Financial System in Bangladesh

30 pages

 
S
TRUCTURE OF
F
INANCIAL
S
 YSTEM IN
B
 ANGLADESH
1
I
NTERNATIONAL
I
SLAMIC
U
NIVERSITY 
C
HITTAGONG
 Assignment On…I
SLAMIC
F
INANCIAL
S
 YSTEM
Topic:
SSttrruuccttuurreeoof f FFiinnaanncciiaallSSyysstteemmiinnBBaannggllaaddeesshhSubmitted To:M
R 
. A 
BDULLAHIL
M
 AMUN
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ECTURER 
D
EPARTMENT OF
B
USINESS
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DMINISTRATION
I
NTERNATIONAL
I
SLAMIC
U
NIVERSITY 
C
HITTAGONG
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Submitted By:
M
UHAMMAD
S
HAHINUR 
E
KRAM
C
HOWDHURY 
ID No: R093117
RMBA, 4th Trimester,
Section (B).
Submitted Date:
22 February, 2010.
 
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Financial System:
The financial system is a set of organized institutional set-up through which surplusunits transfer their funds to deficit units.Define a financial system fair narrowly, to consist of a set of markets, individuals andinstitutions, which trade in those markets and the supervisory bodies responsible fortheir regulation. The end-users of the system are people and firms whose desire is tolend and to borrow. A financial system is a system that to channels funds from lenders to borrowers, tocreates liquidity and money, to provides a payments mechanism, to provides financialservices such as insurance & pensions and to offers portfolio adjustment facilities.In Finance, the financial system is the system that allows the transfer of moneybetween savers and borrowers. It comprises a set of complex and closelyinterconnected financial institutions, markets, instruments, services, practices andtransactions. An economy’s financial system exists to organize the settlement of payments, to raiseand allocate finance and to manage the risks associatedwith financing and exchange.So, the government sector and the corporate sector are the users of financial surplusof household sector and that the financial sector performs this vital function of intermediation. Empirical evidence shows that the growth of financial markets anddevelopment 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 derivativemarkets & financial institutions that provide access to risk management instruments.Thus, A financial system consists of a set of organized markets and institutionstogether with regulators of those markets and institutions. Their main function is tochannel funds between end users of the system: from lenders (‘surplus units’) toborrowers (‘deficit units’). In addition, a financial system provides payments facilities,a variety of services such as insurance, pensions and foreign exchange, together withfacilities, which allow people to adjust their existing wealth portfolios.
 
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Background of financial system in Bangladesh:
The financial system in Bangladesh includes Bangladesh Bank (the Central Bank),scheduled banks, non-bank financial institutions, Microfinance institutions (MFIs),insurance companies, co-operative banks, credit rating agencies and stock exchange. Among scheduled banks there are 4 Nationalised commercial banks (NCBs), 5 state-owned specialized banks (SBs), 30 domestic private commercial banks (PCBs), 9foreign commercial banks (FCBs) and 29 non-bank financial institutions (NBFIs) as of December 2006 after that total number of institutions are increasing rapidly.However, Rupali Bank, an NCB is being sold to a foreign buyer, and once thistransaction is completed, the country will have only 3 NCBs., which are beingcorporative. Over and above the institutions cited above, three development financialinstitutions namely House Building Finance Corporation (HBFC), Ansar-VDP UnnayanBank and Karma Shangsthan Bank are operating in Bangladesh, all of which are stateowned.The financial system of Bangladesh is mainly bank dependent. Though in the recentyears, a number of non-banking financial institutions (leasing and merchant banks)have been established, yet the banking sector still captures the lion share of thefinancial market.
Financial Sectors in Bangladesh:
Bangladesh Bank is the key player for the financial sector of Bangladesh as well as forthe economy. Bangladesh Bank is the banker to the government as well as to otherbanks. It formulates and implements monetary policy, manages foreign exchangereserve and is the authority to supervise and regulate other banks and non-bank financial institutions.The financial sector of Bangladesh has gone through a lot of reforms in the past twodecades and central bank reform was a key element of the reform agenda. This studymaps the various reforms that have taken place so far.Bangladesh Bank has improved in certain areas and yet there are avenues wheremore 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 significantimprovements. On the other hand, the bank underachieves in terms of autonomousformulation and implementation of monetary policy in coordination with thegovernment.