1

Abstract
There are a lot of impediments to the development of bond market in Bangladesh. The bond
market is still at a budding stage. It is attributed by a limited supply of debt instruments, especially
long-term instruments. Consequently, the reliable benchmark for long-term bonds or debentures
does not exist. The market is illiquid and trading is motionless. It is slowed down by the relatively high
interest rate bearing risk-free national savings scheme, though interest has been reduced a little bit in
recent years. In addition, the issuance process of bond is burdensome and costly, which becomes a
disincentive to the development of effective bond market. Finally, the investor base has to be
extended in parallel with a suitable investor education. Recommended measures must be undertaken
for developing the bond market.

Executive Summary
The bond market has played a limited role in the Bangladesh economy. The financial sector of
Bangladesh is characterized by the dominating presence of commercial banks, especially the Nationalized
Commercial Banks (NCBs). Most of the available funds go to these NCBs in the form of deposits and
then are channeled into lending. However, the NCBs have substantial nonperforming loan portfolios. The
Bangladesh bond market is also rather shallow compared to the neighboring countries. End of 2010, the
outstanding bond volume per GDP was only 15%, compared to India (40%), Sri Lanka (35%), Pakistan
(31%), and Nepal (10%). The share of the Bangladesh bond market among South Asian countries was
only 2%, the smallest among the five countries. The main impediments to the Bangladesh debt market
include (i) the weak regulatory framework; (ii) supply-side constraints such as a lack of the benchmark
bonds; (iii) demand-side constraints such as the limited investor base; (iv) a lack of intermediaries with
expertise in debt products; (v) a lack of confidence in corporate borrowers; (vi) market distortions which
are caused by the National Savings Scheme (NSS) offering above-market returns; and (vii) a lack of
interest from private companies, including financial intermediaries and large business, in launching new
debt products due to high fees.
A well-developed financial system plays an important role in accelerating economic growth by
mobilizing savings and facilitating investment in an efficient manner. The priority of the development of
Bangladeshs capital markets should be to promote the bond market development. Without a functioning
bond market, the monetary transmission processes of policy measures would be circumvented, and the
desired impact on the real economy cannot be fulfilled, which compromises the effectiveness of the
monetary policy operations. The authorities may want to consider the following roadmap for the
development of the Bangladesh bond market:
1. Strengthen the development of the government securities market by
Improving the efficiency and transparency of the government securities primary market,
Gradually increasing the volume of the marketable government securities and reducing the
volume of the non-marketable securities, and
Strengthening the liquidity of the secondary market in the government securities.
2. Promote the corporate bond market development by
Developing a comprehensive set of guidelines on issuing bonds and debentures under the
direction of the Securities and Exchange Commission,
Further reducing issuing costs, and

2
Creating an enabling environment for the development of asset backed securitization.
3. Broaden the investor base by
Promoting the pension sector reform,
Strengthening the insurance sector development, and
Adopting reforms to attract foreign investors.
4. Reform the NSS by
Aligning its returns with market expectations,
Transforming the NSS into a modern retail program equipped with modern IT technology, and
Targeting small investors.
5. Promote the relevant market infrastructure development and create an enabling environment for
the bond market development by
Facilitating the money market development,
Strengthening government cash and debt management capacity,
Creating an enabling legal and regulatory framework for the bond market development, and
Strengthening the credit rating industry.


















