Assignment on

Financial System of Bangladesh

Fundamentals of Finance, F101

Submitted to

Avijit Mallik
Assistant Professor
Institute of Business Administration
University of Dhaka

Submitted by

Fabiana Binte Mesbah

Section: B, Roll: 101-31-026
Batch: BBA 31

Submitted on

31 October 2024
According to Bangladesh Bank, which is the central bank of Bangladesh, the country’s
financial system may be categorized into three extensive sectors, as follows:

1. Formal Sector
2. Semi-Formal Sector
3. Informal Sector
The formal sector is comprised of those institutions which fall under the regulation and
jurisdiction of the central bank, including banks, insurance companies as well as capital market
intermediaries like brokerage houses and merchant banks. Specialized financial institutions that
are subject to various regulations but are not within the jurisdiction of the central bank,
Insurance Authority, Securities and Exchange Commission or any other enacted financial
regulator, form the semi-formal sector; some noteworthy examples are Grameen Bank, House
Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), and other
non-governmental organizations (NGOs). Private intermediaries which compose the informal
sector are completely unregulated (Financial System Overview, n.d.).

Financial System of Bangladesh

Formal Sector Semi-formal Sector Informal Sector

Financial Regulators and

HBFC PKSF Samabay Grameen
Market Institutions
Bank Bank

Banks NBFIs

State- Private Leasing Investment

owned Commercia Companies Banking

Islamic Specialized Insurance Microfinance

Companies Institutions
Foreign Digital

Figure: Overview of financial institutions of Bangladesh

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The previous illustration gives an overview of the financial institutions in our country. A few
of these institutions are discussed below.

Banks
The banking industry in Bangladesh can be classified into two broad categories, namely
scheduled banks and non-scheduled banks. The 62 scheduled banks, which are licensed under
Bangladesh Bank Order of 1972 and Bank Company Act of 1991, can be further divided into
the following (Financial System Overview, n.d.):

1. State-Owned Commercial Banks (SOCBs): These are majorly, if not fully, under
government ownership. E.g., Agrani Bank PLC, BASIC Bank Limited, Janata Bank
PLC, Rupali Bank PLC, Sonali Bank PLC, Bangladesh Development Bank.
2. Specialized Banks (SDBs): These three banks were established with particular
objectives such as agricultural or industrial development. E.g., Bangladesh Krishi Bank,
Rajshahi Krishi Unnayan Bank, Probashi Kallyan Bank.
3. Private Commercial Banks (PCBs): These banks are owned by private entities or
individuals. Currently, there are 43 PCBs in total, 33 out of which are conventional
(follow interest-based operations) and 10 follow Islamic Shariah based principles
(Profit-Loss Sharing model). Examples include:
a. Conventional PCBs: City Bank PLC, IFIC Bank PLC, ONE Bank PLC, etc.
b. Islamic Shariah-based PCBs: Islami Bank Bangladesh PLC, Shahjalal Islami
Bank PLC, Union Bank PLC, etc.
4. Digital Commercial Banks: These banks have no physical branches and are privately-
owned. E.g., Nagad Digital Bank and Kori Digital (ACA, 2024).
5. Foreign Commercial Banks (FCBs): These have branches in Bangladesh while being
incorporated abroad. E.g., Standard Chartered Bank, HSBC, Citibank, etc.

There are only five non-scheduled banks including: Ansar VDP Unnayan Bank,
Karmashangosthan Bank, Grameen Bank, Jubilee Bank, Palli Sanchay Bank (Financial System
Overview, n.d.).

Following independence, the banking sector of Bangladesh commenced with 6 SOCBs, 3 state-
owned SDBs and 9 FCBs. The entry of private banks in the 1980s led to a notable growth of
the banking sector (Financial System Overview, n.d.).

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Non-Bank Financial Institutions (NBFIs)
Non-Bank Financial Institutions (NBFIs) refer to those which are governed by the Financial
Institution Act of 1993 and regulated Bangladesh Bank. The first NBFI was established in
1981; the number has grown to 34 at present, comprising of state-owned, privately-owned and
joint venture initiatives (Financial System Overview, n.d.).

In contrast to banks, NBFIs are not allowed to issue cheques, pay-orders or demand drafts.
They cannot receive demand deposits nor participate in foreign exchange financing. Some
financing modes of NBFIs are syndicated financing, bridge financing, lease financing,
securitization instruments and private placement of equity (Financial System Overview, n.d.).
Some major sources of funds of NBFIs are:

• Term deposit (at least three months tenure)

• Credit facility from banks and other financial institutions
• Call money
• Bond and securitization

NBFIs include leasing companies such as Bay Leasing and Investment Limited, investment
banking companies such as IDLC Finance Limited and LankaBangla Investments Limited,
insurance companies and microfinance institutions.

