Bond market analysis of Bangladesh

Submitted by:

Kamruzzaman Pritom

ID: 2018-1-10-078

Course code: Fin 335, Section: 01

Submitted to:

Dr. Tanbir Ahmed Chowdhury

Professor, Department of Business Administration

Date of submission: 13 September, 2020

 Table of Contents
1 Overview of bond market
2 Bangladesh’s bond market
3 Simplified from Financial market
4 Major types of bond
5 Corporate Bond Market Scenario in Bangladesh
6 Financial Instruments Available In Bangladesh
7 Corporate Debt Securities in Bangladesh
8 List of Corporate Bonds in Bangladesh
9 Investors’ Perceptions on Corporate Bond in Bangladesh
10 Government Securities Market
11 Primary Market Operation
12 Secondary Market
13 Over-the-Counter (OTC)
14 Trader Work Station (TWS)
15 Government Securities Order Matching (GSOM) Trading Platform
16 Corporate Bonds Market
17 Corporate Debt Securities in Bangladesh: An overview
18 Financial system of Bangladesh:
19 Long-term debt market in Bangladesh
20 Details of eight debentures listed on Bangladesh stock market
21 Private Placement of Corporate Bonds
22 Issuance of Listed Bonds
23 Private Placement of Corporate Bonds
24 Issuance of Government Securities
25 Market infrastructure
26 Key regulations for investors
27 Comparison of Bangladesh Bond Market with Other Asian Countries:
28 Problems and Challenges of Bond market in Bangladesh
29 Recommendations
30 Unavailability of Two-Way Price Quoting
31 Introduction of a Central Counterparty (CCP
32 Majority of the Portfolio Being in Held-to-Maturity (HTM) Category
33 Absence of Established Pension/Provident
34 Prolonged Approval Period
35 Issuance of Bonds in Multiple Steps (Shelf Offering)
36 Bonds Issued By Banks through Private Placement
37 Absence of Secondary Yield Curve/Effective Valuation Tools
38 High Cost Related to Issuance and Secondary Trading
39 Conclusion
Acknowledgement:
I would like to start this report by acknowledging my gratefulness to the Almighty Allah. I
would like to express heartfelt gratitude to my course instructor who has assisted me in the
preparation of this term paper. I would like to take the opportunity to say my gratitude towards,
Dr. Tanbir Ahmed Chowdhury Professor, East West University, for his endless support,
inspiration and guidance during the course of completing this term paper. I am also thankful to
him for contributing his valuable time while viewing my report and making all the necessary
corrections.
Overview of bond market

Bond market serves as one of the best alternative source of investment for investors around the
world while serving as one of the easier routes to ensuring finance for a business. In fact, the
global bond market, which stands at $100 trillion, is considerably larger than the global stock
market, which is valued at $64 trillion. Bangladesh has seen significant economic growth over
the years; however, the bond market has yet to flourish in Bangladesh capital market, which has
showed very little signs of growth. The lack of a flourishing bond market has deprived
Bangladeshi investors and companies of various benefits that they could have reaped had their
been a developed bond market. Bond markets serve as a source of long-term finance for
companies with sound financial capabilities. Moreover, it also provides investors with a stable
source of long-term income compared to the unstable and volatile returns of the stock market.
Also considering the high volatility of the Dhaka Stock Exchange, a stable bond market would
serve the necessities of a general investor very well. The bond market in Bangladesh is
comprised mainly of Treasury bonds issued by the Government of Bangladesh with 221 T-bonds
and only one corporate bond that has been currently floating in the market. Our research focuses
on performance of 3 corporate bonds out of which 2 have matured.

The Bangladesh capital market is institutionalized by Dhaka Stock Exchange (DSE) and
Chittagong Stock Exchange (CSE), which are governed by BSEC. As of June 2018, the market
capitalization of DSE and CSE stood at USD 46.2 billion and USD 37.5 billion, respectively.
Currently, eight debentures are listed on the stock exchanges, all of which are matured and are
still listed due to incomplete legal proceedings. The returns on such debentures have been higher
(14%-17%) as compared to returns of 4% to 12% in government debt securities. However,
defaults in interest and principal payments by the issuers has reduced the confidence level of
investors and has raised questions over the enforcement of rules and regulations. So far, only
three corporate bonds have been listed, with returns ranging from 10.5% to 12.5% and maturity
periods between 60 to 84 months. Investors in Bangladesh are inclined towards investing in high
interest-low risk products such as National Saving Scheme, Treasury bonds, and Treasury bills.
While the government provides tax benefits to individuals in order to encourage them to invest in
debt securities market, there are no tax benefits provided for banks, insurance companies, and
financial institutions. However, all companies are eligible for tax rebate on income derived from
zero-coupon bonds. The Bangladesh bond market faces several structural issues, such as low
demand for corporate bonds, low investor base, lack of awareness, lack of supply of bonds, high
cost of bond issuance and weak market infrastructure, which needs to be addressed by various
stakeholders.

Bangladesh bond market

A financial market is a platform or system of economic exchange. Economists consider financial
markets as a primary pillar supporting and stimulating economic growth and also in setting the
velocity of growth. Markets play a fundamental economic role as a means for trading currency,
assets, securities and financial instruments. Every capital market has distinctive characteristics,
resulting from history, culture, and legal structure. However, gradually today they tend to
function on common ground with identical basic landscapes.

Simplified Form of Financial Market

Financial Market

Capital Market Money Market

Stock Market Bond Market

A bond is a debt investment in which an investor loans money to an entity (typically corporate or
governmental) which borrows the funds for a defined period of time at a variable or fixed interest
rate. A simple way to classify bonds is based on the different kinds of the issuers. The three main
issuers are government, governmental agencies, and corporations.

Major Types of Bonds

Bonds

Government
Municipal Bond Corporate Bond
Bond

T-bill T-notes T-Bonds

(maturity less (maturity 2 to (maturity more
than 1year) 10 years0 than 10 years0

Corporate Bond Market Scenario in Bangladesh

The corporate bond market in Bangladesh is characterized by low base market and the market is
still at initial stage of development. In Bangladesh Bond Market, fixed income securities first
time came into existence in 1987 with the floatation of debenture by two companies. However,
no debenture was issued after 1999. Trading of Government Treasury bonds started in December
2005 at the Dhaka Stock Exchange (DSE).
Financial Instruments Available In Bangladesh
Instruments available in the Bangladesh capital market. According to the data, deposits and bank
loans are the dominant sectors (37% and 32% respectively)compare with corporate bond,
debentures, treasury bills, government bonds, government saving certificates and term loans.
Among the all instruments corporate bond is signifying the lowest most percentage (0.01%).

Corporate Debt Securities in Bangladesh

SL Securities Issue Features BDT

Year Million

1. ×14% BD Luggage Debenture 1988 20% Convertible 40

×17% Beximco Limited Debenture 1989 - 60
3. ×17% Beximco Infusion Debenture 1992 - 45
4. ×17% Bangladesh Chemical 1993 20% Convertible 20
Debenture
5. ×17% Beximco Synthetic Debenture 1993 - 375
6. 17% Beximco Knitting Debenture 1994 10% Convertible 240
7. 17% Beximco Fisheries Debenture 1994 - 120
8. ×15% Eastern Housing Debenture 1994 20% Convertible 800
9. 14% Beximco Textile Debenture 1995 - 250
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% BD Aramit Cement Debenture 1998 20% Convertible 110
14. 15% BD Welding Electrodes 1999 - 20
Debenture
15. 15% BD Welding Electrodes 2007 Profit Sharing 3000
Debenture
16. ACI zero coupon Bond 2010 20% Convertible 1355
17. Sub bonds of BRAC Bank Ltd 2011 25% Convertible 3000
Note: × marked debentures are not available at present. Source: SEC, DSE and CSE report.
List of Corporate Bonds in Bangladesh

The role of the local corporate bond market is very important in obtaining stable long-term fund
for private sector (Hawang 2016). Corporate have many options to increase its capital from the
debt market by issuing bonds. Although the corporate bond markets in Bangladesh have not
expanding relative to equity market. Here, the Table-2 stated the list of bonds issued by the
corporations in Bangladesh. As shown in the table, it can be revealed that there are only three
corporations (i. e Islami Bank Bangladesh Ltd., BRAC bank Ltd., Advanced Chemical Industries
(ACI) Ltd.) have issued bonds

List of Corporate Bonds in Bangladesh

Name of the Category Issue Year Time for Face Value Average profit
or Coupon
issue maturity payment
IBBL Profit Sharing 2007 No perpetuity TK 1000 1000*12.476%
Mudaraba =124.76
Perpetual
Bond
Sub bonds of Zero Coupon 2010 3 years TK1000 0
BRAC Bank ltd.
ACI Zero Zero Coupon 2011 2 years TK1000 0
Coupon Bond

Investors’ Perceptions on Corporate Bond in Bangladesh

In this section researchers tried to reveal investors’ perception about corporate bond in
Bangladesh. More than 92% of the respondents judge the corporate bond market in Bangladesh
as inefficient one. Majority (49%) of the investors have shown their investment preferences on
the common stock of listed companies. Besides, 35% of them are interested to invest their fund
in commercial bank deposit whereas only 7% of investors are exposed their preferences to invest
in bond and the rest of the investors like to invest in other sectors. Among the 7% (mentioned
above) of the investors who have shown their interest to invest in bond, it is found that46% of
them have preferred to invest in corporate bond reasoning its ‘Fixed Periodic
Income’innature.19% of them have expressed the reason of ‘Less Risk’ factor. Moreover,
‘Convertible Feature’ (15%), ‘Capital Gain’ (15%) and ‘Tax Advantage’ (5%) have also denoted
by this group as the vital reasons for preferring corporate bond. To identify the investors’
preferred sectors to invest in corporate bond, it is found that 57% of the investors prefer to invest
in the banking sectors’ bond, and rest 43% of them prefer to invest in other corporate sectors’
bond.