3
Introduction
The financial sector is a crucial sector of any economy. A countrys business environment, investment,
economic prospects, social dimensions even poverty are affected by financial market. The available vast
observed and analytical literature suggest that in addition to other economic factors, the performance
of long term economic growth and welfare of a country are related to its degree of financial sector
development. Developed countries experience suggests that strong government bond market creates
favorable environment for the development of an efficient corporate bond market although it is not
always essential for a country to develop a government securities market. The financial markets, key
point of financial sector, execute a vital role within the global economic system such as attracting and
allocating savings, setting interest rate and discovering the prices of financial assets (Rose, 2003). A
well-diversified financial sector is highly dependent on the extreme collaboration of financing from
equity market, bond market, and banks. The government bond market forms the backbone of a
modern securities market in both developed and developing countries.
Bangladesh has not been blessed with the contribution of both Corporate and Government bonds and
consequently experiences the poor economic growth. With the current financial structure, characterizing
the dominating presence of commercial banks, particularly the State Owned Commercial Banks
(SCBs), the debt market of Bangladesh is very small relative to other South Asian countries
amounting only 5.5 percent of countrys GDP (Mujeri and Rahman 2008). It is in the light of
above perspective; this report seeks to explore some prerequisites to a sustainable bond market by
studying available literature, especially for the Government segment, and putting some instructions for
the development of Bangladesh bond market. However, the objectives of this project are to put
essential prerequisites to the development of bond marketing an economy in general and to
recommend some worthy lessons for bond market development of Bangladesh.
Scope
The report describes constraints for developing a bond market and the role of Bangladesh Bank in
managing the domestic debt for Government of Bangladesh. The report also attempts to analyze the
sustainability of debt portfolios of Bangladesh. It mainly focuses on domestic debt. Information on
external debt is only used for checking the sustainability of public debt.
Objectives
The main objective of this study is to contribute to developing an effective bond market and to explore
the role of BB in efficient domestic debt management in Bangladesh. The specific objectives of this study
are:
To get an overview of the bond market in Bangladesh.
To identify the specific characteristics of bond market in Bangladesh.
To identify the role of Bangladesh Bank in effective domestic debt management.
To estimate the current debt composition of Government of Bangladesh.
To identify the constraints and to tackle the problems in order to enhance the development of
bond market; and
To make recommendations for the developments of the bond market.


4
Methodology
Both the primary and the secondary data are used to make the report. They are mentioned below:
Primary Data
Most of the primary data are collected from Bangladesh Bank (BB), Bangladesh Securities and Exchange
Commission (BSEC), Dhaka Stock Exchange (DSE) and Central Depository Bangladesh Limited
(CDBL).
Secondary Data
The secondary data are collected from the following sources:
Debt Management Department, Bangladesh Bank (BB).
Research publications from Policy Analysis Unit, BB.
Economic Relations Division, Ministry of Finance, Government of Bangladesh (GOB).
Finance Division, Ministry of Finance, GOB.
Government publications.
Newspaper articles.
Limitations
An enthusiastic effort was applied to conduct the study work and to bring a reliable and successful result
from which proper strategy can be adopted to this report. Some limitations were faced while preparing
this report.
Some of those limitations are highlighted below:
All the comments made, conclusion reached and suggestions for possible improvement provided
are purely based on my level of understanding, knowledge and my way of interpreting a
particular statement.
Unable to collect most recent information.
Time constrains.










