VISIT REPORT FINANCIAL INSTITUTION

OTHER THAN BANK

Non-Bank Financial Institutions (NBFIs)
play a significant role in meeting the diversefinancial needs of various
sectors of an economy and thus contribute to the economic
development of the country as well as to the deepening of the country’s
financial system. As
the development process proceeds, NBFIs become prominent alongside
the banking sector.Both can play significant roles in influencing and
mobilizing savings for investment. Theirinvolvement in the process
generally makes them competitors as they try to cater to the sameneeds.
However, they are also complementary to each other as each can
develop its ownniche, and thus may venture into an area where the other
may not, which ultimatelystrengthens the financial mobility of both. In
relatively advanced economies there aredifferent types of non-bank
financial institutions namely insurance companies, financecompanies,
investment banks and those dealing with pension and mutual funds,
thoughfinancial innovation is blurring the distinction between different
institutions
Islamic finance and Investment Ltd.
is playing an important role in private sector leasingand real estate
business. As a full fledged financial institution it receives deposits and
extendsInvestments through better counseling and effective services to
the client for the socio-economic development of the country. The
company continued to be a major financier toIndustrial sector and has
also supported sectors like Real Estate, Trading and other sectors.Banks
usually dominate the financial system in most countries because
businesses,households and the public sector all rely on the banking
system for a wide range of
financial products to meet their financial needs. However, by providing
additional and alternativefinancial services, NBFIs have already gained
considerable popularity both in developed anddeveloping countries. In
one hand these institutions help to facilitate long-term investmentand
financing, which is often a challenge to the banking sector and on the
other; the growthof NBFIs widens the range of products available for
individuals and institutions withresources to invest.
Non-
Bank Financial Institutions (NBFIs) play a significant role in meeting the diversefi
nancial needs of various sectors of an economy and thus contribute to the
economicdev
elopment of the country as well as to the deepening of the country’s financial
system. As
the development process proceeds, NBFIs become prominent alongside the
banking sector.Both can play significant roles in influencing and mobilizing
savings for investment. Theirinvolvement in the process generally makes them
competitors as they try to cater to the sameneeds. However, they are also
complementary to each other as each can develop its ownniche, and thus may
venture into an area where the other may not, which ultimatelystrengthens the
financial mobility of both.In relatively advanced economies there are different
types of non-bank financial institutionsnamely insurance companies, finance
companies, investment banks and those dealing
with pension and mutual funds, though financial innovation is blurring the distincti
on betweendifferent institutions. In some countries financial institutions have
adopted both banking andnon-banking financial service packages to meet the
changing requirements of the customers.In the Bangladesh context, NBFIs are
those institutions that are licensed and controlled by the
Financial Institutions Act of 1993 (FIA ’93). NBFIs give loans and advances for
industry,
commerce, agriculture, housing and real estate, carry on underwriting or
acquisition businessor the investment and re-investment in shares, stocks, bonds,
debentures or debenture stock orsecurities issued by the government or any local
authority; carry on the business of
hire purchase transactions including leasing of machinery or equipment, and use th
eir capital toinvest in companies.The importance of NBFIs can be emphasized
from the structure of the financial system. Inthe financial system of Bangladesh,
commercial banks have emerged in a dominant role inmobilizing funds and using
these resources for investment. Due to their structural limitationsand rigidity of
different regulations, banks could not expand their operations in all expectedareas
and were confined to a relatively limited sphere of financial services. Moreover,
theirefforts to meet long term financing with short term resources may result in
asset-liabilitymismatch, which can create pressure on their financial base. They
also could not broadentheir operational horizon appreciably by offering new and
innovative financial products.These drawbacks led to the emergence of NBFIs in
Bangladesh for supportingindustrialization and economic growth of the country.
Objectives are to highlight different features and product base of
Islamic Finance andInvestment Limited
, the effects of banks’ entry into the non
-bank financing area, identifyingthe challenges faced by NBFIs in Bangladesh.
2.

Rationale of choosing the topic:

Non-
bank financial institutions usually lease out capital machinery to various economic
sectors, allows home loans to individuals, etc. Obtaining loans from such NBFIs is
easy andquicker than banks. There is no hassle and less time consuming in
obtaining such loans.Security and loan documentation process are also easy. All of
above helped a lot inindustrialization of Bangladesh as well as making the dream
of individuals true having own property under home loans. Such home loans in
turn help growth of another economic sector.As such we have chosen this topic to
highlight few issues & most strong positioning of NBFIs in Bangladesh.
3.

Methods:
1.

Source of dataThe analyses have been conducted on the basis of the secondary data
obtained from differentsources like Review of Banking and Financial Institution
Of Bangladesh, Bangladesh BankAnnual Report, Bangladesh Leasing and Finance
Companies Association (BLFCA) Year
Book And Bangladesh Bank (2008), “Financial Sector Review”. Bangladesh
Bank‘s NBFIs
Guide Line. And IFIL company rules and frame work.
2.

Basic parameters
The basic Parameter of the Non Banking Financial Institution is annual growth
rate, theirtypes and sector of investments and target market against each type of
investment or finance.Financing process.
3.

Analytical techniques / tools

Direct observe vision and work with related activities and Focus Group
Discussion.
Basic institution(s) / issue / industry
 Initially, NBFIs were incorporated in Bangladesh under the Companies Act, 1913
and wereregulated by the provision relating to Non-Banking Institutions as
contained in Chapter V of the Bangladesh Bank Order, 1972. But this regulatory
framework was not adequate and NBFIs had the scope of carrying out their
business in the line of banking. Later, Bangladesh

Bank promulgated an order titled ‘Non Banking Financial Institutions Order, 1989’
to
promote better regulation and also to remove the ambiguity
relating to the permissible areasof operation of NBFIs. But the order did not cover
the whole range of NBFI activities. It alsodid not mention anything about the
statutory liquidity requirement to be maintained with thecentral bank. To remove
the regulatory deficiency and also to define a wide range of
activities to be covered by NBFIs, a new act titled ‘Financial Institution Act, 1993’
was
enacted in 1993 (Barai et al. 1999). Industrial Promotion and Development
Company (IPDC)was the first private sector NBFI in Bangladesh, which started its
operation in 1981. Sincethen the number has been increasing and n December 2006
it reached 29.
1
Of these, one isgovernment owned, 15 are local (private) and the other 13 are
established under joint venturewith foreign participation.The major business of
most NBFIs in Bangladesh is leasing, though some are alsodiversifying into other
lines of business like term lending, housing finance,
merchant banking, equity financing, venture capital financing etc. Lease
financing, term lending andhousing finance constituted 94 percent of
the total financing activities of all NBFIs up to June2006. A break-up of
their financing activities reveals that the share of leasing and
housingfinance in the total investment portfolio of NBFIs has gradually
decreased from 59 and 15 percent, respectively, in 2002 to 46 and 14
percent in June 2006. The share of term loans, onthe other hand, has
increased from 20 percent to 34 percent during the same period
implyingincreased focus on the former. The evolvement of NBFI
business activity is observed inFigure 1. It can also be seen from the
figure that the portfolio mix of NBFIs has become quitestable from
2004