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Assignment On…
ISLAMIC FINANCIAL SYSTEM
Topic:
Structure of Financial System in Bangladesh
Submitted To:
MR. ABDULLAHIL MAMUN
LECTURER
DEPARTMENT OF BUSINESS ADMINISTRATION
INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG.
Submitted By:
MUHAMMAD SHAHINUR EKRAM CHOWDHURY
ID No: R093117
RMBA, 4th Trimester, Section (B).
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
Financial System:
The financial system is a set of organized institutional set-up through which surplus
units transfer their funds to deficit units.
Define a financial system fair narrowly, to consist of a set of markets, individuals and
institutions, which trade in those markets and the supervisory bodies responsible for
their regulation. The end-users of the system are people and firms whose desire is to
lend and to borrow.
In Finance, the financial system is the system that allows the transfer of money
between savers and borrowers. It comprises a set of complex and closely
interconnected financial institutions, markets, instruments, services, practices and
transactions.
So, the government sector and the corporate sector are the users of financial surplus
of household sector and that the financial sector performs this vital function of
intermediation. Empirical evidence shows that the growth of financial markets and
development of the economy are complementary to each other.
A developed financial system is one that has a secure and efficient payment system,
security market and financial intermediaries that arrange financing and derivative
markets & financial institutions that provide access to risk management instruments.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
Bangladesh Bank has improved in certain areas and yet there are avenues where
more can be done. The bank plays a dual role in the economy. Bangladesh Bank
supervises and regulates the country’s banking sector where it has significant
improvements. On the other hand, the bank underachieves in terms of autonomous
formulation and implementation of monetary policy in coordination with the
government.
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01-(i). Banks:
Banking is essentially based on the debtor-creditor relationship between the
depositors and the bank on the one hand and between the borrowers and the bank
on the other. Interest is considered to be the price of credit, reflecting the
opportunity cost of money.
The commercial banking system dominates Bangladesh's financial sector. Bangladesh
Bank is the Central Bank of Bangladesh and the chief regulatory authority in the
sector. The banking system is composed of four Public commercial banks, five
specialized development banks, thirty private commercial Banks and nine foreign
commercial banks.
Out of 6562 scheduled bank branches operating in the country, up to end December
2006 the NCBs operate 3384 branches, of which 2146 are in rural areas and 1238 are
in urban areas; SBs have 1354 branches of which 1200 are in rural areas and 154 are
in urban areas; PCBs have 1776 branches of which 488 are in rural areas and 1288
are in urban areas; and FCBs have 48 branches exclusively in urban areas. Out of 30
PCBs, six have been operating as Islamic banks. After the year 2006 that total
number of branches are increasing rapidly up to 2009.
List of All types of banking sectors are:
• Central Bank
• Private Commercial Banks
• Public Commercial Banks
• Foreign Commercial Banks
• Specialized Development Banks
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
Private banks are the highest growth sector due to the dismal performances of
government banks (above). They tend to offer better service and products.
• AB Bank Ltd • Aziz Co-op Commerce & Finance
• BRAC Bank Limited Bank Ltd.
• Eastern Bank Limited • Eastern Bank Limited
• Dutch Bangla Bank Limited • Social Investment Bank Limited
• Dhaka Bank Limited • Uttara Bank Limited
• Islami Bank Bangladesh Ltd
• Pubali Bank Limited
• Uttara Bank Limited
• IFIC Bank Limited
• National Bank Limited
• United Commercial Bank Limited
• NCC Bank Limited
• Prime Bank Limited
• SouthEast Bank Limited
• Al-Arafah Islami Bank Limited
• Social Islami Bank Limited
• Standard Bank Limited
• One Bank Limited
• Exim Bank Limited
• Mercantile Bank Limited
• Bangladesh Commerce Bank Limited
• Mutual Trust Bank Limited
• First Security Islami Bank Limited
• The Premier Bank Limited
• Bank Asia Limited
• Trust Bank Limited
• Shahjalal Islami Bank Limited
• Jamuna Bank Limited
• ICB Islami Bank
• Moon Bank Limited
• United Commercial Bank Limited
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
a) Insurance Companies
The insurance sector is regulated by the Insurance Act, 1938 with regulatory
insurance and 43 are in the general insurance field. Among the life insurance
companies, except the state-owned Jiban Bima Corporation (GBC) foreign owned
American Life Insurance Company (ALlCO), and the rest of the private. Among the
most active in the insurance sector. A total of 31 insurance companies are listed in
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
b) Security Firms
Financial institutions that underwrite securities and engage in related activities such
as securities brokerage, securities trading and making a market in which securities
can trade.