Government Securities Market

Primary Market Operation

As per the relevant laws and regulations, the Debt Management Department (DMD) of
Bangladesh Bank acts as the debt manager of the Government in consultation with the MoF.
These laws also empower Bangladesh Bank to issue new loans and manage public debt on behalf
of the Government. A Cash and Debt Management Committee (CDMC) has been formed for the
supervision of the Government's borrowings chaired by Secretary, Finance Division. It has been
formed for efficient, effective and timely policy decision making regarding debt management
and budget financing. In addition to CDMC, there is also a Cash and Debt Management
Technical Committee (CDMTC) to assist CDMC. BB is authorized to conduct auctions for
raising loans on behalf of the Government of Bangladesh. The process of raising loans involves
the issuance of government securities. It is primarily done through auctions and in some cases,
through private placement. There is an auction committee chaired by Deputy Governor of BB to
determine the cutoff rate of the auction of government securities. An auction can either be price
or yield-based multiple rates as per instruction issued by BB. In multiple rate method, successful
orders are allotted at the offered rate. The bid amount is BDT one lac and its multiples. An
auction is conducted for a predetermined notified amount as per the discretion of the Issuer.
Member Dealers (PDs, Non-PD banks and NBFIs) can place orders within a prescribed cut-off
time. Member Dealers can also submit bids on behalf of their clients (Resident individuals and
institutions such as insurance companies, corporate entities, authorities responsible for the
management of provident funds, pension funds, etc. and foreigners/non-resident individuals/
institutions). Allotment of securities would subsequently be credited to respective security
accounts of successful bidders upon receiving confirmation of fund transfer. Member Dealers
may submit non-competitive bids on behalf of individual or institutional clients who have no
current account with Bangladesh Bank. The maximum accepted amount of non-competitive bids
in an auction is determined by BB. BB has started reissuance of instruments in 2013 to develop
benchmark securities and to construct a secondary market yield curve. An additional issue of an
existing instrument is handled in a way similar to an auction. During FY 2017-18, Bangladesh
Government Treasury Bonds (BGTBs) worth BDT 25,100.00 crore were issued, while total
repayments amounted to BDT 18,800.00 crore. Issuance of T-Bonds in FY 2017-18 was 67%
higher than that of the previous fiscal year. The total outstanding public debt of the Government
from the banking sector stood at BDT 1,61,767.56 crore constituting 7.23% of the GDP at the
end of June 2018 compared to 7.78% at the end of June 2017. In FY 2017-18, the banking sector
was the leading investor category accounting for 77.12% of the total stock holding. Long-term
investors like insurance and provident funds accounted for 15.50% of the total holding. As the
interest rate of the NSD certificate is significantly higher than any other interest rate prevailing in
the Government securities market, government borrowing is higher through the NSD certificate
while the borrowing from the banking sector is decreasing over the periods. The percentage of
outstanding domestic public debt compare with GDP from the banking sectors (T-bills and
bonds) decreased gradually, whereas outstanding debt in the percentage of GDP from NSD
certificates increased significantly due to the massive selling of non-marketable securities (i.e.
Sanchayapatras).

Secondary Market

Government securities issued through an auction or private placement are eligible for secondary
trading. Bangladesh Bank has initiated to automate the process of trading and settlement of
government securities transactions in October 2011. The secondary market of government
securities in Bangladesh is comprised of Over-the-Counter (OTC) and Trader Work Station
(TWS). Both procedures are integral parts of the MI Module (an automated auction and trading
platform of government securities).

Over-the-Counter (OTC)

In OTC, trades occur by the negotiation between members outside of the trading platform over
the telephone. If the deal is confirmed through negotiation, it has to be reported in the system for
settlement. Either the buyer or seller member inputs the transaction details and is referred to as
the instructing party. The other member confirms/accepts the trade and is referred to as a
confirming party. On confirmation, the trade is taken up for settlement. Once they complete the
trading process and the system accepts trades, the data automatically flows to Core Banking
System (CBS) for clearing and settlement of funds for completion of the settlement of funds in
CBS on a real-time basis. Subsequently, the trading securities get transferred automatically to the
buyer securities account in MI Module.

Trader Work Station (TWS)

BB has introduced the TWS, an anonymous order matching system, which is an electronic,
screen-based, order-driven trading system for dealing in government securities. It provides users
access to trade in the secondary market on a real-time basis. Order management and matching
are the core components of the trading solution. The matching engine of the trading solution
provides the algorithms that enable the members to trade instantaneously. Furthermore, TWS has
brought transparency in secondary market transactions in government securities. Members can
place bids (buy orders) and offer (sell orders) directly on the TWS screen. In that system, trades
are automatically sent to the CBS for fund settlement. Other investors (individuals and
institutions, insurance companies, bodies corporate, authorities responsible for the management
of provident funds, pension funds, etc) can buy-sell government securities through Banks and
NBFIs working in Bangladesh.

Government Securities Order Matching (GSOM) Trading Platform

BB has introduced a web-based platform to make buy and sell orders of government securities
visible through GSOM in August 2016. This web-based terminal (https://gsom.bb.org.bd) makes
the order book (submitted bids and asks price/yield) including securities details visible to the
members on a real-time basis. Resident individuals and institutions such as banks, NBFIs,
insurance companies, bodies corporate, authorities responsible for the management of provident
funds, pension funds, etc. as well as foreigners/non-resident individuals/institutions can watch
and search the order information from GSOM. Those members are not authorized to change or
modify the information directly in GSOM. Only Member Dealers are eligible to change or
modify or cancel the order information through TWS.

Secondary Trading Volume of Government Securities

The total volume of government securities transacted on an outright basis in the FY 2017-18
stood at BDT 15,334.40 crore, which was considerably lower than the preceding financial year.
The decrease in volume was largely due to less issuance of government securities through
auctions. Moreover, there is a high demand for government securities to meet the SLR
requirement of the banks, and therefore, they tend to hold securities under the Held-to-Maturity
(HTM) portfolio. In FY 2017-18, the transaction volume of Treasury securities decreased by
61.72% compared to the FY 2016-17.

Corporate Bonds Market

For issuance of debt securities through the private offer, an issuer should submit an application
under the Securities and Exchange Commission (Private Placement of Debt Securities) Rules,
2012. On the other hand, for issuance of debt securities through public offer, an issuer needs to
submit an application under Bangladesh Securities and Exchange Commission (Public Issue)
Rules, 2015 upon compliance of relevant requirements of the Securities and Exchange
Commission (Private Placement of Debt Securities) Rules, 2012.

Corporate Debt Securities in Bangladesh: An overview

The bond market is still at a nascent stage in Bangladesh. However the debt securities of this
country are not very significant in number. There are enormous impediments to develop the
market which are attributed by a limited supply of debt instruments, especially long-term
instruments. Therefore, the consistent yardstick for long-term bonds or debentures does not exist
in the country. Following Table-1 has revealed the list of the corporate debt securities in
Bangladesh.

Financial system of Bangladesh

The financial system of Bangladesh consists of three sectors: Formal sector, Semi-formal sector
and Informal sector.

Formal sector

The formal sector consists of all regulated institutions including banks (59 scheduled banks and
five nonscheduled banks), insurance firms (32 life insurance companies and 46 general insurance
companies), NBFIs (34), and capital market intermediaries such as merchant banks, brokerage
houses, Asset Management Companies (AMCs), stock dealers/stock brokers, trustees/custodians
and the Investment Corporation of Bangladesh (ICB).

1) Financial Market

The financial market consists of three types of markets namely the money market, the capital
market, and the foreign exchange market.

 Money market

The money market consists of banks and financial institutions who act as intermediaries, out of
which there are 20 primary dealers in government debt securities. These primary dealers
purchase Treasury Bonds and Treasury Bills, which are then sold to individuals or companies.
The money market acts as a channel for redistribution of funds amongst the financial institutions.

 Capital Market
 Capital market financing for development of infrastructure sectors can be in equity or debt
forms. Presently, companies in Bangladesh, especially in the power sector, prefer to raise equity
financing for infrastructure projects. On the other hand, depending on the future cash flows from
projects, developers can issue bonds to raise funds. With a total market capitalization of USD
46.2 billion (DSE) in FY 2018, the depth of Bangladesh capital market is still very shallow for
supporting infrastructure investments, especially considering that an average ticket size of USD
1 billion is required to develop large scale infrastructure projects. To overcome the problems in
the capital market, the government needs to formulate a sound regulatory framework that
provides linkage between the savings and preferred infrastructure investments.

