Overview of Financial system of Bangladesh The financial system of Bangladesh is comprised of three broad fragmented sectors: 1. Formal Sector, 2. Semi-Formal Sector, 3. Informal Sector. The sectors have been categorized in accordance with their degree of regulation. The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks etc.; Micro Finance Institutions (MFIs). The semi formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc., Non Governmental Organizations (NGOs and discrete government programs. The informal sector includes private intermediaries which are completely unregulated.
About financial markets: The financial market in Bangladesh is mainly of following types: 1. Money Market: The money market comprises banks and financial institutions as intermediaries, 20 of them are primary dealers in treasury securities. Interbank clean and repo based lending, BB's repo, reverse repo auctions, BB bills auctions, treasury bills auctions are primary operations in the money market, there is also active secondary trade in treasury bills (upto 1 year maturity). 2. Taka Treasury Bond market: The Taka treasury bond market consists of primary issues of treasury bonds of different maturities (2, 5, 10, 15 and 20 years), and secondary trade therein through primary dealers. 20 banks performing as Primary Dealers participate directly in the primary auctions. Other bank and non bank investors can participate in primary auctions and in secondary trading through their nominated Primary Dealers. Nonresident individual and institutional investors can also participate in primary and secondary market, but only in treasury bonds. Monthly data on primary and secondary trade volumes in treasury bills and bonds and data on outstanding volume of treasury bonds held by non residents can be accessed at Monthly data of Treasury Bills & Bonds . 3. Capital market:The primary issues and secondary trading of equity securities of capital market take place through two (02) stock exchanges-Dhaka Stock Exchange and Chittagong Stock Exchange. The instruments in these exchanges are equity securities (shares), debentures and corporate bonds. The capital market is regulated by Bangladesh Securities and Exchange Commission (BSEC). 4. Foreign Exchange Market:Towards liberalization of foreign exchange transactions, a number of measures were adopted since 1990s. Bangladeshi currency, the taka, was declared convertible on current account transactions (as on 24 March 1994), in terms of Article VIII of IMF Article of Agreement (1994). As Taka is not convertible in capital account, resident owned capital is not freely transferable abroad. Repatriation of profits or disinvestment proceeds on non-resident FDI and portfolio investment inflows are permitted freely. Direct investments of non-residents in the industrial sector and portfolio investments of non-residents through stock exchanges are repatriable abroad, as also are capital gains and profits/dividends thereon. Investment abroad of resident-owned capital is subject to prior Bangladesh Bank approval, which is allowed only sparingly. Bangladesh adopted Floating Exchange Rate regime since 31 May 2003. Under the regime, BB does not interfere in the determination of exchange rate, but operates the monetary policy prudently for minimizing extreme swings in exchange rate to avoid adverse repercussion on the domestic economy. The exchange rate is being determined in the market on the basis of market demand and supply forces of the respective currencies. In the forex market banks are free to buy and sale foreign currency in the spot and also in the forward markets. However, to avoid any unusual volatility in the exchange rate, Bangladesh Bank, the regulator of foreign exchange market remains vigilant over the developments in the foreign exchange market and intervenes by buying and selling foreign currencies whenever it deems necessary to maintain stability in the foreign exchange market.
Payment and Settlement Systems: A country´s payment system is the channel through which the central bank passes financial transaction part of its monetary policy. Central banks' functions in the area of payment systems are very closely related to their functions in the areas of monetary policy and financial stability. Monetary stability supports sound investment and sustainable economic growth, which in turn are conducive to financial stability and support the smooth operation of payment systems. Well-functioning payment systems ensure the efficient and safe execution of monetary policy operations and facilitate the smooth and homogenous transmission of monetary impulses. The smooth functioning of payment systems is a precondition for users' confidence in these systems and, ultimately, public confidence in the currency. Central banks would extend their concern toward the safe and efficient use of payment instruments with a view to maintain public confidence in the currency and ensure its smooth circulation. Central banks have a strong interest in promoting safety and improving efficiency in payment systems as part of their overall concern with financial stability. The importance that central banks attach to the stability of financial markets derives from the possibility that financial institutions' actual or perceived inability to settle their obligations in distressed market conditions could contribute to a loss of confidence and could also have a negative effect on the stability of financial markets and the economy as a whole. In systemically important payment systems, disruption caused by one participant in the infrastructure can cause disruptions for other participants, propagate financial disturbances and possibly even amplify such disturbances by inducing chain reactions that might contaminate the whole financial system. In such systems, central banks aim mainly to:
prevent systemic risk, thereby maintaining financial stability; promote the efficiency of payment systems and instruments; ensure the security of and public trust in the currency as the settlement asset; and safeguard the transmission channel for monetary policy.
