The Asian Development Bank (ADB) has approved a loan of US$250 million to help Bangladesh continue capital market reforms, which should boost private investment and support the country’s drive to achieve middle-income status by 2021.
The funds for the Third Capital Market Development Program will be released in two tranches of US$80 million and US$170 million, as agreed policy milestones for reforms are reached.
“ADB has supported Bangladesh for many years to push through crucial changes which have helped the capital markets develop and this new assistance will allow the government to tackle remaining barriers,” said Syed Ali-Mumtaz H. Shah, Senior Financial Sector Specialist, in ADB’s South Asia Department.
The government is targeting annual average gross domestic product growth of 10 percent by the 2021. But to achieve this goal it will need to take steps to attract more private investment, including developing the capital markets.
The second programme helped stabilise the Bangladesh stock market after a major sell-off in 2010 and supported the passage of key financial sector legislation. The third programme will strengthen the Bangladesh Securities and Exchange Commission and support the establishment of a clearing and settlement company. It will also support new areas, such as strengthening the Insurance Development and Regulatory Authority, to promote the insurance industry’s growth and stability, and encourage insurers to use the capital markets more.
“The third programme supports policy actions to strengthen the Bangladesh Securities and Exchange Commission, boost institutional investor demand, broaden the supply of financial instruments, including sukuk (Islamic bonds), and to promote a more liquid government bond market,” added Ali-Mumtaz H. Shah.
To improve enforcement and boost accounting and auditing standards, a special tribunal for capital market-related cases will be put into operation and a financial reporting council with an independent audit oversight function will be established, resulting in the adoption of international accounting standards that will enhance market confidence and encourage investment.
To increase the supply of high quality bonds and other market instruments, policy actions will be taken to remove the 60:40 debt-to-equity ratio ceiling that companies must adhere to, to cut the initial public offering lock-in period for private equity investors, and to draw up rules to promote Islamic finance, including sukuk.