The capital market is operated via offerings (both public and private) of equity and debt
instruments and is governed by the BSEC. The market is institutionalized by two stock
exchanges i.e. the Dhaka Stock Exchange and the Chittagong Stock Exchange

Financial system of Bangladesh:

financial System of
Bangladesh

semi
Formal Informal
formal
Sector Sector
sector

Specialized
Financial Market Regulations Institution
Financial Instituitons

Money Market,NBFI'Ss, Capital Foreign Exchange

Bangladesh bank
Insurance
developement and
Security Exchange
Micro credit
Regulatory
Market commision
Primary dealers Market regulatory authory Authority
Dhaka Stock Exchange (DSE)

The Dhaka Stock Exchange was established in April 1954 and was then known as the East
Pakistan Stock Exchange Association Limited. As of June 2018, there are 572 listed securities
governed by the DSE. The listed securities comprise 305 equity securities (including 30 banks,
23 financial institutions, and 47 insurance companies), 221 government bonds, 37 mutual funds,
8 debentures and a corporate bond. As of November 2018, the equity market holds the largest
share of market capitalization at 84.7% (USD 38.8 billion), followed by Treasury bond market at
14.4% (USD 6.6 billion). Since the markets for corporate bonds, debentures and mutual funds
are in their nascent stages of development; their combined share in the market capitalization is
only 1.0%. The overall market capitalization has grown at a CAGR of 6.9% between FY 2014
and FY 2018. The total number of securities grew from 536 in FY 2014 to 572 in FY 2018 with
63 companies raising funds through Initial Public Offerings (IPOs) in between. However, the
market capitalization of DSE as a percentage of GDP is a mere 14.5% as compared to 72.2% for
Bombay Stock Exchange and 198.0 % for Singapore Exchange (as of 2018). The financial
performance of Dhaka Stock Exchange in the last five years is mentioned overleaf:

Chittagong Stock Exchange (CSE)

(CSE) Established only in October 1995, the Chittagong Stock Exchange is the relatively newer
stock exchange in the country. As of June 2018, the total number of listed securities in
Chittagong Stock Exchange stood at 312. Between the period January 2018 and March 2018, the
total value of traded shares was USD 258 million, which was 29.0% more than the total value of
traded shares in the preceding quarter. The market capitalization of CSE decreased by 0.01% to
USD 37.5 billion18 by the end of June 2018. However, during the same period, the total amount
of issued capital rose to USD 7.8 billion. Amongst all the listed securities in CSE,
Grameenphone Limited has the highest market share of 3.6%.

2)Foreign Exchange market

 The foreign exchange market facilitates exchange of currencies. There are broadly three
participants in the foreign exchange market - Bangladesh Bank, authorized dealers and
customers. The foreign exchange market is regulated by the Bangladesh Bank and as per the
Foreign Exchange Regulation Act of 1947. The central bank issues dealership licenses to
scheduled banks only. The dealers are authorized to hold and transact in foreign currency within
and outside Bangladesh.

3) Regulators

a) Bangladesh Bank: Established in 1972, Bangladesh Bank is the central bank of the country.
The bank is responsible for formulating and implementing the monetary policy and the
intervention policies in the foreign exchange market. It is also responsible for regulating and
supervising banks and financial institutions in the country. Additionally, it holds and manages
the official foreign reserves of Bangladesh.

b) Insurance Development and Regulatory Authority (IDRA): The GoB enacted the Insurance
Development and Regulatory Act of 2010 to develop and regulate the insurance industry. IDRA
operates under the Ministry of Finance, GoB. There are 46 general insurance and 32 life
insurance companies under IDRA.

c) Bangladesh Securities and Exchange Commission (BSEC) regulates and supervises the
capital markets of Bangladesh. The main functions of BSEC are to develop and maintain
transparent and efficient securities markets and to ensure proper issuance of securities. BSEC
thus approves capital issues and prospectus, restricts insider trading, and controls the stock
exchanges and the companies involved in public issuance of various securities. BSEC holds the
right to approve or cancel the certificates to merchant banks, brokers, stock dealers and
intermediaries. In addition to this, BSEC undertakes various research activities on the capital
market and publishes its findings.

d) Microcredit Regulatory Authority (MRA): It is the central body that supervises operations of
Non-government Microfinance Institutions (NGO-MFIs) in the country. The MRA was created
under the Microcredit Regulatory Authority Act of 2006
. 4) Institutions: There are two types of banks in Bangladesh i.e. scheduled Banks and non-
scheduled banks. Within 59 scheduled banks - there are six state owned commercial banks, three
specialized banks, 41 private banks (conventional commercial private NBFIs initiated by joint
ventures. private NBFIs initiated by joint ventures. private NBFIs initiated by joint ventures.
banks and Islamic banks) and nine foreign banks. There are five nonscheduled banks namely,
Ansar VDP Unnayan Bank, Karmashangosthan Bank, Grameen Bank, Jubilee Bank and Palli
Sanchay Bank. Further, there are 34 NBFIs, which are controlled by the Bangladesh Bank. Out
of these NBFIs, two are state owned, one is a subsidiary of state owned commercial bank, and
there are 15 private NBFIs initiated by joint ventures.

Semi-Formal sector

The Semi-Formal sector includes institutions, which are regulated but do not fall under the
jurisdiction of either the central bank or the insurance authority or any other financial regulators.
Institutions such as Grameen Bank, Samabag Bank and House Building Finance Corporation
(HBFC) mainly represent the sector.

Informal sector

The Informal sector includes private intermediaries, which are unregulated.

Long-term debt market in Bangladesh

Introduction to long-term debt market

Bangladesh capital markets are not conducive to the issuance of debt instruments viz.
debentures and bonds. There remains major structural issues in the long-term debt market such
as low investor base, absence of yield curve, lack of investor awareness, and high issuance cost.
Consequently, the long-term debt market still remains largely under developed to support
capital- intensive projects in the country. The commission has been undertaking steps to support
the market participants (issuers and investors) and to develop the capital market.

Issuance of Debentures
Debentures are unsecured debt instruments issued by listed companies. Historically, the coupon
rates offered by the issuers have been in the range of 14% to 17%. Currently, there are eight
debentures, which are listed on the Bangladesh stock market. However, the listed debentures
have reached maturity but are still listed due to some incomplete legal proceedings. A total of
USD 13.7 million was raised by the eight debentures.

Details of eight debentures listed on Bangladesh stock market

SL Name Units Unit price Total Amount Coupon Rate Year of issue

1. Aramit 20000 $30 600000 14% 1998

Cements
Limited
2. BD Welding 8000 $4.8 38400 15% 1999
Electrodes
Limited
3. Bangladesh 60000 $30 1800000 14% 1996
Luggage
Industries
4. Bangladesh NA NA 480000 14% 1995
Zipper
Industries
5. Beximco NA NA 3600000 14% 1995
Denims
Limited
6. Beximco NA NA 1440000 14% 1994
Fisheries
Limited
7. Beximco NA NA 2880000 14% 1994
knitting
Limited
8. Beximco 96000 $30 2880000 14% 1995
Textiles
Limited
Issuance of Listed Bond

The corporate bond market is still at a nascent stage as compared to the Treasury bond market.
Only three corporate bonds i.e. Islami Bank Bangladesh Ltd (IBBL) Mudaraba perpetual bond,
Advanced Chemical Industries (ACI) zero-coupon bond (matured) and BRAC bank subordinated
convertible bonds (matured) have been listed so far. Amongst the three corporate bonds, IBBL's
Mudaraba Perpetual Bond (MPB) is currently listed and traded in Bangladesh stock market as
IBBLPBOND. In 2007, IBBL bank issued MPB under the Mudaraba principles of Islamic
Shariah law and received approval from BSEC and Bangladesh Bank. The Investment
Corporation of Bangladesh is appointed as the trustee of MPB. The company issued three million
units with a minimum subscription amount of USD 59.2 (BDT 5000) and raised a total capital of
USD 35.5 million (BDT 3 billion) which qualified20 for additional Tier-1 Capital under BASEL-
III guidelines. As on 2017, the company has reportedly paid a total profit of ~USD 3 million.
However, the dividends paid by IBBL on MPB has declined to 8.6% in FY 2017 from 13.5% in
FY 2012.

Private Placement of Corporate Bonds

Apart from the above-mentioned listed bonds, corporates in Bangladesh have also raised funds
via private placement of bonds. Unlike private companies, local banks are fairly active in the
bond market and have raised funds by issuing subordinated bonds. Over the last three years21,
55 companies have privately issued bonds worth USD 2.7 billion. In 2018, bonds worth USD 1.2
billion were issued, which was 66.3% more than the capital raised by privately placed bonds in
FY 2017. The companies issued different types of bonds such as nonconvertible, redeemable,
and unsecured bonds at floating rates. More than 20% of the companies issued zero coupon
bonds. These bonds have a maximum maturity period of seven years. In 2018, the commission
gave approval to 20 issuers to raise a total capital of USD 1.2 billion via private placement of
bonds. These bonds would be sold to multiple banks, financial institutions, insurance companies,
corporate bodies, asset management companies, mutual funds, and high net worth individuals.
Amongst the 20 issuers , four Islamic banks i.e. Al-Arafah Islami Bank Limited, Islami Bank
Bangladesh Limited, Social Islamic Bank and Shahjalal Islamic Bank, plan to raise a total capital
of USD 276 million via subordinated bonds with floating rates, and with a maturity period of
seven years. Additionally, there are ten banks and three textile companies (Generation Next
Fashions Limited, Flamingo Fashion Limited, and Tarasima Apparels Limited), which will raise
a total capital of USD 768 million and USD 66 million, respectively via issuance of bonds.

Issuance of Listed Bonds

The corporate bond market is still at a nascent stage as compared to the Treasury bond market. Only
three corporate bonds i.e. Islami Bank Bangladesh Ltd (IBBL) Mudaraba perpetual bond, Advanced
Chemical Industries (ACI) zero-coupon bond (matured) and BRAC bank subordinated convertible bonds
(matured) have been listed so far.