5
Bond Market in Bangladesh
Currently Bangladesh bond market plays a small role in the economy. The bond market is very thin
compared to the neighboring countries. Government should take actions to improve the scope of bond
market in Bangladesh. End of 2010, the outstanding bond volume per GDP was only 15%, compared to
India (40%), Sri Lanka (35%), Pakistan (31%), and Nepal (10%). The share of the Bangladesh bond
market among South Asian countries was only 0.2% the smallest among the five countries.
The market is dominated by the fixed income government debt instruments. The maximum savings
of small investors are mobilized by only one instrument name National Saving Certificate. The interest
on this saving certificate is higher than that of other bonds in the market. Besides the national saving
certificate, the other government debt instruments are treasury bills and treasury bonds. In December
2003, government issued 5 and 10 years maturity treasury bonds and 15 and 20 years bond were issued
in July 2007. The capital raising pattern has been changed from a focus in treasury bills to a noteworthy
increase in treasury bonds. Consequently, the ratio of treasury bills from about 20: 80 in 2005 to 80:20 in
2011. Bank an financial institutions are the main buyers of treasury bonds. Commercial banks
have obligation to purchase government securities as it is accepted security to meet their statutory
liquidity requirement (SLR) under the Banking Companies Act. This is still a small market. Banks and
financial instruments which have SLR obligations are the only participants in this market. The
government bonds are rarely traded on the exchange.
In September 2006, the Ministry of Finance started publishing the yearly treasury bills and bonds auction
calendar. The calendar shows the information of dates, types of instruments and amount of each auction.
Bangladesh bank also started publishing the auction results on its website.
Bangladesh corporate debt market is very small in size. The outstanding amount is only 2% of GDP. Thus
corporate bond market in Bangladesh is at a budding stage. During 1988-2011, only 3 corporate bonds
and 14 debentures were issued by public offerings (Table). Many of these bonds and debentures
were partially convertible to common stocks. The biggest issue of corporate bond was made first in
2007. It was a perpetual bond named IBBL Mudaraba Perpetual Bond with a size of Taka 3,000 million
(approximately US$ 40 million). It is an Islamic bond on profit sharing basis since interest is prohibited
by Sariah Principles. At the end of 2011, three corporate bonds and eight debentures were
outstanding. The corporate bond market of Bangladesh faces manifold impediments although it has a
good prospectus because of an expected growth in financial market. It is believed that the availability of
long-term instruments is a prerequisite for developing an efficient market structure.
Corporate Debt Securities in BD
SI
no. Debt Securities
Year of
Issue Features
Size(BDT
million)
1. *17% Beximco Pharma Debenture 1988 20% Convertible 40
2. *17% Beximco Limited Debenture 1989 60
3. *17% Beximco Infusion Debenture 1992 45
4. *17% Chemical Debenture 1993 20% Convertible 20
5. *17% Beximco Synthetic Debenture 1993 375
6. 17% Beximco Knitting Debenture 1994 20% Convertible 240
7. 17% Beximco Fisheries Debenture 1994 120
8. *15% Easterning Housing Debenture 1994 10% Convertible 800
9. 14% Beximco Textile Debenture 1995 240

6
10. 14% BD Zipper Debenture 1995 20% Convertible 40
11. 14% Beximco Denims Debenture 1995 300
12. 14% BD Luggage Debenture 1996 20% Convertible 150
13. 14% Aramit Cement Debenture 1998 20% Convertible 110
14. 15% BD Welding Electrodes Debenture 1999 20
15. IBBL Mudaraba Perpetual Bond 2007 Profit Sharing 3,000
16. ACI Zero Coupon Bonds 2010 20% Convertible 1,070
17. Sub Bonds of BRAC Bank L 2011 25% Convertible 3,000
Note: * marked debentures are not available at present.
Source: SEC, DSE and CSE report.
Outstanding Debentures
Company Coupon rate Debenture name in DSE Debenture name in
CSE
Aramit cement Ltd. 14% DEBARACOM DEBARACOM
Bangladesh luggage ind. Ltd. 14% DEBBDLUGG DEBBDLUGG
BD welding electronics ltd. 15% DEBBDWELD DEBBDWELD
Bangladesh zipper ind. Ltd. 14% DEBBDZIPP DEBBDZIPP
Beximco denims ltd. 14% DEBBXDENIM -
Beximco fisheries ltd. 14% DEBBXFISH -
Beximco knittings ltd. 14% DEBBXKNI -
Beximco textiles ltd. 14% DEBBXTEX -
Total 08 04

Bond Market Part i ci pant s of Bangl ades h
One of the preconditions of being efficient bond market is the existence of large number of market
participants. Market participants can be divided into issuers, investors and intermediaries.
1. Issuers
Most private sector enterprises are small and owner-run, many are of cottage size and most are in the
garment industry, which to date depends largely on short-term bank loans for financing. These enterprises
could benefit from longer-term funding but are neither large enough nor well-known enough to issue
bonds. Most of the large-scale industrial units and commercial enterprises are state owned. Their shares
are not listed, and they do not offer debentures since their financing needs are met by the government or
by the state-owned NCBs. These state-owned firms generally stay outside the capital market.
Although Bangladesh has a debenture market, to date only a small number of well-known issuers have
used the market. The liquidity in those debentures at the stock exchange is insignificant because of the
small number of investors and their buy-and-hold mentality. The investor community does not seem to
find this market too attractive owing to weak disclosure by the issuers, which in turn reduces credibility
and investor confidence.
2. Investors
Few investors are sophisticated enough to think about investing in bonds. About 80% of the base here is
made up of retail investors, whose primary concerns include the equity at the stock exchange or the
government savings certificate. Of the few institutional investors that could support a bond market, most
are either prevented from investing in corporate bonds by restrictive guidelines or are not professionally

