within the financial service industry & support a financial system to
function well. As such this type of financial system protects economies from financial shocks and
helps in recovery from those shocks.

The necessity of NBFI in the economic development of BD can be realized from the following
two graphs.

Contribution to GDP

91173
81735
75095
69653
60232 466437
347270 403897
293511
215222

2010-11 2011-12 2012-13 2013-14 2014-15

Banks NBFI

It is clear from this graph that contribution of both NBFI & Bank to the GDP of the country has
been increasing every year. But the actual growth in the next graph shows a bit different picture.
While the growth of bank’s contribution to GDP has been decreasing every year, NBFI’s growth
has exhibited an upward trend from 2012-13. This clearly proves how vital NBFI is to the
economic development of the country.

5
 Growth of Contribution in GDP

2014-15 15.48% 11.55%

2013-14 16.31% 8.84%

2012-13 18.32% 7.81%

2011-12 36.38% 15.64%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Banks NBFI

Role of Financial Institutions in the Economic Development:

The development of any country depends on the economic growth the country achieves over a
period of time. Economic growth deals about investment and production and also the extent of
Gross Domestic Product in a country. Only when this grows, the people will experience growth in
the form of improved standard of living, namely economic development. NBFI or Financial
Institutions being an integral part of financial system contributes to the economic development of
the country with its diversified services & role as stated below:

 Savings-Investment Relationship: To attain economic development, a country needs more

investment and production. This can happen only when there is a facility for savings. As, such
savings are channelized to productive resources in the form of investment. Here, the role of
financial institutions is important, since they induce the public to save by offering attractive
interest rates. These savings are channelized by lending to various business concerns which
are involved in production and distribution.
 Fuller Utilization of Resources: Savings pooled by FIs are utilized to a greater extent for
development purposes of various regions in the country. It ensures fuller utilization of
resources.
 Infrastructure and Growth: Economic development of any country depends on the
infrastructure facility available in the country. In the absence of key industries like coal, power

6
 and oil, development of other industries will be hampered. It is here that the financial services
play a crucial role by providing funds for the growth of infrastructure industries. Private sector
will find it difficult to raise the huge capital needed for setting up infrastructure industries. For
a long time, infrastructure industries were started only by the government. But now, with the
policy of economic liberalization, more private sector industries have come forward to start
infrastructure industry.
 Development of Trade: The financial institution helps in the promotion of both domestic and
foreign trade. The financial institutions finance traders and the financial market helps in
discounting financial instruments such as bills. Foreign trade is promoted due to per-shipment
and post-shipment finance by commercial banks. They also issue Letter of Credit in favor of
the importer. Thus, the precious foreign exchange is earned by the country because of the
presence of financial system. The best part of the financial system is that the seller or the buyer
do not meet each other and the documents are negotiated through the bank. In this manner, the
financial system not only helps the traders but also various financial institutions. Some of the
capital goods are sold through hire purchase and installment system, both in the domestic and
foreign trade. Though FIs cannot directly take part in the foreign exchange transaction or
dealings but they can provide guarantee of such transaction or dealings which increases the
credibility of the mechanism and acts as complementary to the banking system. As a result of
all these, the growth of the country is speeded up.
 Housing Finance: As a part of improving dwelling houses, financial intermediaries are
providing housing loans. This has enabled many fixed income group people to avail the
housing loan. Loans are being provided to purchase land also. Normally, to a borrower under
this facility, FIs provide upto 85% of the value of the property.
 Providing Term Loans to Large & Medium Industry: The bulk of term finance required by
large and medium industry is provided by FIs along with BFIs. Term loans from financial
institutions and banks are a syndicated activity. For big projects financial institutions provide
finance on a consortium basis and commercial banks also join them where ‘gap’ is left in
financing arrangements of the project costs. With the increasing integration of Bangladesh
economy with the global economy, the financing requirements of corporate sector have
undergone tremendous change, and accordingly, financing institutions in BD have re-oriented
their policies and product range with much sharper customer focus to suit the varied needs of

7
 the corporate. With a view to leverage new opportunities thrown open by the developments in
the economy, the financial institutions have set up several subsidiaries/ associate institutions
offering a wide range of new products and services covering areas such as consumer finance,
investor services, broking, venture capital financing, infrastructure financing, registrar and
transfer services, credit rating and E-commerce.