According to the Section 7A (e) of the Bangladesh Bank Order, 1972; one of the main functions of the Bangladesh Bank is - "to promote, regulate and ensure a secure and efficient payment system" In fulfilling this mandate and considering the importance, Payment Systems Department (PSD) has been formed on 26 July 2012, prior to this it was a section under Department of Currency Management and Payment Systems. Follow the links below to have an overview of the prevailing payment and settlement systems in Bangladesh Payment Systems Department's Activities
National Payment Switch(NPS)
Payment Systems Strategy
e-Commerce & m-Commerce
Bangladesh (BACH)
Automated
Clearing
House
Legal & Regulatory Framework
Bangladesh Automated Cheque Processing Systems (BACPS)
Real Time Gross Settlement (RTGS)
Bangladesh Electronic Funds Transfer Network (BEFTN)
Payment Systems Oversight
Mobile Financial Services
Online Payment Providers(OPGSPs)
Gateway
Payment Systems Department's Activities Functions: To run the country's payment system smoothly department is conducting the following activities:
Formulation of National Payment Systems Strategy, Operation of Bangladesh Automated Clearing House (BACH) with its two wings Bangladesh Automated Cheque Processing System (BACPS) and Bangladesh Electronic Funds Transfer Network (BEFTN), Implementation and development of National Payment Switch Bangladesh (NPSB) to facilitate inter-bank electronic payments. Adoption of initiatives to facilitate e-Payment Gateway. Enrichment of Mobile Financial Services with proper framework, Encouraging e-Commerce and m-Commerce. Formulation of required policy, guideline, legal & regulatory framework for modern payment and settlement systems. Formulation of Payment Systems Oversight to monitor and supervise country�s payment system. Establishment and operation of Real Time Gross Settlement (RTGS) System with proper guidelines.
Payment Systems Strategy A well-defined strategy acts as the guiding flagship for any endeavor. Published 'Strategic Plan 2010-2014' by the Bangladesh Bank lists foremost near and medium term strategies for the development of payment and settlement systems of Bangladesh. Most of these goals are already achieved by this time while others are in the implementation process. To be with the trend, Payment Systems Department (former DCMPS) has revised the earlier strategies and devised newer priorities. The new strategy has been set to – "Develop effective and efficient currency management alongside establishing fast and secure electronic payment systems for facilitating financial inclusion". PSD has revised the earlier objectives and devised newer priorities.
Service
Importance was given to implementing newer payment platforms i.e. National Payment Switch (NPS), e-Payment Gateway and Real Time Gross Settlement (RTGS) while upgrading the required legal and regulatory framework befitting the electronic payment platforms. Newly set objectives for Modernizing country's Payment and Settlement Systems are listed below 1. Establish required legal and regulatory framework for electronic payment systems. 2. Promote and encourage the use of electronic funds transfer, mobile financial services, ecommerce, m-commerce, shared ATM, POS, etc. 3. Establish National Payment Switch (NPS) for facilitating electronic payments originating from different delivery channels e.g. ATM, POS, Internet, Mobile, etc. 4. Establish e-Payment gateway. 5. Establish Real-Time Gross Settlement (RTGS).
Bangladesh Automated Clearing House (BACH) Bangladesh Automated Clearing House (BACH): BACH, the first ever electronic clearing house of Bangladesh, has two components - the Automated Cheque Processing System (ACPS) and the Electronic Funds Transfer (EFT). Both the systems operate in batch processing mode- transactions received from the banks during the day are processed at a pre-fixed time and settled through a single multilateral netting figure on each individual bank's respective books maintained with the Bangladesh Bank. A state-of-the-art Data Center (DC) and a Disaster Recovery Site (DRS) have been established comprising of most modern software and hardware for dealing with the operations of BACH. A Virtual Private Network (VPN) has been created between the participating commercial banks and Data Center (DC) & Disaster Recovery Site (DRS) for communicating necessary information related to BACH. Digital Certificate has been formulated for the first time in Bangladesh for secured data communication.