Issuance of Corporate Debt Securities in Bangladesh: Private Offer

Fv Corporate Corporate Corporate Corporate Total (No. Total

bond in Bond Debenture Debenture.no of Amount
Bangladesh Outstanding Outstanding of companies Companies) Outstanding
(crore BDT (crore BDT (crore BDT)
2012-2013 5 750 0 0 5 750
2013-2014 8 3840 70 6 14 3910
2014-2015 12 2950 6.75 2 14 2956.75
2015-2016 13 4059.12 27.20 2 15 4086
2016-2017 4 2160 497.50 3 7 2657
2017-2018 29 10698 518.00 3 32 11216.50
2018-2019 23 12755 0 0 23 12755.00
Total 94 37212 119.45 16 110 38332.07
 Issuance of Corporate Debt Securities in Bangladesh: Public Offer

Serial No Corporation Bond/Debanture Year of Features Size (crore in BDT)

Issue

1 IBBL Mudaraba Perpetual Bond 2007 Profit Sharing 300.00

2 ACI 20% Convertible Zero- 2010 20% convertible 107.00

Coupon Bonds*

3 BRAC Bank 25% Subordinated 2011 25% convertible 300.00

Convertible Bonds*

At present, the public offering of corporate bonds is very limited as only one issue (the IBBL
Mudaraba Perpetual Bond, amounting to 300 crore Taka) is listed on the stock exchanges (DSE,
CSE). The total market capitalization of this listed corporate bond is BDT 282 crore in 2018-19,
where the secondary trading is very insignificant. Although there are a few subordinated bonds
issued by the banks, the major portion of those is currently being held by other banks through
private placement (which are not listed in the stock exchanges and thus, not contributing to the
development of the secondary market).

Private Placement of Corporate Bonds

Apart from the above-mentioned listed bonds, corporates in Bangladesh have also raised funds
via private placement of bonds. Unlike private companies, local banks are fairly active in the
bond market and have raised funds by issuing subordinated bonds. Over the last three years21,
55 companies have privately issued bonds worth USD 2.7 billion. In 2018, bonds worth USD 1.2
billion were issued, which was 66.3% more than the capital raised by privately placed bonds in
FY 2017. The companies issued different types of bonds such as nonconvertible, redeemable,
and unsecured bonds at floating rates. More than 20% of the companies issued zero coupon
bonds. These bonds have a maximum maturity period of seven years. In 2018, the commission
gave approval to 20 issuers to raise a total capital of USD 1.2 billion via private placement of
bonds. These bonds would be sold to multiple banks, financial institutions, insurance companies,
corporate bodies, asset management companies, mutual funds, and high net worth individuals.
Amongst the 20 issuers , four Islamic banks i.e. Al-Arafah Islami Bank Limited, Islami Bank
Bangladesh Limited, Social Islamic Bank and Shahjalal Islamic Bank, plan to raise a total capital
of USD 276 million via subordinated bonds with floating rates, and with a maturity period of
seven years. Additionally, there are ten banks and three textile companies (Generation Next
Fashions Limited, Flamingo Fashion Limited, and Tarasima Apparels Limited), which will raise
a total capital of USD 768 million and USD 66 million, respectively via issuance of bonds.

Issuance of Government Securities

The government offers two types of debt instruments i.e. tradable securities (Treasury bonds and
Treasury bills) and non-tradable securities.

a) Tradable Securities

Treasury Bills (T-Bills) are free of credit risks and tradable in the secondary market. The
government issues TBills with different maturity periods: 91 days, 182 days and 364 days. The
investors purchase T-bills at a discounted rate and then redeem at face value after maturity. In
FY 2018, T-Bills worth ~USD 7.0 billion were issued. The cut off yield for T-Bills increased by
approximately 5% in FY 2018 from a year ago. The volume of issuance of T-Bills is directly
linked to its yield rate. For example, the market share of 91 days T-Bills increased to 46% in FY
2018 from 32% in FY 2016 due to an increase in the yield rate. Moreover, the share of 364 days
T-Bills decreased to 27% in FY 2018 from 47% in FY 2016, due to a decrease in the yield rate
from 5.3% in FY 2016 to 5.0% in FY 2018.

b) Non-tradable securities

There are four types of non-tradable securities in the market, namely:

1. National Saving Certificates (NSCs): Five years Sanchayapatra, Pensioner
Sanchayapatra, Poribar Sanchayapatra, three monthly interest bearing Sanchayapatra
2. Bangladesh Prize Bond
3. Sanchayapatra: US Dollar Premium Bond, US Dollar Investment Bond, and Wage
Earners Development Bond
4. Special Purpose Treasury Bond.

These debt securities cannot be bought or sold in the secondary market. NSCs can only be
sold by National Saving Bureau, Bangladesh Bank, scheduled banks or post offices. The
interest rates offered for such certificates are in the range of 11.0% to 11.7%.

Issuance of Islamic Bond

Islamic bonds are issued against capital raised by individuals and Islamic banks. The sale of
Islamic bonds increased by 10.1% to USD 1.1 billion in FY 2018 from USD 1.0 billion in FY
2017. Any individual or corporation can purchase Islamic bonds issued by Islamic banks.
The bonds have a maturity of three months, six months, one year or two years. Unlike other
countries such as Malaysia, Indonesia and Saudi Arabia the use of Islamic bonds in
Bangladesh for financing long-term infrastructure projects has been minimal. Despite the
large presence of Islamic banks in the country, there is a lack of Shariah compliant
instruments to support the Islamic finance industry. This is because unlike other debt
securities, the return on Islamic bonds is based on profit or loss sharing in line with the
Shariah law. To ensure compliance with Islamic principles, the structuring of Islamic bonds
requires approval from Shariah advisers. Hence, the GoB does not borrow money from the
Islamic banking sector.

Investor Base

It is important to have a large and strong investor base to ensure the growth of bond market
in the country. Presently, the investor base in Bangladesh has not developed to satisfactory
levels. Amongst the institutional investors, banks and other financial institutions are the main
investors in debt securities market. Lack of a well developed investor base affects the
development of the bond market in the country.

Commercial Banks

As per the regulatory norms of Bangladesh Bank, conventional banks must have a Statutory
Liquidity Ratio (SLR) of 13% and Cash Reserve Ratio (CRR) of 5.5%. To comply with the
SLR norms, commercial banks prefer to purchase debt instruments offered by the
government. Banks therefore form the majority of the investor base, contributing to 77.1% of
the total amount invested in government securities. In addition to this, the commercial banks
also invest in privately placed subordinated bonds, which are issued either by banks or by
textile or power companies.

Insurance Sector

The insurance sector is potentially one of the most important investors in long-term
government securities. As per The Insurance Act, 1938, 26 insurance companies are entitled
to invest at least 30% of their funds in debt instruments. As per estimates, 48% (USD 1.7
billion) of the total insurance fund is invested in government securities. Another reason for
investment preference towards government securities is that the investments are secured, and
the funds can be withdrawn at any time. However, the presence of insurance companies as
investors in the private bond market is negligible

.Pension and Provident Funds

In Bangladesh, pension funds hardly participate in the capital market. In FY 2018, the
provident, pension and gratuity funds invested a sum total of approximately USD 615 million
in government securities. It is estimated that, approximately 40% of the pension funds are
invested in government securities. The GoB has plans to create an authority to manage the
provident and pension funds. Similar to other public schemes, the government plans to
introduce mandatory pension schemes in the private sector.

Mutual Funds
 The concepts of investment management and mutual funds are still in nascent stages in
Bangladesh. There are only 37 close-ended mutual funds and 46 open-ended mutual funds27
in the country. The Investment Corporation of Bangladesh (ICB), a public mutual fund,
dominates the mutual fund market. ICB provides five Islamic mutual funds- UFS Padma life,
Islamic Finance and Investment Limited (IFIL), Al-Arafah Islmai Bank Limited and Islamic
Bank Bangladesh Limited The government’s initiative to onboard private sector players has
led to more than 25 private mutual funds schemes operating in the country. According to
mutual fund investment policies, a minimum of 60% of the total fund base is required to be
invested in capital markets. AMCs, which manage the funds collected via mutual funds
schemes, prefer to invest in blue chip stocks to ensure that their risks vs. returns are balanced.
In addition to this, AMCs can invest a maximum of 25% of the fund in fixed income
securities like NSCs (interest rate: 11.0% - 11.7%) and fixed deposits (interest rate: 5.5% -
9%). These fixed income securities are less risky and offer higher interest rates, as compared
to privately placed debt securities like bonds and debentures where the risk is significantly
higher, and the returns are relatively lower. Lack of any tax incentives on income generated
from privately placed debt securities deter AMCs from investing in them. While, there have
been instances of AMCs investing in privately placed bonds, they have been more inclined
towards investing in securities, which are transferable or tradable.

Individuals

Privately placed bonds have witnessed participation from individuals with high net worth. In
2010, 12 individuals invested a total amount of USD 1.4 million28 in the bonds issued by
ACI. However, as Individuals have a low appetite for risk, they prefer to invest in equity
market and government debt securities where the returns are predominately higher.

Market infrastructure
Smooth operations of the bond market require a robust market infrastructure. At a fundamental
level, the bond market can play a vital role in financing long-term infrastructure projects and in
reducing fiscal deficits of the government. The development of bond market is especially crucial
in Bangladesh, where companies do not have access to long-term financing options. There are
three forces viz. external forces, internal forces, and intermediate forces, which influence the
Bangladesh bond market infrastructure.

External Forces of the Bond Market

Country profile

Bangladesh’s stability has paved the way for it to achieve the status of a developing country. The
government has introduced consistent policies and improved trade with partners across multiple
countries. In an effort to promote business opportunities, and overcome energy crisis and
infrastructural inefficiencies, the government has poured significant sums into the infrastructure
sectors. In 2018, Moody’s Investor Service affirmed the country’s long-term issuer and senior
unsecured debt rating at Ba3 and has maintained a stable outlook.

