Financial system & Institutional Management in Bangladesh

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A financial system is a system through which all kinds of financial activities within any country are run. Bangladesh bank is the regulatory organization that mainly plays role in patronizing and running the overall financial system. After getting independent, Bangladesh started the traditional financial system which is now in Basel one. Under the 1972 banking order, Bangladesh Bank is doing its financial activities to a great extent.

After a long time in 1991by making the banking company act, a revolutionary change happened in the Bangladesh banking sector. Then Bangladesh entered into Basel two. Bangladesh became able to introduce a newer and effective economic system in Bangladesh like VAT, newer mode of taxes, economic policies, etc. Now Bangladesh has 56 scheduled banks and 31 non-bank institutions which are running the whole financial system in Bangladesh. After 2011, Bangladesh has introduced a new modern system of banking like mobile banking which shows the indication of entering into Basel three in the banking system by Bangladesh.

Financial System

A financial system is a system that covers financial transactions and the exchange of money between investors, lenders,s, and borrowers. A financial system can be defined at the global, regional, or firm-specific level. Financial systems are made of intricate and complex models that portray financial services, institutions, and markets that link depositors with investors.

The firm’s financial system is the set of implemented procedures that track the financial activities of the company. On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers, and lenders within the global economy.

There are multiple components making up the financial system of different levels: Within a firm, the financial system encompasses all aspects of finances. For example, it would include accounting measures, revenue and expense schedules, wages, and balance sheet verification. Regional financial systems would include banks and other financial institutions, financial markets, financial services in a global view, financial systems would include the International Monetary Fund, central banks, World Bank, and major banks that practice overseas lending.

Financial System in Bangladesh

The financial system of Bangladesh is comprised of three broad fragmented sectors:

  1. Formal Sector,
  2. Semi-Formal Sector,
  3. Informal Sector.

The sectors have been categorized in accordance with their degree of regulation.
The formal sector includes money and market, all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks, dealers, microcredit, etc.
The semi-formal sector includes those regulatory institutions like Central Bank, Securities and Exchange Commission, and Microcredit Regulatory Authority, Insurance Development and Regulatory Authority, or any other enacted financial regulator.

The informal sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank, etc. The three sectors are given below

Formal sector

Generally, various types of banks and non-banks are included in the formal sector of the financial system. The sector is elaborately discussed below to a great extent.

Banking operation in Bangladesh

Economic history shows that development has started everywhere with the banking system and its contribution towards the financial development of a country is highest in the initial stage. The case studies of some particular developed countries also show the useful roles played by the banks in the economic development process of local communities. The bank is financial intermediary accepting deposits and granting loans; offers the widest menu of services of any financial institution.

Banks are the most important financial institution in the economy. They are the principal sources of credit (loanable funds) for millions of individuals and families for many units of the government. In the middle of 2001, there were 52 scheduled Banks. But during 2000, two foreign banks. “Standard Chartered Bank” and ANZ Grind lays Bank PLC” have been Marged as standard chartered Grind lays” reducing the total number of scheduled Bank in Bangladesh to 51. Thus there are 51 scheduled Banks in Bangladesh of which 4 are nationalized, 29 are private Banks of which 5 are Islamic Banks, 12’are foreign Banks including Islamic Bank and 5 are specialized Banks.

In India, the first bank, the bank of Hindustan was established in 1700. During the 18th and 19th century there were several banks like the bank of Calcutta, the Central Bank of India, the Bank of Madras, and the Bank of Bombay established. The Banking Companies Ordinance was promulgated on the 7th of June 1962. This has been adopted in Bangladesh and is applicable to banking companies only. Nothing of this ordinance shall apply to a cooperative bank registered under the cooperative Securities Act. 1912.

Bangladesh has a mixed banking system comprised of nationalized, private, and foreign commercial banks. Bangladesh Bank (BB) has worked as the central bank of the country since its independence of the country. Its prime jobs include issuing currencies, maintaining foreign exchange reserves,s and providing transaction facilities of all public monetary matters. BB is responsible for planning and implementing the government’s monetary policy.  The banking sector of Bangladesh comprises four categories of scheduled banks. These are nationalized commercial banks (NCBs), government-owned development finance institutions (DFIs), private commercial banks (PCBs), and foreign commercial banks (FCBs).

Bangladesh Bank

Bangladesh Bank acts as the Central Bank of Bangladesh which was established on December 16, 1971, through the enactment of Bangladesh Bank Order 1972- President’s Order No. 127 of 1972 (Amended in 2003). The general superintendence and direction of the affairs and business of BB have been entrusted to a 9 members’ Board of Directors which is headed by the Governor who is the Chief Executive Officer of this institution as well. BB has 40 departments and 9 branch offices. In Strategic Plan (2010-2014), the vision of BB has been stated as, “To develop continually as a forward-looking central bank with competent and committed professionals of high ethical standards, conducting monetary management and financial sector supervision to maintain price stability and financial system robustness, supporting rapid broad-based inclusive economic growth, employment generation and poverty eradication in Bangladesh”.

