Role of Capital Market in

economic development
of Bangladesh
1. Introduction
An Economy runs on its business transactions. And a Capital market is a place where
buyers & Sellers gather for large transactions. This type of market is introduced to collect
huge capital to invest that directly helps economic growth of a country. Though It
Accelerate the economy, it also may the cause of economic slack by its miss-use.

2. Capital Market
In the capital market some major institutions like Securities and Exchange Commission
(SEC), Investment Corporation of Bangladesh (ICB), commercial banks and other banks
like Bangladesh Shilpa Rin Sangstha and Bangladesh Shilpa Bank (both these banks are
now converted into Bangladesh Development Bank Ltd.-BDBL), Issue Houses, Insurance
Companies etc. mainly deal with long-term financing which covers the source of funds
and application of the same, while SEC works as the controlling authority of the said
market . Both the markets have a strong role to play in the Gross Domestic Product and
Gross National Product (GNP) of this country because of the financing for the personal
and institutional concerned and these markets are inter-dependent between each other.
The accumulated savings of the people in the money market are invested in the capital
market. In fact, two groups are keenly associated with the capital market and they are
investors and issuers. Both the parties participate in this market with a view to achieving
their targets. Actually, capital market acts as a bridge for financing for the industrial
development of a country like Bangladesh through the selling and purchasing of shares,
debentures, bonds, mutual funds, treasury bills, certificates & papers etc and the turn-over
of capital market contributes to the GDP every year. Out of these dealings share market
(stock market) plays a crucial role in the capital market, while the other contributions of

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 loan from banks and financial institutions, bonds and mutual funds etc. cannot be
undermined.

Whereas, a great portion of people of this country remain behind the seen of Capital
Market where they should come forward for the individual development in particular and
for the emancipation of the economy in general. Considering this gap the study is
planned. Of course, the present study will mainly focus on the share market issues of this
country which play a terrific role in the capital market as a key component.

3. Dhaka Stock Exchange (DSE)

The Dhaka stock exchange will create a successful well-organized and transparent market
of international standard to save and invest in Bangladesh in order to facilitate the
competent entrepreneurs to raise capital and speed up industrial growth for overall benefit
of the economy.

The Dhaka Stock Exchange was incorporated in 1954, and formal trading began in 1956.
Originally, the exchange was called the East Pakistan Stock Exchange Association Ltd,
and in 1962 the name was revised to East Pakistan Stock Exchange Ltd. Two years later,
on Feb. 22, 1964, the name was changed to current day Dhaka Stock Exchange Ltd. The
Dhaka Stock Exchange is registered as a Public Limited Company and is regulated by the
Bangladesh Securities and Exchange Ordinance of 1969, the Companies Act of 1994 and
the Securities and Exchange Commission Act of 1993.

4. Function of DSE

4.1 Listing of Companies. (As per Listing Regulations).

4.2 Providing the screen based automated trading of listed Securities.
4.3 Settlement of trading. (As per Settlement of Transaction Regulations)
4.4 Gifting of share / granting approval to the transaction/transfer of share outside
the trading system of the exchange (As per Listing Regulations 42)
4.5 Market Administration & Control.

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 4.6 Market Investigation.
4.7 Publication of Monthly Review.
4.8 Monitoring the activities of listed companies. (As per Listing Regulations).
4.9 Investors grievance Cell (Disposal of complaint bye laws 1997).
4.10 Investors Protection Fund (As per investor protection fund Regulations 1999)
4.11 Announcement of Price sensitive or other information about listed companies
through online.

5. Objectives of DSE
5.1 To develop a strong platform for the entrepreneurs for raising capital.
5.2 To provide an investment opportunities for small and large-scale investors.
5.3 To develop a transparent market ensuring investors interest.
5.4 To provide a fully automated trading, Clearing and settlement system to ensure quick,
easy, accurate and easily accessible to all transactions.
5.5 To attract non-resident Bangladeshis to invest in Bangladesh Stock market.
5.6 To attract foreign institutional investors to invest in Bangladesh stock market.
5.7 To collect, preserve and disseminate data and information on stock market.
5.8 To develop a corporate culture through mandatory corporate membership.
5.9 To develop a research cell for analyzing status of the market and economy.

6. Rules & Regulation maintained by DSE

 Companies Act, 1994.