• Nabiul Karim Securities Ltd.
• Haji Mohammad Ali Securities Ltd.
• GMF Securities Limited
• Quaiyum Securities Ltd.
• Dragon Securities Ltd.
• TA Khan Securities Co. Ltd.,
• Md. Fokhrul Islam Securities Limited.
• Shahiq Securities Ltd.
• Habibur Rahman Securities Limited
• Ershad Securities Ltd.
• Mian Abdur Rashid Securities Ltd.
• Khurshid Securities Ltd.
• Rapid Securities Limited
• Dawn Securities Limited.
• Arafat Securities Ltd.
• Shahed Securities Ltd.
• Tobarak Securities Ltd.
• Midway Securities Ltd.
• Parkway Securities Ltd.
• HR Securities & Investment Limted
• Kazi Feroz Rashid Securities Ltd.
• MAH Securities Ltd.
• DMR Securities Services Ltd.
• Alhaj Jahanara Securities Ltd.
• RNI Securities Ltd.
• GQ Securities Ltd.
• Crest Securities Limited.
• Asenz Securities Ltd.
• Finvest Securities Ltd.
• MAH Securities Limited
• Nabiul Karim Securities Limited
• Jalalabad Securities Limited
• Haji Mohammad Ali Securities
• Akij Securities Limited
• Mian Abdur Rashid Securities
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
c) Investment Banks
It primarily helps net suppliers of funds transfer funds to net users of funds at a low
cost and with maximum degree of efficiency.
• Bay Leasing & Investments Limited.
• Union Capital Ltd.
• First Lease International Limited
• Phoenix Leasing Co. Ltd.
• Peoples Leasing & Financial Services Ltd.
d) Financial Companies
The primary function of finance companies is to make loans to both individuals and
business. Finance companies provide such services as consumer lending, business
lending and mortgage financing.
• Industrial Development Leasing Company of Bangladesh (IDLC)
• Infrastructure Development Company Limited (IDCOL)
• GSP Finance Limited
• Delta Brac Housing Finance Corporation Ltd.
• Fidelity Assets & Securities Company Limited.
• Fareast Finance & Investment Ltd.
• LankaBangla Finance Ltd.
• Prime Finance & Investment Limited
• Bangladesh Industrial Finance Co. Ltd.
e) Mutual Funds
Mutual funds are portfolios of different securities such as stocks, bonds, treasuries,
derivatives, etc. Mutual funds pool money of both individual and institutional
investors allowing the funds to achieve: (i) economies of scale by reducing costs and
increasing investment returns; (ii) divisibility and diversification; (iii) active
management with superior stock picking and market timing; (iv) reinvestment of
dividends, interest and capital gains; (v) tax-efficiency; and (vi) buying and selling
flexibility. There might be varieties of mutual funds that differ in terms of their
investment objectives, underlying portfolios of shares, risks and returns, fees and
expenses, etc.
Mutual funds are professionally managed investment schemes that collect funds
from small investors and invest in stocks, bonds, short term money market
instruments, and other securities. This ensures a diversified portfolio for the
investors at much less efforts than through purchasing individual stocks and bonds.
Fund managers who undertake trading of the pooled money and are responsible for
managing the portfolio of holdings usually manage mutual funds. Generally, mutual
funds are organized under the law as companies or business trusts and managed by
separate entities. Mutual funds fall into two categories: open-end funds and closed-
end funds.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
f) Pension Funds
Pension funds are analyzed as financial intermediaries using a functional approach to
finance, which encompasses traditional theories of intermediation. Funds fulfill a
number of the functions of the financial system more efficiently than banks or direct
holdings. Their growth complements that of capital markets and they have acted as
major catalysts of change in the financial landscape. Financial efficiency in this
functional sense is not the only reason for growth. It is also a consequence of fiscal
incentives and benefits to employers, as well as growing demand arising from the
ageing of the population.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
A very popular basis for distinguishing types of instrument is maturity. This means
the length of time, which has to elapse before the claim is repaid. This may be very
long. With company shares, for example, it is theoretically infinity. Some government
stocks are issued with twenty-five years to maturity. Contrast this with treasury bills,
which are issued for ninety-one days or even bank deposits that can be demanded
immediately or ‘at sight’.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
a) Treasure Bills
Dept obligations of the Government used to finance fiscal deficits. Bangladesh Bank
treasure bills are issued in one three, six, twelve month and two year maturity. They
pay a set amount at maturity.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
b) Commercial Paper
It is an unsecured short-term promissory notes issued by a corporation to raise short-
term cash, often to finance working capital requirements. A Sample copy of
Commercial Paper is given below:
We request and authorize you until any one of us shall give you notice in writing to the contrary, to honour
and debit to the firm’s account all Cheques, Guarantees, Negotiable Instruments, or other Orders which may
be drawn, or Bills Accepted or Notes made or Receipts for Money owing by you to the firm signed by any one
of us in the name or on behalf of the firm, whether the firm’s Account be for the time being in credit or
overdrawn or may become overdrawn in consequence of such debit and we will be jointly and severally
responsible for the repayment of any such overdraft and interest there against.