Macroeconomic situation in the country

In FY 2018, the Bangladesh economy achieved a record growth of 7.9%. Bangladesh Bank has
projected a GDP growth in the range of 7.5% to 7.7% in FY 2019. The country’s stable
economic growth can be attributed to effective implementation of framed policies. The growth
will additionally be supported by exports from the competitive RMG industry. Further, the
country witnessed an increase in remittance inflow by 36% from USD 11.0 billion in FY 2010 to
USD 15.0 billion in FY 2018. High remittance inflows act as a catalyst to the economic growth.
The country’s economic growth is additionally supported by an increase in private sector
investment by 14.6% to USD 54.8 billion and in public sector investment by 26.8 % to USD 17.6
billion in FY 201729. Additionally, external financing from bilateral and multilateral agencies
has been supporting multiple infrastructure and social projects. The inflation rate has reduced
from 5.7% in December 2017 to 5.5% in December 2018. However, the risks due to an external
vulnerability remain because of higher imports of fuel and infrastructure related products.
Foreign reserves reduced from USD 32.3 billion in FY 2018 to USD 31 billion as of January
2019. To stabilize the foreign exchange market, the central bank sold USD 1.2 billion in January
2019 and USD 2.3 billion in FY 2018 to various banks. According to Moody’s report, current
foreign reserves are sufficient to cover five to six months of imports.
Intermediate Forces of the Bond Market

1.Government Securities:

The government issues debt instruments such as T-Bonds, T-Bills and NSCs to reduce its budget
deficit. The central bank, on behalf of the government, is responsible for issuance and marketing
these debt instruments. The debt securities market in the country is dominated by the government
debt instruments, which offer higher returns as compared to returns provided by the bank deposit
products. Further, even higher returns on NSC schemes incentivize individuals and companies,
who have a low appetite for risk, to invest in them. Due to high demand of NSC products, the
government had to cancel auctions of T-Bonds and T-Bills.

Secondary Market

Absence of a benchmark yield curve and lack of debt instruments renders the secondary market
inactive. As a result, there has hardly been any public issue of corporate bonds in the bond
market. Given the small size of government’s tradable bonds, secondary trading of T-bonds is
also a rare phenomenon. Recently, Bangladesh Bank undertook an initiative to introduce the
concept of repo and reverse repo rate in order to activate the secondary market. Additionally,
Bangladesh Bank has issued multiple guidelines and increased the primary dealer base to
promote trading of government securities in the secondary market. The central bank is in the
process of developing an electronic payment system , to strengthen the corporate governance and
improve transparency. It will help set a benchmark market rate to assist the secondary trading of
debt securities. That said, the secondary bond market in Bangladesh is still non-existent and the
bonds are considered as non-tradable assets.

Internal Forces of the Bond Market

1. Issuers: The country lacks both quality and quantity of issuers of debt securities. At
present, only eight debentures and one corporate bond exist in the Bangladesh debt
market. Further, the credibility of the issuers is also questionable, which has been a major
concern for the investors. In the past, a few corporate debentures have defaulted in their
payment to the investors. In addition to it, high costs of issuing debt securities
 (approximately 1.5%-2%30 of total face value) have prevented issuers from issuing
bonds or debentures.
2. Investors: Domestic investors prefer to invest in high returns and low risk government
securities. There are large number of institutional investors like insurance companies,
mutual funds and other private financial institutions, but they do not invest in the private
bond market. Pension and provident funds on the other hand are used by the government
to fund ADP and to reduce budgetary deficiencies. Likewise, individual investors prefer
to invest in common stock of listed companies, as the yields from the bond market are not
attractive enough for them. This leaves a very small pool of investors in the bond market
comprising mainly banks and financial institutions. Moreover, owing to past incidents of
defaults in payment, the investors have poor confidence in the issuers, the legal and
regulatory framework and the market.
3. Intermediaries: The capital market is supported by two stock exchanges, the DSE and the
CSE. Further, there are 62 merchant banks, eight credit agencies, and 16 funds
managers, five trustees for asset back securities, eight trustees for mutual funds and 83
trustees for debt securities. The BSEC regulates these intermediaries. However, the
intermediaries are not robust enough to support the bond market.

Current market procedures for issuing a bond

BSEC regulates the activities in the capital market. It has formulated the following regulations

1.Securities and Exchange Commission (Issue of Capital) Rules, 2001: These rules are
applicable for public or private companies raising capital

2. Securities and Exchange Commission (Public Issue) Rules, 2015: These rules are applicable
for public issuance of debt securities or IPOs (fixed price and book building method) in the
Bangladesh market.
3. Securities and Exchange Commission (Private Placement of Debt Securities) Rules, 2012:
These rules are applicable for a company issuing privately placed debt securities (corporate
bonds, subordinate bonds, zero-coupon bonds, and short-term bonds); and For asset-backed
securities, the commission has formulated separate rules under the Securities

4. Exchange Commission (Asset - Backed Securities) Rules, 2008.

Additionally, BSEC has separate regulations for intermediaries. The commission has approved a
list of merchant bankers, credit rating agencies, asset management companies, trustees and fund
managers who are eligible to provide various services with respect to the capital market.

Key regulations for issuers

From the issuer’s perspective, high transaction costs of bond issuance has been one of the major
deterrents. Approximately, 1.5% to 2% of the total issuance cost is spent towards registration
fees, stamp duties, issue manager fees, underwriting fees, credit rating, legal and auditing fees,
central depository fees, and listing fees. Further, the trustee fees can be as high as 5% of the total
issue value. Additionally, the registration fees for bond issuance is higher as compared to the
registration fees for issuance of debentures. Considering the timelines mentioned in Securities
and Exchange Commission (Private Placement of Debt Securities) Rules 2012, it would take
approximately three to four months for an issuer to receive all the approvals from BSEC.
However, the ecosystem in Bangladesh is such that it would take a minimum of 6 to 12 months
to raise the bonds. As a result, the issuers prefer to avail loans from banks in lesser duration with
minimum efforts. As per the commission, below mentioned are the fees that shall be paid by the
issuers:
 Fees charged by BSEC for issuance of privately placed debt securities

Particulars Value
Application Fee BDT 10,000 or $120
Consent fee 0.01% of total face value
Trustee fee Maximum 0.3% of the outstanding amount of debt
securities

Trustee registration fee BDT 50,000 or $ 600

Note: Apart from the above-mentioned fees, there are other costs such as legal and auditing fees,
central depository fees, listing fees, and fees associated with printing and publication of certificates and
prospectus. For an issuer to privately place debt securities, the commission has formulated
guidelines under the Securities and Exchange Commission (Private Placement of Debt
Securities) Rules, 2012. As per the guidelines, there are a set of pre-conditions, which the issuer
needs to fulfil before making an application for issuance of debt bonds or debentures. The pre-
conditions are mentioned below:

1.The total debt of the issuer shall not be more than 60% of the issuer’s total tangible assets;

2. The issuer should either have a proven track record of profitability and liquidity or have
indicated in its financial projections significant profitability, liquidity and ability to payback;

3.The issuer’s company should provide its rating from one of the eight credit rating agencies
registered with BSEC

4. The issuer should have a valid enforceable interest over its assets and the right to create
charges during the course of issuance of debt instruments

5 .The issuer shall obtain all necessary approvals from its primary regulator to issue debt
securitiesThe issuer should appoint a trustee, registered with the commission

6.The issuer’s financial statements must have been prepared as per Bangladesh Accounting
Standards (BAS) and audited as per Bangladesh Standards of Auditing (BSA)
7.If the issuer is a private company, then it should get prior approval from its Board of Directors
or governing body to issue the debt instrument

8.If the issuer is a listed company, then the issue of debt instruments should be approved by the
board and at the general meeting.

On fulfilment of the above-mentioned conditions, the issuer will perform the following tasks:

Tasks to be performed by an issuer on fulfilling the pre-conditions set by BSEC

Particulars Details

Application for consent to issue bonds 1.The issuer shall pay an application fee of $120.

2. The issuer shall submit an information

memorandum, which shall contain its audited financial
statements, purpose of issuance of bonds, description
of business and disclosure of price sensitive
information if the issuer is a listed company
Consideration of the application 1.BSEC will accord Consent to Issue (CoI) within seven
working days
2.If the application does not fulfil the requirements,
then the issuer shall provide the necessary
documents.
Review of application If the application is rejected by BSEC, then the issuer
may apply for review within 30 days from the date of
rejection by BSEC
Consent fee 1.On approval of the application, the issuer shall pay a
fees equivalent to 0.01% of the total face value within
15 days to BSEC
2.If the issuer fails to pay the fees, the application will
be rejected by BSEC
Conditions, which need to be fulfilled after receipt of CoI (valid for a year), are mentioned
below:

1. The issuer should execute the deed of trust as approved by BSEC in favour of the trustee

2. The issuer shall create charges over assets in favour of the trustee (only applicable for
issuance of secured bonds)

3. The issuer should provide a guarantee in favour of the trustee

4.The trustee should submit a report to the commission stating that all guarantees as per the trust
deed, agreements and information memorandum have been properly executed.

5. The issuer should submit a report on the issue of debt instruments to BSEC within 30 days

6. The issuer should submit audited financial statements as per BSA, annual report, and minutes
of annual general meeting within 14 days from the date of CoI

After obtaining the CoI and making the appointment of a trustee, the issuer can issue debt
securities to eligible investors viz. banks, insurance companies, financial institutions, mutual
funds, provident and pension funds, corporates, primary dealers, and individuals (resident and
non-resident). In case of any violation of the rules, the respective person/s will be subject to civil
and criminal penalties as per the law. Upon compliance of the requirements of Securities and
Exchange Commission (Private Placement of Debt Securities) Rules, 2012, the issuer can issue
debt securities through a public offer. As per the Securities and Exchange Commission (Public
Issue) Rules, 2015, the issuer needs to comply with the following conditions at the time of
making a public offer:

1.The issuer should have an existing paid up capital of BDT 150 million or USD 1.8 million.