CONTRIBUTION TOWARDS DIFFERENT SECTOR

THROUGH LOANS & ADVANCES AS OF
DECEMBER, 2013
NBFIs BFIs

OTHERS 19.22% 12.58%

M E R C HANT B ANKING & M AR GIN LOAN 7.44% 0.00%

HOUSING 12.17% 8.94%

AGR IC ULTUR E 1.43% 5.59%

INDUSTR Y 45.20% 33.64%

TRADE & COMMERCE 14.55% 39.25%

Trends of Credit Portfolio

7.0% 95.5%

6.0% 95.0%
5.0%
94.5%
4.0%
94.0%
3.0%
93.5%
2.0%

1.0% 93.0%

0.0% 92.5%
2008 2009 2010 2011 2012 2013

NBFIs BFIs

 Employment Growth: The presence of financial institutions beside banks have generated and
will generate more employment opportunities in the country. With competition picking up in
various sectors, the service sector such as sales, marketing, advertisement, etc., also pick up

8
 leading to more employment opportunities. Various financial services such as leasing,
factoring, merchant banking, etc., will also generate more employment. The growth of trade in
the country also induces employment opportunities. Financing by Venture capital provides
additional opportunities for techno-based industries and employment.
 Self-Employment Programme: Employment growth is a sign of economic development.
Financial Intermediaries, by providing finance for starting self-employment programs are
generating more production and income in the country. FIs are providing loans on lower rates
for the women entrepreneur. Moreover they are also encouraging entrepreneurial activity with
fund and arranging seminars on different business issues.
 Investment in Government & Private Securities : NBFI along with banks help the government
to raise both short-term and long-term funds through purchasing financial instruments issued
by govt. which carry attractive rates of interest along with tax concessions.

Investment in Govt. Securities

1,000.0 5.0
800.0 4.0
600.0 3.0
400.0 2.0
200.0 1.0
0.0 0.0
2008 2009 2010 2011 2012 2013

BFIs NBFIs

Investment in Private Securities

NBFIs BFIs

800.0 15.0

600.0
10.0
400.0
5.0
200.0

0.0 0.0
2008 2009 2010 2011 2012 2013

9
 Growth of Capital Market: Any business requires two types of capital namely - fixed capital
and working capital. Fixed capital is used for investment in fixed assets like plant and
machinery. While working capital is used for the day-to-day running of business. It is also used
for purchase of raw materials and converting them into finished products. Fixed capital is
raised through capital market by the issue of debentures and shares. Public and other financial
institutions invest in them in order to get a good return with minimized risks. For working
capital, FIs provide working capital loans for 3 to 12 months with affordable terms &
conditions and ensures the smooth functioning of the enterprises and corporations.
 Venture Capital: The economic development of a country will be rapid when more ventures
are promoted which require modern technology and venture capital. Venture capital cannot be
provided by individual companies as it involves more risks. It is only through financial system,
more financial institutions will contribute a part of their investable funds for the promotion of
new ventures. Thus, financial system enables the creation of venture capital.
 Role in Balanced Regional Development: Through the financial system, backward areas could
be developed by providing various financial services. This ensures a balanced development
throughout the country and this will mitigate political or any other kind of disturbances in the
country. It will also check migration of rural population towards towns and cities.
 Uniform Interest Rates: The financial system is capable of bringing a uniform interest rate
throughout the country by which there will be balanced movement of funds between different
economic units which will ensure availability of capital for all kinds of industries.
 Electronic Development: Due to the development of technology and the introduction of
computers in the financial system, the transactions have increased manifold bringing in
changes for the all-round development of the country. Financial institutions now can provide
remote services online and customers can easily solve their queries and get prompt services
due to the introduction of electronic system by FIs in providing financial services
 Attracting Foreign Capital: Financial system promotes capital market. A dynamic capital
market is capable of attracting funds both from domestic and abroad. With more capital,
investment will expand and this will speed up the economic development of a country.
 Financial System Ensures Balanced Growth: Economic development requires a balanced
growth which means growth in all the sectors simultaneously. Primary sector, secondary sector
and tertiary sector require adequate funds for their growth. The financial system in the country