The main functions of BB are (Section 7A of BB Order, 1972) 

  • to formulate and implement monetary policy;
  • to formulate and implement intervention policies in the foreign exchange market;
  • to give advice to the Government on the interaction of monetary policy with fiscal and exchange rate policy, on the impact of various policy measures on the economy, and to propose legislative measures it considers necessary or appropriate to attain its objectives and perform its functions;
  • to hold and manage the official foreign reserves of Bangladesh;
  • to promote, regulate and ensure a secure and efficient payment system, including the issue of banknotes;

The core policies of the Central Bank are monetary policy. The main objectives of the monetary policy of Bangladesh Bank are:

  • Price stability both internal & external
  • Sustainable growth & development
  • High employment
  • Economic and efficient use of resources
  • Stability of financial & payment system

Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement (MPS) twice (January and July) in a year. The tools and instruments for implementation of monetary policy in Bangladesh are Bank Rate, Open Market Operations (OMO), Repurchase agreements (Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).

Reserve Management Strategy

Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies to minimize the risk emerging from widespread fluctuation in the exchange rate of major currencies and very irregular movement in interest rates in the global money market. BB has established Nostro account arrangements with different Central Banks. Funds accumulated in these accounts are invested in Treasury bills, reports, and other government papers in the respective currencies. It also makes investments in the form of short-term deposits with different high-rated and reputed commercial banks and purchases of high-rated sovereign/supranational/corporate bonds. A separate department of BB performs the operational functions regarding investment which is guided by investment policy set by the BB’s Investment Committee headed by a Deputy Governor. The underlying principle of the investment policy is to ensure the optimum return on investment with minimum market risk.

State-OwnerCommercial Banks

The banking system of Bangladesh is dominated by the 3 Nationalized Commercial Banks, which together controlled more than 54% of deposits and operated 3388 branches (54% of the total) as of December 31, 2004.[1] The nationalized commercial banks are:

Specialized Bank of Bangladesh:

  • Karmosangesthan Bank
  • Bangladesh Krishi Bank
  • Sonali Bank
  • Janata Bank
  • Rupali Bank

Private Commercial Bank

Private Banks are the highest growth sector due to the dismal performances of government banks (above). They tend to offer better service and products.

  • BRAC Bank Limited
  • Eastern Bank Limited
  • Dutch Bangla Bank Limited
  • Dhaka Bank Limited
  • Islami Bank Bangladesh Ltd
  • Pubali Bank Limited
  • Uttara Bank Limited
  • IFIC Bank Limited
  • National Bank Limited
  • The City Bank Limited
  • United Commercial Bank Limited
  • NCC Bank Limited
  • Prime Bank Limited
  • Southeast Bank Limited
  • Al-ArafahIslami 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
  • ShahjalalIslami Bank Limited
  • Jamuna Bank Limited
  • ICB Islami Bank
  • AB Bank Limited

Foreign Commercial Bank

There are some Foreign Commercial Banks in Bangladesh. That is

  • Citibank
  • HSBC
  • Standard Chartered Bank
  • Commercial Bank of Ceylon
  • State Bank of India
  • Habib Bank
  • National Bank of Pakistan
  • Woori Bank
  • Bank Alfalah

Non-Bank Financial Institution

A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFIs facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering. Examples of these include insurance firms, pawnshops, cashier’s check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations. Alan Greenspan has identified the role of NBFIs in strengthening an economy, as they provide “multiple alternatives to transform an economy’s savings into a capital investment [which] act as backup facilities should the primary form of intermediation fail.

Non-Bank Financial Institution In Bangladesh

     1.   Uttara Finance and Investments Limited
2.   United Leasing Company Limited (ULCL)
3.   Union Capital Limited
4.   The UAE-Bangladesh Investment Co. Ltd
5.   Saudi-Bangladesh Industrial & Agricultural Investment Company Limited (SABINCO)
6.   Reliance Finance Limited
7.   Prime Finance & Investment Ltd
8.   Premier Leasing & Finance Limited
9.   Phoenix Finance and Investments Limited
10. People’s Leasing and Financial Services Ltd
11. National Housing Finance and Investments Limited
12. National Finance Ltd
13. MIDAS Financing Ltd. (MFL)
14. Lanka Bangla Finance Ltd.
15. Islamic Finance and Investment Limited

Specialized Development Banks

Out of the specialized banks, two (Bangladesh Krishi Bank and RajshahiKrishiUnnayan Bank) were created to meet the credit needs of the agricultural sector while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangha (BSRS) are for extending term loans to the industrial sector.