-We also request and authorize you to accept the endorsement of any one of us in the name or on behalf of the
firm on Cheques, Orders, Bills, Notes or other Negotiable Instruments.
-You are hereby authorized to carry out any instruction in connection with the account (including instruction of
countermanding payment of Cheques, Bills of Exchange, Promissory Notes or order for payment) when such
instructions are given by all or any one of us.
-Any security or other property of or deposited in the name of the firm may be withdrawn and any money
may be borrowed from you in the name or on behalf of the firm and may be secured in any manner upon any
security money or property of or deposited in the name of the firm by any one of us and we will jointly and
severally be responsible for repayment of such money with interest, costs, charges and expenses.
-Any liability whatsoever incurred in respect of the account shall be joint and several.
-This authority shall remain in force until revoked notwithstanding any change in the constitution or name of
the firm and shall apply notwithstanding any change in the membership of the firm by death, bankruptcy, and
retirement or otherwise or the admission of any new partner(s). (This account opening form must be
signed by all the Partners)
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We would now request you to open a Current/……………..Account in the name of the Company.
We undertake to advise the Bank, of changes in the authorized signatures and these will be supported by
further Resolution of the Company. We agree to comply with the rules governing the account of ONE Bank
Limited and agree to comply with the Schedule of Charges of the Bank.
a) The law, rules and regulations of Bangladesh, usual customs and procedures common to
Banks in Bangladesh will apply to and govern the conducts of the account opened with the
Bank.
b) Any person opening an account will be deemed to have read, understood and accepted the
rules governing the account.
c) A suitable introduction by an introducer acceptable to the Bank is required prior to opening of any account.
Recent photographs of the account openers duly attested by the introducer must be produced.
d) Each account will be given one account number. This number is to be properly quoted on all letters and /
or documents addressed to the Bank and on all deposit slips. The Bank will not be responsible for any
loss or damage occurring as a result of wrong quotation of account number.
e) Interest/commissions/service or maintenance of account charges will be levied by the Bank as determined
by the Bank from time to time and as per Bangladesh Bank regulation.
f) The funds available in any of the account holder’s account (the customer) with the Bank will be
considered by the Bank to be a security for any commitment(s), the Bank is entitled without giving prior
notice to the customer to utilize such funds against the obligation(s) and/or commitment(s) of the
customer to the Bank.
g) Any statement of account dispatched to the customer will be considered as approved unless any
discrepancy (-ies) is/are notified in writing to the Bank within 15 days from the date of dispatch. The
Bank is not responsible for delays or non-delivery due to mail problems. Statement of account to be
picked up will be considered as approved even if not picked up 15 days after the date they are produced.
Statements of account are not produced when there is no operation during the month. Those can be
obtained on special request.
h) Account holders must provide maximum security to the cheque books in their possession and the Bank is
not responsible for any loss occurring due to inadequacy of security. Any chequebook loss or misuse must
be immediately reported to the Bank and confirmed in writing without any delay.
i) When cheque deposited are payable by other Banks or outstation, they are available after clearing or
collection only. Service charge will be charged @ Tk. 100/- in Current A/C and Savings A/C Half yearly or
as changed by the bank from time to time as and when required.
j) The Bank reserves the right to close any account without giving prior notice if the conduct of the account is
unsatisfactory in the opinion of the Bank or for any other reason(s) whatsoever.
k) The balance in the account(s) is payable solely at ONE Bank Limited and shall be governed by and
subject to “laws” in effect in Bangladesh. As used herein laws will include Bank Circulars, Modifications,
Regulations and Orders of the Government and Bangladesh Bank including practice of banking.
l) The Bank reserves the right to amend the present rules at any time in any manner with or without giving
prior notice to the account holder(s) separately or to the public. The chequebook will not be issued
unless and until all the required formalities are completed.