10
 will be geared up by the authorities in such a way that the available funds will be distributed
to all the sectors in such a manner, that there will be a balanced growth in industries, agriculture
and service sectors. As a matter of fact NBFIs of Bangladesh invest more in the industrial
sector than banking institutions. While BFIs invest more for the development of trade and
commerce. These institutions also invest in various refinancing schemes which are aimed to
promote sectors like agriculture. As a result of all these, balanced growth is ensured.
 Fiscal Discipline and Control of Economy: It is through the financial system, that the
government can create a congenial business atmosphere so that neither too much of inflation
nor depression is experienced. The industries should be given suitable protection through the
financial system so that their credit requirements will be met even during the difficult period.
The government on its part, can raise adequate resources to meet its financial commitments so
that economic development is not hampered. The government can also regulate the financial
system through suitable legislation so that unwanted or speculative transactions could be
avoided. The growth of black money could also be minimized. And it goes beyond saying that
NBFI being a part of financial system plays a very important role in maintain fiscal discipline
and control of economy.
 Political Stability: The political conditions in all the countries with a developed financial
system will be stable. Unstable political environment will not only affect their financial system
but also their economic development.

11
Challenges of NBFI:

Sources of Funds: NBFIs collect funds from a wide range of sources including financial
instruments, loans from banks, financial institutions, insurance companies and international
agencies as well as deposits from institutions and the public. Line of credit from banks
constitutes the major portion of total funds for NBFIs. Deposit from public is another important
source of fund for NBFIs, which has been increasing over the years and few NBFIs have been
able to stop borrowing from banks. NBFIs are allowed to take deposits directly from the public
as well as institutions. According to the central bank regulation, NBFIs has the restriction to
collect public deposits for less than three months, which creates uneven competition with banks
as banks are also exploring the business opportunities created by NBFIs with their lower cost
of fund. NBFIs can develop attractive term deposit products of different maturities to have
access to public deposits as these are one significant source of their funds. Although share
capital is another prospective source of fund for NBFIs, many companies have not utilized this
opportunity fully. As all NBFIs are incorporated as public limited companies, it could be a
better alternative for them to raise fund through initial public offerings in order to finance the
expanding horizon of activities. Following figure shows the composition of the sources of fund
for NBFIs. It is evident that loan from bank and deposit base are the key sources for NBFIs’
fund and account for nearly 75 percent of the total. It can also be seen that the dominance of
bank loan in the total fund is decreasing while the importance deposit base is gaining
momentum.
Cost of Fund: The structure of cost of fund for NBFIs does not follow any unique trend. The
weighted average cost of fund for the leasing companies is always positioned much higher than
that of banks. As stated earlier, the principal sources of fund for NBFIs are loan from banks
and deposits from institutions and individuals. But NBFIs face comparative disadvantage in
collecting funds compared to the banks because NBFIs cannot collect demand deposits from
individuals due to the central bank’s restriction, and again deposits in NBFIs are perceived to
be less safe to the public. As a result, NBFIs have to offer higher rates on deposits, which are
sometimes as expensive as bank borrowing. Again, excessive dependence on bank loan and
deposit has had an adverse impact on the overall industry. Due to the liquidity crisis, when
interest rate goes up, the average rate of interest on bank credit lines and deposit rate also