Bangladesh Automated Cheque Processing Systems (BACPS) Bangladesh Automated Cheque Processing Systems (BACPS) has started its 'Live Operation' on 7th October 2010 in the Dhaka Clearing House area. BACPS uses the Cheque Imaging and Truncation (CIT) technology for electronic presentment and payment of paper instruments (i.e. cheque, pay order, dividend & refund warrants, etc). The system supports both intra-regional and interregional clearing and is based on a centralised processing centre located in Dhaka and in designated clearing regions. There are two types of cheque clearing under BACPS, i.e. High Value (HV) and Regular Value (RV) Cheque clearing. Cheque amounting Tk. 5,00,000 or above are eligible for HV clearing which has shorter clearing cycle than RV. During the FY2015 about 21019390 regular value and 1808443 high value transactions were cleared through BACPS. Total amount of regular value instruments cleared is approximately Taka 5,707.34 billion and it is approximately Taka 9,794.51 billion for high value
instruments. The clearing cycle has been brought down to t+0 for high value cheques and t+1 for regular value cheques throughout the country. Tabular and graphical presentation of BACPS regular value Transactions during the FY2015: (In million Taka) RV-Item Month RV-Amount (thousand) 1908084 457,474,480,798 Jan-15 Feb-15 1879942 430,368,680,301 Mar-15 2047746 504,020,508,281 1654493 463,168,130,434 Apr-15 May-15 1911947 495,076,825,131 1811774 541,876,087,599 Jun-15 Jul-15 1572251 464,176,667,577 Aug-15 1647091 466,861,129,002 1645102 436,704,201,420 Sep-15 Oct-15 1469475 448,536,165,003 1726198 483,695,715,171 Nov-15 Dec-15 1745287 515,381,382,778 Tabular and graphical presentation of BACPS high value Transactions during the FY2015: (In million Taka) Month Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
HV-Item (thousand) 141174 138743 156980 147778 152307 164597 146722 152353 151033 131856 161293 163607
HV-Amount 761,436,752,844 695,261,974,317 805,659,313,169 764,017,357,355 784,034,585,618 947,952,457,268 833,183,748,036 816,113,067,435 784,407,250,469 776,479,254,990 865,988,243,865 959,977,265,704
Bangladesh Electronic Funds Transfer Network (BEFTN) BEFTN has started its 'Live Operation' on 28th February 2011 with the objective to decrease paperbased payment methods and encourage electronic payment methods for secured, faster & costeffective transactions. The Network started with credit transactions and open for debits from 15 September 2011. BEFTN facilitates the transmission of payments between the banks electronically, which makes it faster and efficient means of inter-bank clearing over the existing paper-based system i.e. BACPS. It is able to handle a wide variety of credit transfers such as payroll, foreign and domestic remittances, social security, company dividends, retirement, expense reimbursement, bill payments, corporate payments, government tax payments, social security payments and person to person payments. The system could handle debit transfers such as mortgage payments, loan payments, insurance premiums, utility bill payments, government tax payments, government licenses and fees. EFT is gaining increasing popularity among the corporate and govt. bodies. Approximately 13761853 EFT transactions having transaction volume of BDT 873.86 billion were processed during the FY2015 with an increasing trend. Salary of more than 28 ministries and govt. offices are now paid through EFT. Listed public companies are paying their cash dividends through EFT network. Tabular and graphical presentation of BEFTN credit transactions:
Date Jan,2015 Feb, 2015 Mar,2015 Apr,2015 May,2015 Jun, 2015 Jul, 2015 Aug, 2015 Sep, 2015 Oct, 2015 Nov, 2015 Dec, 2015
EFT Credit Item Amount 1020755 58,769,575,714.38 748820 59,144,568,316.46 813516 69,605,008,860.67 1257144 71,543,013,077.39 1051766 73,707,548,525.08 1196139 73,395,983,025.07 1492160 64,819,781,226.75 984803 64,762,874,280.29 1289254 69,912,457,414.74 849489 56,782,553,316.39 1202649 70,953,119,316.36 1253910 74,832,180,678.15
Tabular and graphical presentation of BEFTN debit transactions:
Date Jan,2015 Feb, 2015 Mar,2015 Apr,2015 May,2015 Jun, 2015 Jul, 2015 Aug, 2015 Sep, 2015 Oct, 2015 Nov, 2015 Dec, 2015
EFT Debit Item 42590 42922 47011 46628 46970 49314 49406 52151 52138 55965 57001 59352
Amount 4,476,916,819.12 4,377,403,291.95 4,942,903,229.48 5,334,636,256.00 6,295,444,048.57 6,525,468,144.90 5,744,437,697.99 5,759,987,117.69 5,738,587,328.64 4,693,225,620.15 6,187,828,754.58 5,555,489,204.41
Mobile Financial Services The rapid growth of mobile phone users and countrywide coverage of mobile operator's network has made their delivery channel an important tool-of-the-trade for extending banking services to the unbanked/banked population, especially to expedite faster delivery of remittances across the country. From legal and regulatory perspective, only the bank-led model is allowed to operate in Bangladesh. Approved Mobile Financial Services (in broad categories) are listed below 1. Disbursement of inward foreign remittances. 2. Cash in /out using mobile account through agents/Bank branches/ ATMs/Mobile Operator's outlets. 3. Person to Business Payments ‐ e.g. a. utility bill payments, b. merchant payments. 4. Business to Person Payments e.g. salary disbursement, dividend and refund warrant payments, vendor payments, etc. 5. Government to Person Payments e.g. elderly allowances. Freedom‐fighter allowances, subsidies, etc. 6. Person to Government Payments e.g. tax, levy payments. 7. Person to Person Payments (One registered mobile Account to another registered mobile account). 8. Other payments like microfinance, overdrawn facility, insurance premium, DPS, etc. Bangladesh Bank has fixed the transaction limit for the account holders of mobile financial services at maximum Tk. 10,000 daily and a total of Tk. 25,000 on monthly basis according to DCMPS Circular No. - 10/2011 December 14, 2011.