The Specialized banks are:

  • Grameen Bank
  • The Dhaka Mercantile Co-operative Bank ltd
  • Bangladesh Krishi Bank
  • Bangladesh Development Bank Ltd
  • RajshahiKrishiUnnayan Bank
  • BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited)


In financial services, a broker-dealer is a natural person, company, or other organization that engages in the business of trading securities for its own account or on behalf of its customers. Broker-dealers are at the heart of the securities and derivatives trading process.

Although many broker-dealers are “independent” firms solely involved in broker-dealer services, many others are business units or subsidiaries of commercial banks, investment banks, or investment companies.

When executing trade orders on behalf of a customer, the institution is said to be acting as a broker. When executing trades for its own account, the institution is said to be acting as a dealer. Securities bought from clients or other firms in the capacity of the dealer may be sold to clients or other firms acting again in the capacity of a dealer, or they may become a part of the firm’s holdings.

In addition to the execution of securities transactions, broker-dealers are also the main sellers and distributors of mutual fund shares.

Largest Dealer Banks

  • Bank of America Merrill Lynch
  • Barclays
  • BNP Paribas
  • Citigroup
  • Credit Suisse
  • Deutsche Bank
  • Goldman Sachs
  • HSBC
  • JP Morgan Chase
  • Morgan Stanley
  • Nomura
  • Commerzbank AG

Stock Market

The stock market refers to the collection of markets and exchanges where the issuing and trading of equities (stocks of publicly held companies), bonds, and other sorts of securities takes place, either through formal exchanges or over-the-counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership.

Bangladesh Stock Exchange may refer to:

  • Dhaka Stock Exchange (founded 1952)
  • Chittagong Stock Exchange

Semi-Formal Sector

The semi-formal sector includes those regulatory institutions like Central Bank, Securities and Exchange Commission, and Microcredit Regulatory Authority, Insurance Development and Regulatory Authority, or any other enacted financial regulator.

Bangladesh Bank

Why central banks are heavily regulated:

  • To protect the safety of the public’s saving
  • To regulate agencies are charged with the responsibility of gathering and evaluating the information needed to assess the true financial condition of the central banks to protect the public against loss.
  • The central bank is also closely watched because of its power to create money in the form of readily spendable deposits by making loans and investments.-

The commercial banks maintain a current account with the central bank and can borrow money in the very short term. Thus, the banks which have to supply banknotes for their customers (either over the counter or through automatic teller machines) obtain them from the central bank which has an issuing monopoly.

The central bank debits their current accounts accordingly. Balances held on accounts with the central bank are also used to settle debts between banks. Finally, the central bank may require the maintenance of a minimum credit balance on the account: the monetary reserves. In the euro area, the Euro system lending to commercial banks is affected mainly by a special procedure which consists in granting credit every week for a two-week period.

The commercial banks have to lodge a number of guarantees with the central banks

Securities And Exchange Commission in Bangladesh

The Bangladesh Securities and Exchange Commission (BSEC) is the regulator of the capital market of Bangladesh, comprising Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). The Commission is a statutory body and attached to the Ministry of Finance.


  • Protect the interests of securities investors
  • Develop and maintain fair, transparent, and efficient securities markets
  • Ensure proper issuance of securities and compliance with securities laws


  • Regulating the business of the Stock Exchanges or any other securities market.
  • Registering and regulating the business of stock brokers, sub-brokers, share transfer agents, merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue, underwriters, portfolio managers, investment advisers, and other intermediaries in the securities market.
  • Regulating the substantial acquisition of shares and take-over of companies.
  • Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of securities, the Stock Exchanges and intermediaries, and any self-regulatory organization in the securities market.
  • Conducting research and publishing information.

Insurance Development and Regulatory Authority (IDRA):

Insurance Development and Regulatory Authority (IDRA) has been formed under the provision of the Insurance Development and Regulatory Authority Act 2010 on 26th January in 2011. The government of Bangladesh has enacted the Insurance Act 2010 to develop and regulate the insurance business. IDRA has been established for the purpose of supervising the insurance business and safeguarding the interest of policyholders. The authority is working for the systematic development and regulation of the insurance industry with a view to implementing the ‘The National Insurance Policy 2014’.

The authority is assigned by the Insurance Development and Regulatory Authority Act 2010 to control the institution relating to the insurance and reinsurance industry to encourage the development of the insurance industry. Providing registration and certificate of the insurer, re-insurer, mediator and renewal, amendment, removal withheld or cancellation of such registration are the mandates of IDRA. Inspection, inquiry, and investigation of insurance institutions, developing new policies, controlling the fund and investment, maintenance of solvency margin and determining the proposed premium rate, giving advantage to insurer, settlement of dispute or claim and providing the procedure for preparing actuarial reports are the major responsibility of IDRA.