12
 increases, which causes significant rise in the cost of fund for NBFIs. The high cost of fund
for NBFIs compels them to operate on a relatively low profit margin.
Asset-Liability Mismatch: Asset-liability mismatch is another cause of concern for NBFIs.
Demand for funds to meet the increasing lending requirements has increased many times.
According to IFC, the average weighted life of the company’s business portfolio should be less
than the average weighted life of its deposits and borrowing in its operating guidelines for a
leasing company. Therefore, NBFIs have to explore alternative ways for raising funds.
Investment in High Risk Portfolio: It is already mentioned that cost of funds for NBFIs are
higher than that of banks. In order to sustain the high cost of borrowing, NBFIs may be inclined
to invest in the high return segments, which can expose them to commensurately higher risks.
Moreover, fierce competition among competitors may also force many NBFIs to reduce the
margin at the expense of quality of the asset portfolio. This strategy may eventually create the
possibility of an increase in the non-performing accounts. Unless adequate risk management
capabilities are developed, the growth prospects of NBFIs would not only be hindered but it
might also be misapprehended.

NPL of NBFI
10.00%
9.00% 8.90%
8.00%
7.00%
6.00% 5.90%
5.50% 5.60%
5.00% 5.30%
4.90%
4.00%
3.00%
2.00%
1.00%
0.00%
2010 2011 2012 2013 2014 2015

Product Diversification: NBFIs emerged primarily to fill in the gaps in the supply of financial
services which were not generally provided by the banking sector, and also to complement the
banking sector in meeting the financing requirements of the evolving economy. NBFIs are
permitted to undertake a wide array of activities and should therefore not confine themselves

13
to a limited number of products only. Diversifying the product range is a strategic challenge
for NBFIs in order to become competitive in the rapidly growing market.
Competition with Banks: With the advent of new NBFIs, the market share is being spread over
the competing firms and the demand facing each firm is becoming more elastic. Active
participation of commercial banks in the non-bank financing activities has further increased
the level of competition in the industry. Leasing was considered as a non-bank financing
activity until recently. But a large number of banks has also shown their interest in the leasing
business and has already penetrated the market. For banks, public deposit is one major source
of funds which they can collect with relatively lower cost. Thus the business environment for
NBFIs has become more challenging as they have to face uneven competition with banks in
terms of collecting funds.
Lack of Human Resource: Skilled and trained human resource is considered as an important
component for the development of any institution. Due to the recent growth of NBFIs,
availability of experienced manpower is a challenge for this industry. The supply shortage of
efficient resource personnel has been leading to a significant increase in the compensation
package, which is also a cause of concern for NBFIs. The industry experts believe that although
there exist enormous growth opportunity the market is still quite small and scope of work for
skilled personnel is very limited compared to that of banks. This makes the competent
personnel to switch from NBFIs to other institutions after a certain period implying low
retention rate of skilled human resource.
Lack of a Secondary Market: Even in cases when the defaulted asset is recovered, the disposal
of the same becomes difficult because of lack of an established secondary market. For the
promotion of a secondary market, NBFIs may consider initiating the concept of operating lease
instead of the prevalent mode of finance lease in case of these recovered assets to create a
demand for second hand or used machinery and equipment.
Lack of Knowledge about the NBFI: Very few people those deal with financial system can
differentiate between Bank & NBFI. Most of the people relate and consider NBFI as a part of
share market. Their thinking is confined within the services of banking institutions. Majority
is reluctant to call NBFI a financial institutions. They term it a bank. So to broaden the sphere
of NBFI, regulators and concerned authorities must take quick necessary measures to educate
people about NBFI & their services.