National Payment Switch Bangladesh (NPSB) The Bangladesh Bank has introduced National Payment Switch Bangladesh (NPSB) in order to facilitate interbank electronic payments originating from different channels like Automated Teller Machines (ATM), Point of Sales (POS), Internet Banking, Mobile Banking etc. The main objective of NPSB is to create a common electronic platform for the switches in Bangladesh. NPSB is a mother switch of all other switches in the country. NPSB will facilitate the expansion of the card based payment networks substantially and promote e-commerce throughout the country. At present, 51 banks are operating card business in Bangladesh. Among those, interbank ATM transactions of 49 banks and interbank POS transactions of 41 banks are being routed through NPSB. National Payment Switch Bangladesh (NPSB) comparative summary statement: National Payment Switch Bangladesh (NPSB) comparative summary statement of July 2016 to August 2016 S Description ATM POS L. N % % O Change Chang . Amount (in Amount (in (July Amount (in Amount (in e (July August July 2016) 2016 to July 2016) August 2016) 2016 to 2016) August August 2016) 2016) 1 No. of Banks are in Live Transactions
2 No. of Total Transaction 734790.00
49
865890.00
41
17.84% 66676.00
66148.00
-0.79%
Total Transaction 4815828100.0 5915247800. 224644711. 3 Amount in Taka 0 00 22.83% 40 222632609.93 -0.90% No. of Daily Average 4 Transaction 23703.00
27932.00
17.84% 2151.00
2134.00
Average Daily Transaction 190814445.1 5 Amount 155349293.55 6 22.83% 7246603.59 7181697.09
-0.79%
-0.90%
e-Commerce & m-Commerce BB has issued directives to the banks for starting e-Commerce activities among the country. BB has permitted transfer fund up to TK. 5,00,000 from one clients account to another clients account lying in the same bank using internet/online facilities subject to the fact that it will fully comply with prevailing Money Laundering Prevention legislations and related circulars. PSD is concerned to ensure IT security for online and e-commerce transactions. In order to that PSD has mandated for the banks to introduce Two Factor Authentication (2FA) for card not present transactions valuing Tk, 5000 and above.
In order to start M-Commerce in Bangladesh, mobile network operators have been given permission to sell railway tickets and tickets of cricket matches organized by the Bangladesh Cricket Board (BCB) using mobile technology. Three Telcos have got permission for mCommerce related transactions.
Legal & Regulatory Framework In order to give legal and regulatory support to growing methods for electronic transfer of funds, Bangladesh Bank has governed a number legal and regulatory framework. Existing Legal and Regulatory Framework of Payment and Settlement Systems of Bangladesh below � 1. Bangladesh Automated Cheque Processing Systems (BACPS) Operating Rules and Procedures has been published on 11 January 2010. 2. Bangladesh Electronic Funds Transfer Network (BEFTN) Operating Rules has been published on 11 August 2010. 3. Guidelines on Mobile Financial Services for the Banks has been published on September, 2011. 4. Guidelines on Agent Banking for the Banks has been published on 09 December 2013. 5. Bangladesh Payment and Settlement Systems Regulations (BPSSR), 2014 published on 22 April 2014. 6. Regulations on Electronic Fund Transfer Network has been published on 22 April,2014
Steps have also been taken to bring amendment in certain provision of the existing Negotiable Instruments Act, 1881 and Bankers Book of Evidence Act, 1891 in order to provide comprehensive legal backing to the operation of Electronic Clearing House.
Real Time Gross Settlement (RTGS) To facilitate a fast and secure Interbank Payment system, Bangladesh Bank introduced the Real Time Gross Settlement (RTGS) system on 29th October 2015. This system cater for large value transactions between the banks within the country in real time basis. 5571 online branches of 55 scheduled banks are currently connected to this service. Using this system, the settlements of tk.1,00,000 (One Lac) or above between the participating banks are being made instantly. Although, at present transactions with only local currency is allowed, this system can accommodate transactions in more than one foreign currencies within Bangladesh and is expected to launch this utility shortly. Monthly transactions starting from October 2015 to July 2016 with RTGS is shown below:
Month
Number of Transaction
Oct'15 Nov'15 Dec'15 Jan'16 Feb'16 Mar'16 Apr'16 May'16 Jun'16 Jul'16
33 3279 5547 8825 10490 13057 13222 17754 20946 15113
Amount in Crore (BDT) 15 53978 84733 92414 75882 86995 87468 122438 127169 81859
Seminar on 'Development of Payment Systems in Bangladesh: Payment and Remittances through Real Time Gross Settlement (RTGS)' View brochure
Payment Systems Oversight (PSO) Payment system consists of the value channels for facilitating transactions needs for various personal or institutional requirements. If one or more components of the payment system fail, the spillover effects can spread through domestic and international financial systems and markets. Such failure(s) may threaten the stability of the currency and the financial markets. The failure of a system or a participant can cause other participants to fail and is thus able to transmit shocks within the financial infrastructure. For this reason, control measures and instruments are needed to be in place for minimizing the threats and risks in the payment system - which can only be achieved thorough Payment Systems Oversight (PSO) under sound legal and regulatory framework. Payment systems interlink banks and other financial intermediaries. In a crisis situation, problems can spread through such links from the problem institution to other institutions. This can endanger the stability of the financial infrastructure and is known as systemic risk. Oversight aims at ensuring that the systems are set up in such a way as to minimize the risk potential. Central banks are concerned about the smooth functioning of payment systems for a number of reasons:
Central Banks aim to maintain systemic stability in payment systems. Central Banks are concerned with the efficiency of payment systems. Central Banks are concerned with the security of the payment instruments used by the public, their confidence in the payment system. Payment systems are an essential vehicle for the implementation of monetary policy. Oversight aims at safeguarding the transmission channel for monetary policy.