Microcredit Regulatory Authority (MRA)

Microcredit Regulatory Authority (MRA) is the central body to monitor and supervise microfinance operations of non-governmental organizations of the Republic of Bangladesh. It was created by the Government of Peoples’ Republic of Bangladesh under the Microcredit Regulatory Authority Act (Act no. 32 of 2006). License from the Authority is mandatory to operate microfinance operation in Bangladesh as an NGO.

The Microcredit Regulatory Authority (MRA) is Bangladesh’s primary regulator over the activities of NGO microfinance institutions (MFIs). MRA has three primary functions: to license MFIs, supervise MFIs for compliance with licensing requirements, and to enforce sanctions in cases of non-compliance. In addition, MRA conducts audits and addresses customer complaints. The board of directors of MRA consists of government officials including the governor of Bangladesh Bank. As of June 2013, MRA reported 698 licensed NGO-MFIs serving approximately 25 million clients with total outstanding loans of BDT 257 billion (USD 3.3 billion) and total deposits of BDT 94 billion (USD 1.2 billion).

Informal sector

The informal sector of the financial system in Bangladesh is largely elaborated below:

Bangladesh House Building Finance Corporation

It is a specialized public financial institution that finances the construction and renovation of houses in urban areas of Bangladesh and is located in Paltan, Dhaka.

The institution was set up in 1973 under presidential orders. It gives loans for only individual home construction and has faced criticism for giving loans mostly to government employees. It is headquartered in a 10 story building in Paltan, Dhaka. In 2013 Hefazat-e-Islam Bangladesh tried to burn down the institution’s headquarters and vandalized 12 cars.

Palli Karma Sahayak Foundation (PKSF)

It is a financial institution founded by the Government of Bangladesh to finance rural development and provide training and is located in Dhaka, Bangladesh. DrQaziKholiquzzaman Ahmad is the Chairman of Palli Karma SahayakFoundation. It is the umbrella body for microcredit in Bangladesh Palli Karma Sahayak Foundation was established in 1990 by the government of Bangladesh. The organization provides loans to Non-governmental organizations that provide micro-credit services.   The foundation Nawab Ali Chowdhury National Award in 2012 for poverty elevation. The foundation as of 2017 has 8 million micro borrowers. The foundation is the largest agency for development in rural Bangladesh

Bangladesh Samabay Bank Limited BSBL

Bangladesh Bank Ltd. Samabaya is the apex financial institution for cooperation in the country. Founded on March 31, 1948, to meet the needs of agriculture and on the basis of the moderate country. After the liberation of Bangladesh in 1971, the Bank assumed the post of National Co-operative Bank. Its type is Limited Company and as a bank, it is a Specialized Development Bank of Bangladesh.

Grammeen Bank

Grameen Bank originated in 1976, in the work of Professor Muhammad Yunus at the University of Chittagong, who launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. In October 1983 the Grameen Bank was authorized by national legislation to operate as an independent bank. In 1998 the Bank’s “Low-cost Housing Program” won a World Habitat Award. In 2006, the bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize. Though it is an informal financial sector of Bangladesh nowadays it is working as a formal banking sector in Bangladesh.

Mobile Banking

Now Mobile Banking is massively used in Bangladesh for banking purposes. Now people feel more comfortable with this way of banking. After 2011, mobile banking began to emerge very effectively. Telebanking is the sign of modern banking in Bangladesh.

There are around 151.82 million people in Bangladesh according to 2012 of which only 13 percent have bank accounts whereas more than 95 percent are mobile phone users. Banks can now offer banking services to both the rural community and the population (without banking transactions) through mobile phones. Mobile banking refers to a system that enables bank customers to access accounts and general information on bank products and services through Mobile devices.

What is Mobile Banking

Mobile banking is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or personal digital assistant.

Mobile banking differs from mobile payments, which involve the use of a mobile device to pay for goods or services either at the point of sale or remotely.

The earliest mobile banking services were offered over SMS, a service known as SMS banking. With the introduction of smartphones with WAPsupport enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers.

Mobile banking has until recently (2010) most often been performed via SMS or the mobile web. Apple’s initial success with the iPhone and the rapid growth of phones based on Google’s Android (operating system) has led to the increasing use of special client programs, called apps. 

List of Mobile Banking Companies



The financial sector in Bangladesh is quite strong. The existing system is contributing to running smoothly the financial sectors. Where some countries could not have been entered in modern banking, Bangladesh has been able to do that. People are now more comfortable with the Basel three of the banking system. The modern financial system has introduced an innovative way of taxation, financial exchange system, services, etc. The three sectors of the financial system are so much vital which is contributing to making a better financial system in Bangladesh to a great extent indeed.

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