14
Conclusion:

Banks and Non-Bank Financial Institutions are both key elements of a sound and stable financial
system. Banks usually dominate the financial system in most countries because businesses,
households and the public sector all rely on the banking system for a wide range of financial
products to meet their financial needs. However, by providing additional and alternative financial
services, NBFIs have already gained considerable popularity both in developed and developing
countries. In one hand these institutions help to facilitate long-term investment and financing,
which is often a challenge to the banking sector and on the other, the growth of NBFIs widens the
range of products available for individuals and institutions with resources to invest. Through their
operation NBFIs can mobilize long-term funds necessary for the development of equity and
corporate debt markets, leasing, factoring and venture capital. Another important role which
NBFI’s play in an economy is to act as a buffer, especially in the moments of economic distress.
An efficient NBFI sector also acts as systemic risk mitigator and contributes to the overall goal of
financial stability in the economy. NBFIs of Bangladesh have already passed more than two and a
half decades of operation. Despite several constraints, the industry has performed notably well and
their role in the economy should be duly recognized. It is important to view NBFIs as a catalyst
for economic growth and to provide necessary support for their development. A long term
approach by all concerned for the development of NBFIs is necessary. Given appropriate support,
NBFIs will be able to play a more significant role in the economic development of the country.

15
 References:

1. Review of Non-Bank Financial Sector – 2014 ( A Comparative Performance Evaluation of

the Non-Bank Financial Institutions), BIBM Publications
2. Financial Stability Report – 2015 (Issue 6, June-2016), Bangladesh Bank
3. Annual Report (2013-2014), Bangladesh Bank
4. Bangladesh Economic Review – 2015, Bangladesh Bureau of Statistics
5. Non-Bank Financial Institutions in Bangladesh - An Analytical Review by Md. Nehal
Ahmed & Mainul Islam Chowdhury
6. Development of Non-Bank Financial Institutions to Strengthen the Financial System of
Bangladesh by Monzur Hossain & Md. Shahiduzzaman

Data Used:

Year Loans, Advances & Lease Financing Investment in Govt. Securities Investment in Private Securities
NBFIs BFIs NBFIs BFIs NBFIs BFIs
2008 105.0 2,131.8 0.0 398.1 0.0 32.1
2009 133.8 2,493.2 2.3 532.2 11.3 44.1
2010 169.0 3,198.6 3.1 490.8 13.6 98.5
2011 199.9 3,792.5 3.0 662.1 13.7 131.3
2012 247.4 4,386.7 2.4 607.6 13.5 505.9
2013 315.1 4,720.1 4.3 841.2 10.5 730.0

Loans & Adavnces as of December, 2013

Sector NBFIs BFIs
Trade & Commerce 14.55% 39.25%
Industry 45.20% 33.64%
Agriculture 1.43% 5.59%
Housing 12.17% 8.94%
M erchant Banking &
7.44% 0.00%
M argin Loan
Others 19.22% 12.58%

16
 NPL
Bank
NBFI (Excluding
Islami Bank)
2010 5.90%
2011 4.90%
2012 5.50% 10.00%
2013 5.60% 8.70%
2014 5.30% 9.70%
2015 8.90% 8.80%

Contribution to GDP
2010-11 2011-12 2012-13 2013-14 2014-15
Financial Intermediations 275454 363164 422365 485632 557610
Banks 215222 293511 347270 403897 466437
NBFI 60232 69653 75095 81735 91173
Share of GDP
Service Sector 55.90% 56.16% 56.09% 56.28% 56.35%
Financial Intermediations 3.17% 3.64% 3.70% 3.79% 3.86%
Banks 2.48% 2.94% 3.04% 3.15% 3.23%
NBFI 0.69% 0.70% 0.66% 0.64% 0.63%
Growth
Service Sector 13.86% 15.45% 14.13% 12.59% 12.97%
Financial Intermediations 17.48% 31.84% 16.30% 14.98% 14.82%
Banks 36.38% 18.32% 16.31% 15.48%
NBFI 15.64% 7.81% 8.84% 11.55%

17