2. The issuer or any of its directors should not be a bank defaulter.

3. The issuer should not have accumulated retained loss.

4.The issuer should comply with the rules of preparing a prospectus and corporate governance
guidelines.
5.The valuation of assets should be conducted as per the guidelines mentioned by the
commission.

Upon compliance with the above conditions, the issuer shall submit the application. The issuer
shall be then required to appoint an issue manager and an underwriter, registered with the
commission. The issue manager is responsible for the issue of debt securities, while the
underwriter subscribes to the securities and pays (in cash) the issuer within 15 days. The fees
associated with the underwriter an issue manager shall be paid by the issuer. In addition to this,
the issuer will be required to publish the prospectus/information memorandum on its own
website as well as on the issue manager’s website.

Key regulations for investors

Banks

It is mandatory for conventional banks to maintain an SLR of 13%34 and for Islamic banks to
maintain it at ~ 6%. SLR can be maintained in the form of cash, gold or debt securities (as
approved by the commission). This makes the SLR requirement for the banks the biggest driver
of the demand for government securities. As per the central bank norms, the market value of
investments in the capital market (including bonds) cannot exceed 50% of the bank’s total paid
up capital. While this restriction strengthens the bank’s capital base, it restricts the amount that
the banks (who are major investors in the bond market) can invest in bonds.

Insurance companies

Insurance companies are potentially one of the most important investors in the bond market.
State owned insurance companies such as Sadharan Bima Corporation and Jiban Bima
Corporation, have invested a majority of their funds towards government securities, debentures
and shares. Life insurance companies have long-term and predictable liabilities, which help them
use their funds wisely. As per The Insurance Act, 1938, life insurance companies are mandated
to invest at least 30% of their funds in government securities in order to maintain their statutory
reserves.

Mutual funds

Mutual fund companies can invest their funds in securities or debentures approved by BSEC or
Bangladesh Bank. The funds can also be invested in privately placed debentures. However, the
companies cannot invest more than 25% of their total assets in securities or debentures of any
one industry. In addition to this, they cannot invest more than 20% of their total assets in
debentures or securities of a single company or group.

Individuals

Bangladesh Bank offers non-tradable35 US Dollar premium bonds and wage earner development
bonds to individuals of Bangladesh. Bangladesh Bank has formulated The Wage-Earner
Development Bond Rules, 1981 and The US Dollar Premium Bond Rules, 2002. The key
regulations around these bonds have been mentioned overleaf.

Details of US Dollar Premium bonds and Wage Earner Development bonds

US Dollar Premium Bonds Wage Earner Development Bonds

Eligible Investors Non-residents (Bangladesh

nationals residing abroad)
Face value $500 to $50,000 $300 to $60,000 (BDT 25,000 to
BDT 5 million)
$300 to $60,000 (BDT 25,000 to Three years Five years
BDT 5 million)
Coupon Rate 7.5% for 36 months 12% for sixty months

Payment of interests Semi-annually Semi-annually

Commission to Dealers/Agents 0.5 % on total face value of the
purchase (paid by Bangladesh
Bank)

Key benefits in bond issuance:

The National Revenue Board has developed various tax benefit schemes for individuals investing
in the debt securities market while no such tax benefits are available for banks, financial
institutions or insurance companies. However, resident companies are exempted from taxes on
capital gains that arise from the transfer of government securities. The government needs to offer
further financial incentives in order to attract more investors to the Bangladesh bond market.
According to The Income Tax Ordinance 1984, any income derived from zero-coupon bonds by
a person other than a bank, an insurance company or a financial institution is exempted from tax.
The tax benefit is only applicable if the zero-coupon bond (if issued by the banks, financial
institutions and other companies) is approved by BSEC or Bangladesh Bank. The details of the
tax benefits to individuals are highlighted below-

1.An individual is entitled to a tax rebate (as mentioned below) on any sum invested in
government T-bonds and Sanchayapatra.

2. In addition to this, an individual is entitled to tax exemption on the income generated from US
dollar premium bond, US dollar investment bond, wage earner bond, and Euro and Pound
Sterling premium bond.

Tax rebate for individuals investing in Treasury bonds and Sanchayapatra

Total Income Tax Rebate

Less than $12,000 (BDT 1 million 15%
Over $12,000 (BDT 1 million) to $36,000 (BDT 3 15% on $3,000 (BDT 250,000) and 12% on the
million) balance amount

Over $36,000 (BDT 3 million) 15% on $3,000 (BDT 250,000) , 12% on next $6,000
(BDT 500,000) and 10% on the balance amount

Comparison of Bangladesh Bond Market with Other Asian Countries:

Corporate bond markets in Asia differ widely in size (Gyntelberg at al 2005). It is notable that
the corporate bond market developments in Asia are not quite successful so far. Many countries
in Asia still heavily rely on banking sector to meet with the demand for funding from company
side (Hawang 2016). Compared with the other Asian countries, Bangladesh bond market is
rather small and has played a limited role in its economy. The current outstanding amount of the
bond market of Bangladesh (G-Sec and corporate) is a small percentage of the GDP. In
comparison with some other developing countries in Asia, the outstanding amount of the
Bangladeshi bond market gets significantly dwarfed. With respect to their GDPs, the
comparative scenario of the outstanding amount of the respective bond markets at the end of the
FY 2017-18 is South Korea is in the higest position and then
China,Malayshia,Thailand,Singapore,Vietnam,Phillipions,Bangladesh. the size of Bangladesh
corporate bond market is very small(7.34 USD Billion) compared to other Asian countries like
China (2155 USD Billion) and South Korea (1010.85 USD Billion). Therefore, corporate bond
market in Bangladesh evidently has a long way to go. Furthermore, as shown in Figure-3,
Bangladesh is rather underdeveloped compared to the neighboring countries. The size of total
corporate bond in percentage of GDP seems very lower (0.001%) compared to South Korea
(74.44%), Malaysia (43.41%), Singapore (34.21%), Hongkong (30.83%), Thailand (20.32%),
and China (20.11%).The local currency bond market in Asia, increased significantly by 12.7% to
USD 5,370 billion in FY 2018 from USD 4,771 billion in FY 2017. China dominates the Asian
local currency bond market with 47% share, followed by South Korea and Japan. Indonesia,
Philippines, Vietnam and Bangladesh have smaller bond markets as compared to other Asian
countries. The presence of secondary market has played a vital role in the development of bond
market in Asian countries. As a percentage of GDP, in 2018, South Korea had the largest
corporate debt market (73% of GDP) followed by Malaysia (46% of GDP). In India, the
corporate bond market is 16% of GDP. In Indonesia, 87% of the total outstanding bonds are
traded in the secondary market, followed by 70% in India.

Problems and Challenges of Bond market in Bangladesh

The corporate bond market in Bangladesh is almost non-existent, with only two bonds listed in
the prime bourse at present. But the market needs to expand and now is the time to start working
on the issue. The opportunity we have here is we do not have any established bond market at
present.

The Need for a Vibrant Long-Term Bond Market

A developed and diversified financial system with a sound debt and equity market enhances
risk- pooling and better risk-sharing opportunities for the investors and borrowers. The fixed-
income securities market links the issuers having short and longterm financing needs with
investors willing to place funds in short and long-term interest-bearing securities. It also makes
the financial market more competitive by generating market-based interest rates. A well-
functioning market offers the Government and the private investors the flexibility to diversify
their sources of funding and provides them with alternative sources of raising funds having
different maturities. Therefore, a vibrant fixed-income market is needed for several reasons:

1. An active market allows the Government to finance large fiscal deficits without resorting
to financial repression or foreign borrowing. For that reason, the drive for the
development of the government bond market typically comes from the Government to
facilitate the financing of large fiscal deficits.
2. . The development of a well-functioning fixed-income market supports the efficient
implementation of the monetary policy. It offers the instruments needed for the execution
of monetary policy and improves the transmission mechanism of the monetary policy.
Long-term bonds also facilitate the sterilization operations by the central bank as
exclusive reliance on short-term instruments tends to drive up the short-term interest rates
and encourage further inflows into such instruments.
3. The development of a bond market, especially a vibrant G-Sec market, can improve
access to local currency financing. An active G-sec market can offer local currency
investors, such as retail and institutional investors, a way to invest in the local currency,
and therefore, ensure better management of inflation and exchange rate risk. They are
also provided with a safe alternative investment compared to local currency bank
deposits.
4. The long-term fixed-income market, being accessible to foreign investors, increases
financial integration by attracting foreign capital, which can lower the cost of borrowing
for the Government and improve risk-sharing across countries.
5. Whilst the stock market capitalization of about 20% of the total financing requirement is
well below the regional peers, the long term debt market is almost non-existent (World
Bank Group Report on Bangladesh Capital Markets, August 2018). This means, 80% of
debt financing comes from the banking sector, which cannot lend longer than around 5
years, given that 70% of bank deposits are for 1 year or less (Scheduled Banks Statistics,
October-December, 2018). Financing long-term projects by borrowing from the banking
sector’s short-term deposits could pose a major systemic risk and wider maturity
mismatch in the industry, which negatively affects the banks’ resilience in regards to the
liquidity crisis. Moreover, to materialize the objectives of the Vision-2021, our economy
needs to achieve 8+% growth of the GDP, which is not probable solely depending on the
bank-financing
6. Moreover, the local currency government bond market can function as a catalyst for the
development of corporate bond markets by providing a benchmark yield curve. Similarly,
derivatives markets cannot flourish without a well-developed fixed-income market with
underlying assets
7. Without the presence of a vibrant corporate bond market, corporate lending by the
banking system becomes oversized leading to maturity mismatch in the market. In
Bangladesh, corporations tend to fund their long-term projects using loans from
commercial banks. As we know, the banking deposits are chiefly of short-term tenures (3
months to less than 1 year). At present, around 70% of the deposits are within the 1-year
bucket. Therefore, funding long-term assets with short-term liabilities creates a huge
maturity mismatch in the banking sector.