7
managed. The major institutional investors are the Investment Corporation of Bangladesh a government-
owned financial institution and the insurance companies. The mutual fund industry in Bangladesh is the
exclusive domain of ICB. There are no private mutual funds to mobilize savings toward the debt market,
and the ICBs monopoly has prevented new investor companies, that is, mutual funds, from developing in
Bangladesh. Few foreign investors are attracted to this, mainly because of the weak disclosure by the
borrowers.
3. Intermediaries
Intermediaries in Bangladesh lack many of the skills needed to foster an active local corporate bond
market. Commercial banks dominate the financial sector and not enough intermediaries are skilled in
securities. Few are able to identify issuers and investors and bring them to the market.
They provide little or no research analysis on industries or companies to encourage investment in the
local debt market. Too few private merchant banks are able to conduct financial advisory and trust
services. Hence the market is illiquid, with large spreads. At the same time, the fee structure and pricing
are high enough to allow intermediaries to make money. Even if they are able to participate,
intermediaries are reluctant to take any risk in dealing.

Benef i t s of Bond Market f or Market Part i ci pant s
Bond Market acts as buffer of equity market. This enables issuers and investors to convert the limitations
of equity market into the opportunities. Financial system to be sound and effective has to have an efficient
bond market. Otherwise, Capital Market especially cannot play its due role for developing economy
through allocation of capital; and generating employment opportunities through industrialization of
economy of the country.
1. Benefits for Issuers
Raising funds without collateral for long term.
Lower cost of debt and thereby lowering cost of capital for the firm.
Lower effective rate of interest for not being able to be compounded.
No change in interest rate with the increase in inflation rate.
Reduces tax burden since interest is shown as a charge.
Protecting firms from the exposition to the market volatility.
2. Benefits of Investors
Pays higher interest rates than savings.
Offers safe return of principal.
Have less volatility than the stock market.
Offers regular income.
Requires smaller initial investment.
Highly liquid
3. Benefits of Intermediaries
Large spread can be exploited.
High commission/fees.
Phenomenal growth opportunities.
Cut down policy of commercial lending brings opportunity for broadening bond market base.


8
Market I nt eres t Rat es and Bond Pri ces
Once a bond is issued the issuing corporation must pay to the bondholders the bonds stated interest for
the life of the bond. While the bonds stated interest rate will not change, the market. Interest rate will be
constantly changing due to global events, perceptions about inflation, and many other factors which occur
both inside and outside of the corporation.
The following terms are often used to mean market interest rate:
1. Effective interest rate
2. Yield to maturity
3. Discount rate
4. Desired rate
Interest Rate on Savings Products (July 2011)
Source 36 months 6mnths-1yr 1yr & above
State owned commercial banks 5.507.50 6.758.75 8.0011.50
Specialized banks 5.75 7.25 6.00 7.50 6.75 9.00
Private banks 7.0012.75 7.2513.00 8.0011.75
Foreign banks 3.7512.50 4.0012.25 4.5011.00
Post office
NA NA 11.50
National savings certificates
NA NA 12.00

Corporate Debt Market in Bangladesh
Bank loans are the main source of finance for corporate (Table). The corporate bond market in
Bangladesh is very small in size. Banking sector is dominating corporate finance since other sources of
corporate debt instrument are underdeveloped. Alternative sources of finance other than bank loans
should be developed by diversifying the debt instruments in order to establish sound financial market in
Bangladesh. A complete set of guidelines on bonds and debentures must be developed to promote
the corporate bond market. The government has to reduce the interest rate on national savings
certificates in order to a favorable environment for developing corporate bonds.