 Securities and Exchange Commission Act, 1993
 Securities & Exchange Commission Act, 1993 (Act repelling controller brokers)

7. Trading system of Dhaka stock exchange and its aspects

The stock market is one kind of capital market where the stocks are of the different
companies are traded. DSE, floor trading was started with open cry-out auction system.
Now trading has become automated, led by the DSE through the central depository. In the

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 present automated trading environment, bids/offers, depth, and required broker
particulars are all recorded and can be retrieved for future reference.

7.1 Types of stock market:

There are two types of stock markets such as,

7.1.1 Primary market

7.1.2 Secondary market

7.1.1 Primary market

In primary market the following elements are observed:
 Initial public Offer (IPO)
 B/O Account

7.1.2 Secondary market

This is well known as stock exchange, is a secondary market – a trading
market. It is structured to provide liquidity and marketability to the
security industry.

8. Economic Development
The fundamental channels through which capital market is connected to the economy,
economic growth and development can be outlined as follows:

The contact between agents with deficit of money and the ones with monetary surplus
can take place in a direct way (direct financing), but also by the means of any financial
intermediation form (indirect financing), situation in which specific operators realize the
connection between the real economy and the financial market. In this case, the financial
intermediaries could be banks, investment funds, pension funds, insurance companies or
other non-bank financial institutions.
Even if, traditionally, the companies appeared only as agents with deficit of money, in the
last two or three decades it could be noticed a change in the financial behavior of the

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 modern firms: these are not considering anymore the financial market (both the capital
and the monetary market) only as sources for rising funds (as issuers of financial assets),
but appears more often as buyers of financial assets. The capital market fulfills the
transfer function of current purchasing power, in monetary form, from companies which
have a surplus of funds to those which have a deficit, in exchange for reimbursing a
greater purchasing power in the future; in this way the capital market makes possible to
separate the saving act from the investment one. Capital market has played major roles
during the privatization of public owned enterprises in Bangladesh.

The main thing is, a healthy capital market encourages people to invest their small
portion of savings that almost considered as idol-money. Capital market increases the
proportion of long-term savings (pensions, funeral covers, etc.) that is channeled to long-
term investment. Capital market enables contractual savings industry (pension and
provident funds, insurance companies, medical aid schemes, collective investment
schemes, etc.) to mobilize long-term savings from small individual household and
channel them into long-term investments. It fulfills the transfer function of current
purchasing power, in monetary form, from surplus sectors to deficit sectors, in exchange
for reimbursing a greater purchasing power in future. In this way, capital market enables
corporations to raise capital/funds to finance their investment in real assets.

9. Problems of capital market

However, in the capital market especially, in the share market some problems are
hindering the smooth running of the same; as a result, the capital market through the
share market cannot substantially contribute towards the GDP of this country. There are
particularly some Interested Groups in the capital market and they are Issuer, Savings
holder/Investor, tendency of the investors etc. are not supposed to be attractive in this
market based upon which the sound financing system could be introduced. Besides, here
the inflation rate is more or less high and fluctuating. However, analyzing the points
mentioned above it is clear that the capital market cannot contribute a lot to the economy
of this country despite its lots of possibilities.

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 10. Reason why Bangladesh economy is not significantly benefited
In 1999, there was a record braking collapse in Stock market that affects lots of general
investors. It significantly demotivate all to go DSE!
Since 2007 the data published by the SEC were not also satisfactory, because sometimes
it was seen that the flow of capital market especially, share market was upward and
sometimes the same was downward which indicate the fluctuating trend and this trend is
ot considered to be congenial for the economy of Bangladesh. Again, for the last couple
of months the indices of share market broke all the prior records in terms of both the
increasing and decreasing trends, while these are not the sound signals of contributions
what the analysts consider.

11. Conclusion
For the betterment of economy as a whole, of a country like Bangladesh an efficient
monetary policy is very essential and an efficient monetary policy of the Government
helps its economy to be strengthened in the long run. The very policy encompasses
money market and capital market. Both the markets deal with financing for the
institutions concerned.

12. Reference:
9.1 https://www.investopedia.com/terms/d/dse.asp#ixzz5Nq0MLVBo
9.2 Www.dsebd.com – Official website of DSE
9.3 International Journal of Science and Research (IJSR), India Online ISSN: 2319-7064
9.4 https://www.proshareng.com/news/Capital-Market

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