Facing those aforementioned challenges, the banking sector is always under pressure to
accumulate more deposits to address the maturity mismatch in their books. This creates
an uneven competition in the market affecting the interest rates. In this context, in the
absence of a long-term bond market, banks are financing long-term projects with the
tenors of the loans that are indeed shorter than actually needed. This leads to the
installment size of those loans becoming oversized to the capacity of the borrower, which
ultimately creates asset quality impairments and overdue loan repayments leading to
Nonperforming Loans (NPL).
 Investors’ Perceptions on Corporate Bond in Bangladesh
In this section researchers tried to reveal investors’ perception about corporate bond in
Bangladesh. More than 92% of the respondents judge the corporate bond market in
Bangladesh as inefficient one. Majority (49%) of the investors have shown their
investment preferences on the common stock of listed companies. Besides, 35% of them
are interested to invest their fund in commercial bank deposit whereas only 7% of
investors are exposed their preferences to invest in bond and the rest of the investors like
to invest in other sectors. Among the 7% (mentioned above) of the investors who have
shown their interest to invest in bond, it is found that46% of them have preferred to
invest in corporate bond reasoning its ‘Fixed Periodic Income’innature.19% of them have
expressed the reason of ‘Less Risk’ factor. Moreover, ‘Convertible Feature’ (15%),
‘Capital Gain’ (15%) and ‘Tax Advantage’ (5%) have also denoted by this group as the
vital reasons for preferring corporate bond. To identify the investors’ preferred sectors to
invest in corporate bond, it is found that 57% of the investors prefer to invest in the
banking sectors’ bond, and rest 43% of them prefer to invest in other corporate sectors’
bond.

Major Hindrances to Develop Corporate Bond Market in Bangladesh:

Corporate bond market is an evolving sector for Bangladesh capital market. Bond markets may
improve efficiency in an economy and reduce vulnerability to financial crises (Herring and
Chatusripitak (2000). To ensure the development of this market some significant factors need to
be considered. Nearly 84% of respondents have claim ‘Inadequate Platform’ as one of the key
hindrances to develop the bond market in Bangladesh. Followed by this ‘Insufficient Number of
Bond Issuing’ (80%), ‘High Return on Stock Market or Money Market’ (76.2%), ‘Investors
Unawareness’(75%) are also prioritized by respondents as the major obstacles to develop the
corporate bond market in this country. Existing Impediments in Developing the Government
Bond Market and Recommendations to Resolve the Issues

Proper Cash Management

At present, without proper cash forecasting with respect to government borrowing, the
Government cannot adopt a clear issuance strategy. As a result, the public sector
borrowing is riddled with a lack of clarity that fails to offer any reliable demand-supply
scenario. Consequently, the Government fails to implement the auction calendar
properly, under which an efficient G-sec market cannot function. Thus, the lack of sound
cash forecasting and frequent shifts/instability of demand hinder the development of the
bond market. Moreover, with its current role, CDMC focuses only on the cash and debt
management of the Government.
Recommendations:
The Government should adopt a clear issuance strategy and conduct proper cash
forecasting in every financial year. In this regard, the Finance Division, MoF should
establish a central IT-based cash management cell, where all the stakeholders (different
line ministries) could input their expenditure and revenue plans periodically. Moreover,
CDMC may focus on the development of the financial market along with the cash and
debt management of the Government. CDMC may also adopt a policy in regards to the
management and investment of the surplus cash amount in the market by exploring
alternative investment opportunities.

Implementing Agency: Finance Division

Introduction of a Medium-Term Auction Calendar
The Government formulates an auction calendar for T-bonds and T-bills, but the offer
amounts are not dictated by a clear debt management strategy, rather considered as the
source to collect residual volume after NSS borrowings. As a result, sometimes the
Government cancels the auctions of government securities or issue a lesser amount
through the auctions due to a huge cash surplus in the government accounts maintained
with Bangladesh bank. Because of the frequent changes in the auction calendar, the
investors cannot forecast the supply of the government securities leading to affecting
their investment plans.
Recommendations
The Government should prepare a concrete auction calendar based on budgetary needs as
per the annual borrowing plan. The Government needs to publish an auction calendar at
least on a half-yearly basis and conduct auctions as a preannounced auction calendar. The
auction should not be frequently canceled or changed. If there are regular auctions, the
supply of securities will be available to the investors. It will create confidence among the
investors regarding the consistent supply of G-Sec, thus ensuring the frequency and
volume of trading.

Open-Limit on the Sale of Savings Certificates

The interest rate of savings certificates is almost one and a half times as much as the
interest rates on T-bills and T-bonds. The rate of interest of 5-year T-bond is 8.10%,
where the interest rates of 3-year and 5-year savings certificates are 11.04% and 11.28%
respectively. The increased interest rate on savings certificates induces the public to
purchase more, which in turn compels the Government to cut short the borrowing from
the banking sector. Thus, high-interest rates on savings certificates as well as the
Government’s open-tap policies regarding its sales are crowding out corporate borrowers
and bank deposits in comparable tenures. As a result, the overreliance on NSS (e.g.
Shanchaypatra) is affecting the government debt market by-
1.Reducing the size of the tradable government bond market Distorting auction strategies
and treasury operations
2.Impacting the maturity structure of the deposits in the banking sector
3. Distorting market rate of interest (risk-free rate, govt. securities rate), which is much
higher than the risk-added rate.
Recommendations
The Government should fulfill the fiscal deficit based on the target set in the budget from
the banking sector. To fulfill the borrowing from the banking sector as per the budgetary
plan, the Government should sell the NSD instruments only to the targeted people (senior
citizens, low-income people, etc.). While adding a social security premium with the
market interest rate, the yield of the savings certificates could be set in line with the yield
of the tradable securities
Implementing Agencies: Internal Resources Division and Finance Division
Lack of Benchmark Securities
At present, there is no benchmark G-sec in Bangladesh. The outstanding balance of govt.
securities against a single ISIN is BDT 3,000 crore in the market, which is not sufficient
to build benchmark securities. As a result, it is difficult to identify the benchmark
securities and without benchmark securities, it is reasonably tough to construct a
benchmark yield curve.
Recommendations: To build a vibrant and efficient secondary market of G-sec, we need
to identify the benchmark securities in the market. Those securities would be traded more
frequently and thus, function as a benchmark for trading. Moreover, we should ponder
issuing securities with even longer tenors (e.g. 30-year, 40-year) as well as increasing the
upper limit to make the benchmark securities more effective.
Absence of an Effective and Realistic Secondary Yield Curve
The secondary market yield is a risk-free rate, which is used as a benchmark rate in
pricing the corporate bonds. The absence of a yield curve makes it difficult for the
multilateral and corporate to pursue off-shore local currency bond issuance. It is also
holding back the issuance of foreign currency-denominated infrastructure project bonds
or housing bonds. In spite of a few limitations, BB is constructing the yield curves for
both primary as well as secondary debt market. The primary yield curve is well
functioning and all market stakeholders are using it for the pricing purpose. However, the
secondary market's yield curve is still at its earlier (test) stage due to the limited
secondary transaction of G-Sec. The published secondary market yield curve will be
helpful to determine the movement of interest rates in the economy. It will also be helpful
for the valuation of the Held-for-Trading (HFT) securities

Recommendations
With a higher frequency of trading in the secondary market, we will be able to construct
and publish a more effective secondary market yield curve on a regular basis for the
pricing requirements of the securities. In this regard, the frequency of trading in the
secondary market should be increased. Moreover, Bangladesh Bank should check
whether the already developed secondary market yield curve fulfills the international
standards.
Unavailability of Two-Way Price Quoting
Like any efficient market, the primary dealers should quote two-way prices in the market.
At present, the PDs do not quote on a two-way basis, rather only quote either on the buy
or the sale of the book because of the absence of benchmark and available securities in
their holding. Furthermore, at present, there is no infrastructure allowing the PDs to quote
two-way prices.
Recommendations:
BB should consider selecting the benchmark securities that are liquid enough for the
primary dealers to be able to quote on a two-way basis in the secondary market. The
infrastructure should be established to facilitate the two-way price quoting system.
Moreover, the PDs should be directed to quote two-way on a daily basis; and thus,
making the secondary market more efficient by bringing in the required liquidity
Introduction of a Central Counterparty (CCP)
Investors, especially foreign investors, always concentrate on legal protection and
safekeeping services while investing. They also keep in mind the counterparty risk in
case of a default by the counterparty. In Bangladesh DvP (Delivery versus Payment)
system is followed for the transfer of G-Sec to avoid settlement risk. But to avoid the
counterparty default risks of corporate bonds, we need to have a CCP (Central
Counterparty) and specific guidelines. We still do not have central counterparty along
with clear guidelines for G-sec as well as for the corporate bonds to avoid such
circumstances which discourage some banks from trade in the market.
Recommendations
To reduce the risk associated with the counterparty, to maintain the securities balance
through SGL and IPS, to ensure secure transfer of securities and secondary trading of G-
sec, BB should have a depository guideline for the smooth functioning of those activities.
Moreover, BSEC and BB should also focus on analyzing the feasibility of introducing a
legal entity like CCP to mitigate the settlement risks for the G-Sec and corporate bonds.