Table: Instruments Available in Bangladesh
Instruments
Nominal Amount(Billions of
BDT)

Relative size %

Deposits

4032 37.20%
Bank Loans

3501 32.30%
Term loans (as of June 2011

1333 12.30%
Government saving certificates
965 8.90%

9

Government bonds
534 4.93%

Treasury bills

271 2.50%
Equity (issued value)
192 1.77%

Private placement Not publicly available --
Debentures & bonds
11

0.10%
Source: Dhaka Stock Exchange, National Saving Bureau, and Bangladesh Bank

Government Debt Market in Bangladesh
Bangladesh Bank Order-1972, article 20 and Treasury rules-1998 (Appendix-1, Section-3) empowers
Bangladesh Bank for the issue and management of Government securities. As per the above mentioned
laws and regulations, Bangladesh Bank (BB) acts as the banker and debt manager to Government of
Bangladesh (GOB). Tax is the main source of governments revenue. Government meets its deficit
through sale of debt securities when expenditures exceed its tax receipts.
In the past the financing of budget deficit for Government of Bangladesh was being done through
issuance of ad hoc Treasury Bills. Bangladesh Bank subsequently partially offloads these ad hoc
Treasury Bills through the issuance of Treasury Bills and Bonds to the market, leaving the
Governments cash position unaffected. Ad hoc Treasury Bills were thus accessed both to meet
cash mismatches as well as for financing the budget deficit. Issuance of ad hoc Treasury Bills has
been discontinued now. Financing budget deficit for Government of Bangladesh takes place through
the issuance of (i) Special bonds, (ii) Bangladesh Government Treasury Bonds (BGTBs), and (iii)
savings instruments (NSD).
However, for small deficit, Bangladesh Bank maintains a pretty cash account named Ways and
Means Advance (WMA). Normally, government borrows from WMA first and then through Treasury
Bills. For this advance a floating interest rate (bank rate + 1%) is charged. At present the bank rate is 5%.

Cos t of Bond I s s uance i n Bangl ades h Bond Mar ket
To issue new bonds in Bangladesh is very much formal which includes huge amount of oversubscription
fees. It greatly affects the issuance of bond in Bangladesh. The following is a list of considering factor.
1. Securities and Exchange Commission
registration.
2. Publication of prospectus
3. Printing of prospectus and application
4. Certificate, post issue, postage
5. Listing fees
6. Issue manager or underwriter
7. Trustee fee
8. Credit rating, bankers, legal and audit
9. Central depository fee


10
Regul at ors and Regul at i ons of Bangl ades h Bond Market
The regulator and regulation level is the overlapping authority between the two financial market
regulators, Bangladesh Bank and the Securities and Exchange Commission (SEC), and no
clear jurisdiction over the fixed-income market. In general, BB regulates the commercial banks and their
activities, while the SEC regulates the NBFIs, the two stock exchanges, and the capital market.
The SEC has no authority to issue rules and regulations, and the procedure as a whole is long and drawn
out. As a result, the SEC has not proposed any regulations for the issuance of bonds or debentures. All
rule proposals must first be submitted to the Minister of Finance for approval and then passed on for
approval from Ministry of Law. Furthermore, potential issuers have to look at various sets of regulations
and follow a long and cumbersome procedure.
Although the SEC requires listed companies to meet international standards on accounting and auditing,
accounting information appears to be of doubtful quality and reliability.
The Securities and Exchange Act of 1993 confers vast regulatory authority on the state, and is regarded as
a constraint on capital market development. There is a board of policymakers. Three of its members are
appointed by the state, another is from the Ministry of Finance and one from the central bank, and the
chairman is appointed by the government.
In the present system, a company can float debentures up to a maximum amount of its current asset value
and has to register its assets in the name of the Trustee as Security. Hence there is no provision for
floating unsecured debentures.