Oversight is an iterative process comprising the following elements:
Formulation of the policy stance: setting the general framework, criteria and standards; Evaluation of compliance with the policy stance: collection and analysis of information on the overseen entity and implementation actions; Enforcement of the policy stance: inducing the system to take steps to fulfill the criteria and standards. This could be done by using formal regulatory powers or alternatively by moral suasion.
Payment Systems Oversight (PSO) objectives are as follows
To ensure payment systems are safe, efficient, effective and reliable
To promote the quality and range of national payment systems To facilitate the development of modern and innovative systems to meet the evolving needs of participants continuously To ascertain that the benefits of investment are extended to the general public To prevent the abuse of the payment instrument and systems
Online Payment Gateway Service Providers (OPGSPs) In view of the growing role of the services provided by the Online Payment Gateway Service Providers (OPGSPs), it has been decided to allow the Authorised Dealers (ADs) to offer the facility of repatriation of remittances against small value service exports in non-physical form such as data entry/data process, off-shore IT service, business process outsourcing etc. Under this initiative, the exporters of the above services will be able to receive their overseas payments through the OPGSPs such as Paypal, Money Bookers, Best Payment Gateway and Virtual Pay online platforms.
Government Securities Market Government securities market of Bangladesh is consist of tradable and non tradable securities. Non-tradable securities include National Savings Certificates i.e. Sanchayapatras and Sanchayabonds which are only for retail investors. The tradable securities include Treasury Bills (T-Bills) of 91, 182 and 364 days maturities and Bangladesh Government Treasury Bonds (BGTB) of 2, 5, 10, 15 and 20 years maturities. T-Bills and BGTBs are issued through auctions. Only Primary Dealers (PD) can submit bids in the auctions. Other institutions and individuals can submit bids in auction but through the PDs. At present 20 banks are performing as Primary Dealer. T-Bills and BGTBs can be sold in the secondary market. Non-resident individual and institutional investors also eligible to buy BGTBs through a NonResident Foreign Currency Account and Non-Resident Investor's Taka Account maintained with commercial banks of Bangladesh. Bangladesh Bank have its own depository system for the transaction and settlement of Government securities in the Market Infrastructure (MI) Module. In 2011 BB introduced this automated system to expedite the primary auction and secondary market
Deposit Insurance Systems (DIS): Deposit Insurance Systems (DIS) is now protecting your Deposits in the Bank and insurance benefits in the unlikely event of a number of Banks. Deposit insurance is a system established by the Government of Bangladesh to protect depositors against the loss of their deposits in the event that a scheduled bank is unable to meet its obligations. Deposit Insurance Systems (DIS)
A sound, competitive banking system is important to a nation's economic strength. Every scheduled Bank plays an important role as the intermediation of funds from depositors to consumers and investors as well as in the transmission of monetary policy. So, public confidence in banking sectors is very crucial. Deposit Insurance Systems (DIS) is the key element in maintaining confidence and promoting financial stability through increasing saving in the banking sectors. Deposit Insurance Systems is a measure to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when owing. Deposit Insurance Systems is one of the components of financial safety net that is meant to promote financial stability.
Importance of DIS: Deposit Insurance plays a key role in maintenance of financial stability by sustaining public confidence in the banking system through protecting depositors, especially small and less sophisticated depositors, against loss of deposit to a significant extent.
About DIS in Bangladesh Operational Procedure
Public Awareness Communications Affiliation
&
About DIS in Bangladesh
Deposit Insurance Systems is an institutional initiative of Bangladesh Government for the protection of the depositor's interest. The system works among deposit owners who deposited in scheduled banks.
Objectives of DIS: Banks are faced with increased risk, since working with borrowed money and having liabilities to a number of depositors, and a bankruptcy of a single bank could initiate a cycle of instability hitting entire financial system. The Significant objectives of Deposit Insurance Systems in Bangladesh, like in all other countries, are a contribution to the overall financial stability. Moreover, the followings are the special objectives of Deposit Insurance Systems in Bangladesh: Protect small depositors,
Enhance public confidence, Enhance stability of the financial system, Increase savings and encourage economic growth, Enhancing more propitious bank services.
Legal Framework: Deposit Insurance was first introduced in August, 1984 as a scheme in terms of ''The Bank Deposit Insurance Ordinance, 1984''. In July, 2000 the Ordinance was repealed by an Act called "Bank Amanat Bima Ain 2000 (The Bank Deposit Insurance Act, 2000)". Deposit Insurance Systems in Bangladesh is now being administered by this Act.