Majority of the Portfolio Being in Held-to-Maturity (HTM) Category

As per Bangladesh Bank DOS circular no. 01/2014, PD banks are allowed to maintain
GSec in HTM up to 125% (Non-PD-110 %) against the SLR requirement of their
holding. As a result, to avoid revaluation loss in HFT, they maintain the maximum of
their holdings in HTM, which they cannot trade in the secondary market. Moreover, the
maximum portion of G-Sec is in the portfolio of the state-owned banks. But, their
contribution to the secondary trading of G-Sec is very insignificant. This scenario deeply
impedes the development of the G-sec market.
Recommendations:
Based on the market conditions, HTM and HFT portfolios should be restructured/revised
from time to time.
Absence of Established Pension/Provident
Funds By law, the Government of Bangladesh provides a pension to its civil servants
upon retirement, but that is administered based on annual budget allocation. As such,
there is no separate public or private pension fund as of now. The Government’s defined
benefit pension scheme for civil servants operates on a non-funded, pay-as-you-go basis.
It is estimated that semi-government and autonomous bodies’ provident funds’ assets are
mostly invested in the NSS instruments.
Recommendation:
The Government should consider forming separate pension funds for the civil servants
rather than depending on the budget allocation every financial year and invest the amount
accumulated in those funds in tradable government securities. Moreover, the Government
may consider establishing a separate regulatory body to formulate policies and to regulate
the entities dealing with public and private pension funds. On the other hand, the
Government-owned companies, corporations, semi-government, autonomous
corporations and corporations/organizations in the private sector may be directed to
invest a certain percentage of their provident and gratuity funds in government bonds
instead of NSS instruments.

Existing Impediments in Developing the Corporate Bond Market and Recommendations

to Resolve the Issues
Prolonged Approval Period
Although as per the Securities and Exchange Commission Private Placement of Debt
Securities Rules, 2012, consent for the issuance of debt securities is accorded within 7
(seven) working days of receipt of a complete application, the time length of the approval
process in practice (which is much longer than stipulated 7 days) creates disincentives for
the issuers of the corporate bonds. For issuing any corporate bond, approval from the
BSEC is mandatory. Moreover, as per the Securities and Exchange Commission (Private
Placement of Debt Securities) Rules, 2012, the issuer needs to obtain necessary
permissions or consents from its primary regulator to issue debt securities. Therefore, for
banks and NBFIs, an NOC from BB is required in issuing bonds. This process takes up a
significant time, which discourages the corporate entities to issue bonds in order to raise
funds. As the approval process from the BSEC usually takes a certain period, the targeted
price and other market parameters change during that period.

Recommendations:
Approval times from BSEC may be reduced so that the targeted price and other market
parameters would not change. The required time to get approval for issuing a corporate
bond should be adjusted accordingly while simplifying the process.

Issuance of Bonds in Multiple Steps (Shelf Offering)

At present, we have the framework for the bonds to be approved and issued in one-shot.
As the issuers raise the whole amount in a one-shot, they sometimes struggle to utilize the
funds accordingly as normally the projects are implemented phase by phase. At present,
the shelf-offering is approved on-demand only in case of private placements.
Recommendation:
In case of public offerings, an alternative method should be considered that allows the
issuers to get the approval in one step, while the issuance process lasting over a specified
period in multiple steps according to the utilization capacity of the issuer. This process
would ensure the efficient utilization of the funds.

Absence of Debt Instruments Issued by Different Government Bodies

At present, different government corporations/autonomous bodies/Local Government
bodies/utility companies (e.g. BPC, PDB, ICB, HBFC, Power Generation Companies,
and Bangladesh Railway) make their expenditures from the allotted amount in the
national annual budget. Various organizations like these from our neighboring countries
raise funds for their long-term projects through the issuance of bonds. Recommendation:
The Government corporations/autonomous bodies/local government bodies/utility
companies (e.g. BPC, PDB, ICB, HBFC, Power Generation Companies, and Bangladesh
Railway) could raise funds for the long-term projects by issuing bonds (backed by
government guarantees). Additionally, to avoid the crowding out effect, emphasis should
be given in promoting increased issuance of corporate debt instruments along with
increased issuance of the government securities.
Bonds Issued By Banks through Private Placement
Not Being Listed Banks can fulfill their capital requirements with the private placement
of Tier-II subordinated bond issuances. However, in practice, these have largely been
purchased by other banks/FIs, which do not contribute to the development of the
secondary market. Recommendation: BSEC may consider taking steps to enlist the bonds
issued through private placement. Furthermore, BSEC may also consider taking steps to
encourage the corporate bodies in issuing bonds to raise funds; and consequently,
increasing the number of corporate bonds available in the market for investment.
Overreliance on Bank Financing
In practice, credits through commercial banks are easier, cheaper and quicker. In contrast,
issuing debt instruments/raising debts through the capital market is subject to higher
issuing costs and rigorous regulatory due diligence/approval process by BSEC, which
takes a longer time. Due to this, rather than obtaining funds by issuing bonds, the
majority of the corporations currently prefer bank-financing. Moreover, the current 24 | P
a g e 5|Corporate Bond Market practice of multiple times rescheduling/restructuring of
loans encourages the corporations to prefer bank financing over debt securities issuance.
This not only overburdens the systemic risk of the banking sector but also hinders the
development of the bond market. Recommendation: Policy measures should be taken to
ensure a competitive interest/cost structure for the bonds in competition with bank
financing. In this regard, BSEC may conduct further studies to determine the
aforementioned structure to smoothen the bond issuance process. Furthermore,
Bangladesh Bank may consider revisiting the policies regarding loan
rescheduling/restructuring to make those more rigorous and stringent.
Absence of Instructions on Mandatory Issuance of Bonds
Reaching a Debt-Ceiling At present, almost all corporations depend on bank financing to
finance their total long-term projects rather than raising funds through the issuance of
corporate bonds or other debt instruments. This practice can pose a major threat to the
asset-liabilities management strategies of the banks and NBFIs as well as making the
private financing market a lopsided one. Recommendation: The corporations with
superior credit ratings should be directed to raise a certain percentage of their total long-
term financing through the issuance of corporate bonds after reaching a certain debt-
ceiling through bank-financing. BRPD and DFIM of Bangladesh Bank may conduct an
analysis to determine that certain debt ceiling.

Absence of Secondary Yield Curve/Effective Valuation Tools

The secondary market yield curve of the government securities functions a risk-free rate
that is used as a benchmark rate in pricing the corporate bonds. The absence of a yield
curve of the government securities makes it difficult for the corporate bodies issuing
long-term bonds. Recommendation: With the introduction of diversified government debt
instruments and with more frequent trading, the secondary market would be able to offer
an effective yield curve, which is integral for the valuation of the bonds. DMD, BB
should take necessary steps to publish a reliable and effective yield curve for the G-Sec to
be used as the benchmark/risk-free rate.

High Cost Related to Issuance and Secondary Trading

At present, there is a high issuance cost in the primary market as well as high-cost of
trading in the secondary market. Different types of costs and duties are related to issuance
and trading. The main costs related to issuance are: application fee, consent fee, Issue
management fee, underwriting fee, trustee fee, trust deed registration cost, credit rating
fee, etc. (see 5.1.3 for details). There are some fees and charges associated with the
trading of the public offers, which are: demat fee, annual depository/listing fee,
Moreover, taxes and duties designed for equity trading can be much more harmful in the
fixed-income market as transaction sizes are significantly higher. Regarding the
government securities market, the Advance Income Tax (0.05%) is paid by the seller and
 the buyer at the same time on the transactions conducted on the stock exchange should be
abolished.
Recommendation: Issuing costs (trustee fee, arranger fee, legal counseling fee, credit
rating fee, consent fee, trust deed registration cost, issue management/corporate advisory
fee, stamp duty and post issue management fee) and secondary transaction costs (annual
depository/listing fee, transaction fee, new issue fee) that amount to nearly 6% of issue
size should be reduced to incentivize bond issuance. Moreover, the CDS charges for
issuing a bond in dematerialized form should also be reduced.

Conclusion
As an emerging economy of the 21st century, Bangladesh needs to foster the fixed income
securities in order to ensure efficient financing options for long-term development projects. This
framework attempts to provide comprehensive guidance in outlining the existing issues faced in
developing the fixed-income securities market in Bangladesh. Along with highlighting the
probable issues related to our underdeveloped fixed-income securities market, various pragmatic
recommendations are mentioned in this framework for the G-Sec and the corporate debt market.
To overcome the obstacles that we are facing in developing the debt securities market, there is a
number of initiatives that can be taken by the concerned agencies. To address the challenges and
barriers for the development of this debt securities market and to implement the
recommendations mentioned in this framework, we need to promote inter-organizational
cooperation among different primary regulatory bodies like the Ministry of Finance (MoF),
Bangladesh Bank (BB), National Board of Revenue (NBR), Bangladesh Securities and Exchange
Commission (BSEC), Insurance Development and Regulatory Authority (IDRA), and other
primary regulators. As this framework provides a detailed guideline in regards to the
development of this market, the implementation of those recommendations would now
essentially be the area to focus on. To monitor the implementation phase of this framework to
establish a vibrant fixed income securities market in Bangladesh, a joint collaboration committee
consisting Bangladesh Bank (BB), Bangladesh Securities and Exchange Commission (BSEC),
Insurance Development and Regulatory Authority (IDRA), National Board of Revenue (NBR)
and the Ministry of Finance (MoF) could be formed.

The Government should adopt a clear issuance strategy and conduct proper cash forecasting in
every financial year. In this regard, the Finance Division, MoF should establish a central IT-
based cash management cell, where all the stakeholders (different line ministries) could input
their expenditure and revenue plans periodically. Moreover, CDMC may focus on the
development of the financial market along with the cash and debt management of the
Government. CDMC may also adopt a policy in regards to the management and investment of
the surplus cash amount in the market by exploring alternative investment opportunities.