Insurance Companies
The insurance sector offers a range of insurance products to both people and corporations,
playing a vital role in the country’s financial industry. This sector is regulated by Insurance
Development and Regulatory Authority (IDRA) (bimafy, 2024) and operate under the
Insurance Act of 2010. The services provided include life insurance, general insurance,
reinsurance, micro-insurance and Takaful or Islami insurance (Financial System Overview,
n.d.).

Currently, the total number of insurance companies stands at 62. Public sector insurance
companies are Bangladesh Jiban Bima Corporation (life) and Bangladesh Sadharan Bima
Corporation (general). Examples of privately-owned general insurance companies include Asia
Pacific Gen Insurance Co. Ltd., Green Delta Insurance Co. Ltd., and that of life insurance
companies are MetLife Bangladesh and Fareast Islami Life Insurance Company Limited
(bimafy, 2024).

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Microfinance Institutions (MFIs)
Microfinance Institutions allow people of lower income groups to participate in income-
generating activities, and form a major segment of the country’s Rural Financial Market
(RFM). Microcredit programs (MCPs) are offered by SOCBs, SDBs and NGOs. Even though
there are significant MCPs in operation, the number of large MFIs sums up to only 10. These
microfinance institutions and programs are under the jurisdiction of Microcredit Regulatory
Authority (MRA). Grameen Bank may be termed as the most notable MFI in the country, as it
accounts for 87% of the total savings and 81% of total outstanding loan of this sector. However,
Grameen Bank is regulated by Grameen Bank Ordinance, 1983 instead of the MRA. Some
other MFIs include ASA, BRAC, BURO Bangladesh, Jagorani Chakra Foundation (JCF) and
Shakti Foundation for Disadvantaged Women (Financial System Overview, n.d.).

The external funding sources of MFIs include donor funds, loans from the government, from
commercial banks and from Palli Karma Sahayak Foundation (PKSF) (Islam, 2021). Credit
services provided by MFIs fall under the following six categories (Financial System Overview,
n.d.): general microcredit for small-scale self-employment based activities, microenterprise
loans, loans for ultra poor, agricultural loans, seasonal loans, loans for disaster management.

Stock Exchanges
Stock Exchanges, also known as stock markets, are part of the capital market where long-term
securities like stocks and bonds are traded. There are two stock exchanges in Bangladesh -
Dhaka Stock Exchange (DSE), established in 1954, and Chittagong Stock Exchange (CSE),
incorporated in 1995. Both of these are regulated by Bangladesh Securities and Exchange
Commission (BSEC) and conduct trading by computerized automated trading systems. There
are a total of 657 companies listed in the DSE and 363 listings in CSE (Stock Exchanges, n.d.).

The functions of stock exchanges include:

• Establish listing requirements

• Approve, suspend or remove listing privileges of companies
• Monitor listed companies in compliance with legal regulatory provisions
• Permit dual listing

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Mobile Financial Services (MFS)
Along with the growth in digitalization, the country’s financial sector has evolved to enter the
digital economy. The existence of Mobile Financial Services (MFS) operators leads to a
comprehensive solution for most types of financial transactions, leading to improved financial
inclusion. Mobile banking services were first introduced by Dutch Bangla Bank through
Rocket in 2011. Other MFS providers in the market are bKash, Upay and Nagad which are all
regulated by Bangladesh Bank.

The MFS currently being provided range from cash in/out at agent point, service bill payments,
consumer merchant payments to remittance services. Almost every bank in the country
provides some form of MFS such as mobile banking and digital money transfers (Mishuk,
2021).

References
ACA, R. A. (2024, June 3). Shape of Future Banking: Perspective for Digital Banking in Bangladesh.
Retrieved from Institute of Chartered Accountants of Bangladesh:
https://www.icab.org.bd/publication/news/4/1336/Shape-of-Future-Banking:-Perspective-for-
Digital-Banking-in-
Bangladesh#:~:text=The%20Bangladesh%20Bank%20on%20Sunday,to%20establish%20digi
tal%20banking%20windows.

bimafy. (2024, February 04). Retrieved from List of Insurance Companies in Bangladesh:
https://bimafy.com/blog/list-of-insurance-companies-in-bangladesh

Financial System Overview. (n.d.). Retrieved from Bangladesh Bank:

https://www.bb.org.bd/en/index.php/financialactivity/index

Islam, S. (2021). EXTERNAL SOURCES OF FUND OF MICROFINANCE INSTITUTIONS (MFI)

IN BANGLADESH: DO INSTITUTIONAL CHARACTERISTICS MATTER? Indian
Journal of Finance and Banking.

Mishuk, T. A. (2021). Tanvir Mishuk. Retrieved from Mobile Financial Services (MFS) in Bangladesh:
https://tanvirmishuk.com/blog/mobile-financial-services/

Stock Exchanges. (n.d.). Retrieved from Bangladesh Securities and EXchange Commission:
https://sec.gov.bd/home/stockex