Management Structure
Trustee Board: For the overall administration and management of the Deposit Insurance Systems (DIS), a Trustee Board was formed as per provisions of the Act. The Board of Directors of the Bangladesh Bank is the Trustee Board for the DIS. The Governor of Bangladesh Bank is the Chairman of Trustee Board. The Trustee Board is authorized to carry out a Fund called Deposit Insurance Trust Fund (DITF). The Deposit Insurance Systems is now being administered and managed under the guidance of the Trustee Board.
DID: The Deposit Insurance Department (DID), Bangladesh Bank, has been entrusted to administer the activities of Deposit Insurance Systems in Bangladesh. Under the guidance of Trustee Board, DID formulate the work plans, policies, procedures and guidelines for maintaining Deposit Insurance Systems & managing the Deposit Insurance Trust Fund (DITF) through an operational manual. This Operational manual has been designed to serve that purpose keeping an option to further updates as and when necessary.
Member Institutions
All scheduled banks/commercial banks including the branches of foreign banks functioning in Bangladesh are covered under the Deposit Insurance Scheme by the Bangladesh Bank with effect from 11 August, 1984. Membership is now compulsory for all scheduled Banks as provided under Article # 04 (Ka) & (Kha) of "Bank Amanat Bima Ain 2000 (The Bank Deposit Insurance Act, 2000)".
Operational Procedure
Premium: Risk based deposit insurance premiums are introduced in Bangladesh. Thus bank insurance premiums will be aligned with the risk of banks. The following risk based premium rates will be activated from half yearly session of January-July, 2013:
Premium Rate
No. Supervisory Subgroup
Premium Rate
1.
Other than EWS and Problem Banks
: 0.08%
2.
EWS Banks
: 0.09%
3.
Problem Banks
: 0.10%
Premium Calculation & Collection All scheduled bank will provide information for calculation of Deposit Insurance Premium for the half year January-June/July-December. The provided information will be on the basis of position as of the last working day of the preceding half year. The formula for working out the half-yearly premium is as follows: Premium = Deposits in taka rounded to thousands X effective Rate/100
The deposits should be rounded off up to the nearest thousand Taka. [Section-5(3) of Deposit Insurance Act 2000]
Public Awareness In order for a Deposit Insurance Systems to be effective it is essential that the public be informed about the benefits and limitations of the Deposit Insurance Systems. The characteristics of a Deposit Insurance Systems should be publicized regularly to maintain and strengthen public confidence. The major goals of a public awareness program are for the deposit insurer to accomplish its public policy objectives and enhance the effectiveness of a Deposit Insurance Systems through public education to promote the stability of the financial system. Thus public confidence in these systems is very important. A successful public awareness program can convey accurate messages and build trust among depositors. Public Awareness Features
Builds Public Confidence: Regular inform depositors about the important functions, the benefits, and limitations of depositor protection arrangements. Convinced depositors that it is their interest that a Deposit Insurance Systems is protecting. Contract point for depositors/stakeholders: Understand and manage depositor's expectations and build trust and relationship with the public. Financial literacy: Develop more capacity to learn about DIS.
Public Awareness: Communication tools
Holding international symposiums and professional seminars for financial institutions Organizing open seminars for the general public
Public Awareness: Communication materials
Educational materials - Fliers, pamphlets, brochures and annual report Multi-media - TV, radio, newspapers and magazines Hot line-16236 A customer service e-mailbox and a fax lineBangladesh Bank website-Deposit Insurance Department
Deposit Insurance Department Bangladesh Bank Head Office Dhaka, Bangladesh Phone: 88-02-9530010-75 Fax: 88-02-9530275 E-mail:
[email protected]
International Affiliation In the epoch of financial globalization, Deposit Insurance Systems has an international umbrella association named as International Association of Deposit Insurers (IADI). Bangladesh Bank has taken the membership of IADI in 2006. Bangladesh Bank is also a dynamic member of Asia Pacific Regional Committee (APRC).