04. AGREEMENT:
Signature of the applicant/ Signature of the applicant/ Signature of the applicant/ Signature of the applicant/
Authorized signature Authorized signature Authorized signature Authorized signature
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d) Banker Acceptances
It is a time draft payable to a seller of goods, with payment guaranteed by
a bank. Time drafts issued by a bank are orders for the bank to pay a
specified amount of money to the bearer of the time draft on a given date.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
factors are different for each and the selection of the instrument depends on
the choice of the investor. The risk tolerance factor and the expected returns
from the investment play a decisive role in the selection by an investor of a
capital market instrument. Capital market instruments should be selected
only after doing proper research in order to increase one.
a) Bonds
Bond market links issuers having long term financing needs with investors
willing to place funds in a long term, interest bearing securities. A matured
domestic bond market offers wide range of funding for the government and
the private sector. While fixed income instruments are the epitome of long
term finance options, the size of tradable government bonds is small,
secondary trading is rare, and more critically, public issue of corporate
bonds may remain suspended, as it has been the case in Bangladesh since
1996 [Hossain and Azim, 2005].
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b) Stocks
increasing role of the stock market, volatility in stock prices can have
the entire economy. There exists important link between stock market
c) Govt. Securities
Treasury Bonds (BGTB) Rules, 2003 under which T. Bonds are being
year and 20-year) to raise fund from the domestic market is one of the
Treasury Bills and Treasury Bonds auctions are being held on the basis of a
resulting a steady decline in the cost of borrowing for the government from
domestic source.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
e) Debentures
When any duly stamped debenture is renewed by the issue of a new
debenture in the same terms, the Collector shall, upon application made
within one month, repay to the person issuing such debenture, the value of
the stamp on the original or on the new debenture,
Provided that the original debenture is produced before the Collector and
cancelled by him in such manner as the Government may direct.
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f) Mortgages
Mortgage markets means lending institutions & mortgage brokers.
According to Ministry of law, Bangladesh - Chapter IV:
Sec. (58) “Mortgage”, ”mortgagor”, ”Mortgagee”, ”Mortgage-money” and
“mortgage-deed” defined as: Simple mortgage, mortgage by conditional
sale, usufructuary mortgage, english mortgage, mortgage by deposit of title
– deeds anomalous mortgage.
Sec. (59) Mortgage when to be assurance.
Sec. (59.A) References to mortgagors and mortgages to include persons
driving title from them.
Mortgage loan taken out to buy the family home from the mortgage market.
Thirty years ago, such a loan would almost certainly have come from a
building society. The borrower would probably have had to wait in a queue,
which he or she could join only after having saved for some period with the
society. The loan would have been in sterling and the borrower would have
paid a rate of interest that varied at short notice (broadly) with changes in
the level of official interest rates imposed by the monetary authorities.
The interest would have been paid monthly together with a small additional
sum calculated to repay the loan over a scheduled period, such loans were
instantly available from a range of institutions. They could be repaid by the
method described above or they could be ‘interest-only’ mortgages in which
the borrower pays only the interest but makes simultaneous payments into a
long-term savings scheme (typically an endowment insurance policy), which
is designed to repay the mortgage when the policy matures. The mortgage
may have a rate of interest that can be fixed for long periods.
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
Banks and other financ ial institutions (OFIs) have been playing a
key role in activating the financial sector that in turn infuses
dynamism to the economy. Banks are engaged in upgrading the
socio-economic status of the co untry by investing money to
productive sec tors. However, in the context of globali zation,
importance has bee n given to the devel opment of the financial
market through banking sec tor. In order to uphold the rule of
ba nking secto r in financial market development, the government
ha s taken a range of measures, whic h include further deployment
of bank branches and evaluation of their performance,
classific atio n of loans following the international standards,
assessment of capital adequacy, determination of quality of
assets and earning of impressive profit.
(Tk)
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
Tk
Tk
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STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH
So, if central bank waits to see the effect of the tools on the
goals it will be too late to make any correction to the policy.
That is why it aims at some variables that lie between tools and
goals, whic h it can influence and monitor very shortly.
The Dhaka Stock Exchange (DSE), which was established as a public limited
company in April 1954, and the Chittagong Stock Exchange (CSE),
established in April 1995, dealing in the secondary capital market. As of end
December 2006 the total number of enlisted securities with DSE stood at
310 of which 255 are listed companies, 13 mutual funds, 8 debentures and
34 treasury bonds after the year 2006 that the total number of institutions
are increasing rapidly.
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The dominance of banks, with high bad loan portfolios and non-
transferability of most of their debt/savings instruments, is a prime
hindrance to developing a well-performing bond market. The absence of
such a market makes the financial market less competitive as it fails to
generate market interest rates that reflect the opportunity cost of funds at
different maturities and results in excessive reliance on the banking system.
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