Major Barriers to Bond and Debenture Market Development
The barriers to bond market development can be divided into two broad categories: those around and
across the market, and those inside the fixed-income markets.
Around and Across the Market
The obstacles in this group stem from the political situation, the macroeconomic situation, and the
broader financial system.
The Political Situation
Nationwide program of strikes, processions, and mass meetings by political parties have weakened the
governments intentions to foster changes such as the development of the financial market.
In addition, certain commercial and financial regulations are outdated. Governance and accountability are
lacking in certain areas, and inefficiency is present in the financial system, mainly concerning the state-
owned banking sector. The problems created by these weak institutions are compounded by an
increasingly confrontational political environment. Because the political environment is very fragile, laws
and regulations are not being fully enforced. Although the government is aware of these problems, it has
been slow to improve governance and develop strong institutional capacity.
Macroeconomic Situation
The consolidated public sector deficit, taking into account losses incurred by state-owned enterprises, is
much higher and underscores the need for improved fiscal management; however, a sense of urgency is
missing in policymaking, despite the growing imbalances in the economy and crowding out as

11
Bangladesh continues to channel vast monetary resources into servicing bad loans. Given that
macroeconomic changes can happen in short periods of time and that nonperforming loan, which account
for a third of the loan portfolio, can create financial sector vulnerability, the bad-loan situation could
trigger a severe liquidity crisis nationwide. It can take decades to build a fixed-income market in the wake
of such crises. This issue clearly needs immediate and focused attention.
Broader Laws and Regulations
Certain omissions or drawbacks of the broader laws and regulations directly affect development of the
fixed-income market. First, with regard to the ownership of land, the law provides for the registration of
deeds rather than of ownership, which makes it impossible to take land as collateral for bond issuance.
Second, the law makes arbitration a cumbersome and slow process; moreover, foreign arbitration awards
are not enforceable in Bangladesh. Third, in terms of obtaining issuers, there is no privatization law to
lend transparency and authority to the privatization process, although one is at present being drafted.
Fourth, Bangladeshs laws represent a mixture of codified British common law and legal principles from
various religious heritages. So, Bangladesh courts are limited in their ability to function effectively.
Contract laws and commercial codes seem to be fair, but ensuring that they are observed is difficult
because of a weak adjudication system.
Broader Financial System
The broader financial system includes the banking sector, nonbanking sector, government securities
market, and short-term money markets.
Banking sector: Bangladeshs banking system, which is dominated by state-owned NCBs, creates two
serious problems for a local corporate bond market. First, the system provides low-cost loans to state
owned enterprises, which account for a large part of the corporate sector. This undermines development
of the corporate bond market because other financial institutions are unable to compete with these
underpriced loans. Indeed, the state-owned enterprises constitute a large part of the NCBs business. To
complicate matters, development financial institutions (DFIs) also provide low-cost loans, priced at a
small percentage over bank deposits for similar maturities. Second, the banking sector is faced with a
substantial number of bad loans; nonperforming assets account for about 30% of total assets.
Nonbanking sector: The nonbanking portion of the financial sector consists of two small stock
exchanges (Dhaka and Chittagong), both of which have still not recovered from the bull market problems
of 1996, which left the public suspicious of corporate institutions because it is hard to get them to disclose
their figures. The weak operating performance by listed companies and low confidence in the market
overall has made it difficult for the market to recover. In sum, the nonbanking sector has not evolved in a
way that would allow it to play an active role in the financial system. Nor is it prepared to play an active
and skilled leadership role in developing and participating in an active fixed income market.
Government securities market: GSC issuances offer significantly higher rates than local bank deposits,
which create a relatively high rate for risk-free and tax-free government securities. This establishes a
disincentive to invest in corporate securities. GSCs create a high benchmark interest rate foundation for
corporate securities. That matters because it is very hard to compete with risk-free government debt. At
present, Bangladesh law and the governments fiscal and monetary policy combine to create a financial
market monopoly for GSCs and NCBs, which in turn keeps alternate financial intermediation from
emerging.
Short-term money markets: Money markets provide another foundation for bond markets. The money
markets in Bangladesh are quite small. There is an interbank market, in which commercial banks borrow
and lend to adjust their short. Normal maturities range from overnight to 30 days. Bangladesh also has a
forward market for U.S. dollars against the taka, but only for short maturities. There is no commercial

12
paper market. This weak form of short-term money market also hinders the development of a strong bond
debenture market.
Future Prospects of a bond market in Bangladesh
Despite the earlier setbacks the bond markets in Bangladesh is ready to take off. The need for a bond
market in Bangladesh deserves attention because of the following:
A. Foreign aid flow is diminishing and the trend is expected to continue.
B. Specialized banks are not in a position to supply desired level of long term fund.
C. Commercial banks have strategically cut down their long term lending.
D. The concept of prudent asset mix is most likely to generate demand for investment grade bonds.
E. The Provident Funds and Insurance Companies Funds are not generally allowed to invest their
funds in stock market instruments. There is a bright possibility that these funds may be permitted
to invest a part of their funds in marketable instruments subject to prudential guidelines, which
may necessitate supply of lucrative debt instruments.
F. Reduction in the interest on Govt. savings instruments and withdrawal of certain savings
instruments is expected to boost demand for debt instruments.
G. The registration fee for trust deed has been reduced from 2.5% (on the amount of debentures) to
Tk. 2500.00 providing a very significant incentive.
H. There are now credit rating agencies to provide rating prospective issuer.
I. Any interest paid by investor on money borrowed for investment in debentures is deducted from
total income.
J. Interest income not exceeding Tk. 20000 received by an individual investor on debentures
approved by SEC is excluded from total income.
K. The interest on Zero coupon bond approved by SEC at the hand of the recipient is tax exempt up
to Tk. 25000.00. Such interest exceeding Tk. 25000.00 is subjected to tax @ 10% deducted at
source. Banks and other financial institutions and insurance companies which are the mainstay of
demand for bonds will now pay 10% tax on interest on such bonds instead of 45% tax payable on
other income.
Recommended
The debt securities market in Bangladesh remains at an initial stage, characterized by a limited supply of
debt instruments, particularly long-term ones, and by a lack of liquidity and active trading. The lack of a
well-functioning bond market reduces the effectiveness of monetary policy operations: it weakens the
transmission of policy measures and thereby prevents the desired effect on the real economy.
Recommended actions for developing the bond market form a broad road map:

13
Strengthening the government debt securities market by improving the efficiency and transparency of
the secondary market and enhancing its liquidity.
Developing market infrastructure and an enabling environment for the bond market by upgrading the
depository, clearing, and settlement arrangements; promoting development of the money market;
strengthening the governments cash and debt management capacity; creating an enabling legal and
regulatory framework; and strengthening the credit rating industry.
Reforming the national savings scheme by aligning its returns with market expectations, transforming
the scheme into a modern retail program equipped with modern information technology, and targeting
small investors.
Broadening and diversifying the investor base by promoting pension sector reform, strengthening the
insurance sector, adopting reforms to attract foreign investors, and implementing an investor
education program.
Promoting development of the corporate bond market by streamlining the Securities and Exchange
Commission guidelines on issuance of bonds and debentures, further reducing issuing costs, tapping
potential new issuers, and creating an enabling environment for asset backed securitization and
infrastructure bonds.



Conclusion
Bond Market is an integral part of the financial market of a country. It provides a medium for
their distribution of short term loan-able funds among financial institutions, which perform this
function by selling these short term securities that usually are highly marketable .it can
contribute a lot to a developing country like Bangladesh .Though the bond market of Bangladesh
is very prospective, it is bested with numerous problems. If all the above things can be done,
then this could pave the path for a well-functioning bond market that can change the existing
bank-oriented financial system to a multilayered system, where capital markets can complement
bank financing.




= 0 =

14
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