Regulators of the Financial System : Central Bank Bangladesh Bank acts as the Central Bank of Bangladesh which was established on December 16, 1971 through the enactment of Bangladesh Bank Order 1972- President’s Order No. 127 of 1972 (Amended in 2003). The general superintendence and direction of the affairs and business of BB have been entrusted to a 9 members' Board of Directors which is headed by the Governor who is the Chief Executive Officer of this institution as well. BB has 45 departments and 10 branch offices. In Strategic Plan (2010-2014), the vision of BB has been stated as, “To develop continually as a forward looking central bank with competent and committed professionals of high ethical standards, conducting monetary management and financial sector supervision to maintain price stability and financial system robustness, supporting rapid broad based inclusive economic growth, employment generation and poverty eradication in Bangladesh”. The main functions of BB are (Section 7A of BB Order, 1972) 1. to formulate and implement monetary policy; 2. to formulate and implement intervention policies in the foreign exchange market; 3. to give advice to the Government on the interaction of monetary policy with fiscal and exchange rate policy, on the impact of various policy measures on the economy and to propose legislative measures it considers necessary or appropriate to attain its objectives and perform its functions; 4. to hold and manage the official foreign reserves of Bangladesh; 5. to promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes; 6. to regulate and supervise banking companies and financial institutions. Core Policies of Central Bank Monetary policy The main objectives of monetary policy of Bangladesh Bank are:
Price stability both internal & external Sustainable growth & development High employment Economic and efficient use of resources Stability of financial & payment system
Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement (MPS) twice (January and July) in a year. The tools and instruments for implementation of monetary policy in Bangladesh are Bank Rate, Open Market Operations (OMO), Repurchase agreements (Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR). Reserve Management Strategy Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies to minimize the risk emerging from widespread fluctuation in exchange rate of major currencies
and very irregular movement in interest rates in the global money market. BB has established Nostro account arrangements with different Central Banks. Funds accumulated in these accounts are invested in Treasury bills, repos and other government papers in the respective currencies. It also makes investment in the form of short term deposits with different high rated and reputed commercial banks and purchase of high rated sovereign/supranational/corporate bonds. A separate department of BB performs the operational functions regarding investment which is guided by investment policy set by the BB's Investment Committee headed by a Deputy Governor. The underlying principle of the investment policy is to ensure the optimum return on investment with minimum market risk. Interest Rate Policy Under the Financial sector reform program, a flexible interest policy was formulated. According to that, banks are free to charge/fix their deposit (Bank /Financial Institutes) and Lending (Bank /Financial Institutes) rates other than Export Credit. At present, except Pre-shipment export credit and agricultural lending, there is no interest rate cap on lending for banks. Yet, banks can differentiate interest rate up to 3% considering comparative risk elements involved among borrowers in same lending category. With progressive deregulation of interest rates, banks have been advised to announce the mid-rate of the limit (if any) for different sectors and the banks may change interest 1.5% more or less than the announced mid-rate on the basis of the comparative credit risk. Banks upload their deposit and lending interest rate in their respective website. Capital Adequacy for Banks and FIs Basel-III has been introduced with a view to strenghening the capital base of banks with the goal of promoting a more resilient banking sector. The Basel III regulation will be adopted in a phased manner starting from the January 2015, with full implementation of capital ratios from the beginning of 2019. Now, scheduled banks in Bangladesh are required to maintain minimum capital of Taka 4 billion or Capital to Risk Weighted Assets Ratio (CRAR) 10%, whichever is higher. In addition to minimum CRAR, Capital Conservation Buffer (CCB) of 2.5% of the total RWA is being introduced which will be maintained in the form of CET1. Besides the minimum requirement all banks have a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining capital at an adequate level. For FIs, full implementation of Basel-II has been started in January 01, 2012 (Prudential Guidelines on Capital Adequacy and Market Discipline (CAMD) for Financial Institutions). Now, FIs in Bangladesh are required to maintain Tk. 1 billion or 10% of Total Risk Weighted Assets as capital, whichever is higher. Deposit Insurance The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safety net for the depositors. All the scheduled banks Bangladesh are the member of this scheme Bank Deposit Insurance Act 2000. The purpose of DIS is to help to increase market discipline, reduce moral hazard in the financial sector and provide safety nets at the minimum cost to the public in the event of bank failure. A Deposit Insurance Trust Fund (DITF) has also been created for providing limited protection (not exceeding Taka 0.01 million) to a small depositor in case of winding up of any bank. The Board of Directors of BB is the Trustee Board for the DITF. BB
has adopted a system of risk based deposit insurance premium rates applicable for all scheduled banks effective from January - June 2007. According to new instruction regarding premium rates, problem banks are required to pay 0.09 percent and private banks other than the problem banks and state owned commercial banks are required to pay 0.07 percent where the percent coverage of the deposits is taka one hundred thousand per depositor per bank. With this end in view, BB has already advised the banks for bringing DIS into the notice of the public through displaying the same in their display board. Insurance Authority Insurance Development and Regulatory Authority (IDRA) was instituted on January 26, 2011 as the regulator of insurance industry being empowered by Insurance Development and Regulatory Act, 2010 by replacing its predecessor, Chief Controller of Insurance. This institution is operated under Ministry of Finance and a 4 member executive body headed by Chairman is responsible for its general supervision and direction of business. IDRA has been established to make the insurance industry as the premier financial service provider in the country by structuring on an efficient corporate environment, by securing embryonic aspiration of society and by penetrating deep into all segments for high economic growth. The mission of IDRA is to protect the interest of the policy holders and other stakeholders under insurance policy, supervise and regulate the insurance industry effectively, ensure orderly and systematic growth of the insurance industry and for matters connected therewith or incidental thereto. Regulator of Capital Market Intermediaries Securities and Exchange Commission (SEC) performs the functions to regulate the capital market intermediaries and issuance of capital and financial instruments by public limited companies. It was established on June 8, 1993 under the Securities and Exchange Commission Act, 1993. A 5 member commission headed by a Chairman has the overall responsibility to administer securities legislation and the Commission is attached to the Ministry of Finance. The mission of SEC is to protect the interests of securities investors, to develop and maintain fair, transparent and efficient securities markets and to ensure proper issuance of securities and compliance with securities laws. The main functions of SEC are:
Regulating the business of the Stock Exchanges or any other securities market. Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents, merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market. Registering, monitoring and regulating of collective investment scheme including all forms of mutual funds. Monitoring and regulating all authorized self regulatory organizations in the securities market. Prohibiting fraudulent and unfair trade practices in any securities market. Promoting investors’ education and providing training for intermediaries of the securities market. Prohibiting insider trading in securities. Regulating the substantial acquisition of shares and take-over of companies.
Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of securities, the Stock Exchanges and intermediaries and any self regulatory organization in the securities market. Conducting research and publishing information.
Regulator of Micro Finance Institutions To bring Non-government Microfinance Institutions (NGO-MFIs) under a regulatory framework, the Government of Bangladesh enacted "Microcredit Regulatory Authority Act, 2006’" (Act no. 32 of 2006) which came into effect from August 27, 2006. Under this Act, the Government established Microcredit Regulatory Authority (MRA) with a view to ensuring transparency and accountability of microcredit activities of the NGO-MFIs in the country. The Authority is empowered and responsible to implement the said act and to bring the microcredit sector of the country under a full-fledged regulatory framework. MRA’s mission is to ensure transparency and accountability of microfinance operations of NGOMFIs as well as foster sustainable growth of this sector. In order to achieve its mission, MRA has set itself the task to attain the following goals:
To formulate as well as implement the policies to ensure good governance and transparent financial systems of MFIs. To conduct in-depth research on critical microfinance issues and provide policy inputs to the government consistent with the national strategy for poverty eradication. To provide training of NGO-MFIs and linking them with the broader financial market to facilitate sustainable resources and efficient management. To assist the government to build up an inclusive financial market for economic development of the country. To identify the priorities in the microfinance sector for policy guidance and dissemination of information to attain the MRA’s social responsibility.
According to the Act, the MRA will be responsible for the three primary functions that will need to be carried out, namely:
Licensing of MFIs with explicit legal powers; Supervision of MFIs to ensure that they continue to comply with the licensing requirements; and Enforcement of sanctions in the event of any MFI failing to meet the licensing and ongoing supervisory requirements.
Banks After the independence, banking industry in Bangladesh started its journey with 6 Nationalized commercialized banks, 2 State owned Specialized banks and 3 Foreign Banks. In the 1980's banking industry achieved significant expansion with the entrance of private banks. Now, banks in Bangladesh are primarily of two types:
Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991 (Amended upto 2013) are termed as Scheduled Banks. Non-Scheduled Banks: The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.
There are 56 scheduled banks in Bangladesh who operate under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are classified into following types:
State Owned Commercial Banks (SOCBs): There are 6 SOCBs which are fully or majorly owned by the Government of Bangladesh. Specialized Banks (SDBs): 2 specialized banks are now operating which were established for specific objectives like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh. Private Commercial Banks (PCBs): There are 39 private commercial banks which are majorly owned by the private entities. PCBs can be categorized into two groups: Conventional PCBs: 31 conventional PCBs are now operating in the industry. They perform the banking functions in conventional fashion i.e interest based operations. Islami Shariah based PCBs: There are 8 Islami Shariah based PCBs in Bangladesh and they execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode. Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the branches of the banks which are incorporated in abroad.
There are now 4 non-scheduled banks in Bangladesh which are:
Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank, Jubilee Bank
FIs Non Bank Financial Institutions (FIs) are those types of financial institutions which are regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31 FIs are operating in Bangladesh while the maiden one was established in 1981. Out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of FIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other FIs, Call Money as
well as Bond and Securitization. The major difference between banks and FIs are as follows:
FIs cannot issue cheques, pay-orders or demand drafts. FIs cannot receive demand deposits, FIs cannot be involved in foreign exchange financing, FIs can conduct their business operations with diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.
Capital market: After the independence, establishment of Dhaka Stock Exchange (formerly East Pakistan Stock Exchange) initiated the pathway of capital market intermediaries in Bangladesh. In 1976, formation of Investment Corporation of Bangladesh opened the door of professional portfolio management in institutional form. In last two decades, capital market witnessed number of institutional and regulatory advancements which has resulted diversified capital market intermediaries. At present, capital market intermediaries are of following types: 1. Stock Exchanges: Apart from Dhaka Stock Exchange, there is another stock exchange in Bangladesh that is Chittagong Stock Exchange established in 1995. 2. Central Depository: The only depository system for the transaction and settlement of financial securities, Central Depository Bangladesh Ltd (CDBL) was formed in 2000 which conducts its operations under Depositories Act 1999, Depositories Regulations 2000, Depository (User) Regulations 2003, and the CDBL by-laws. 3. Stock Dealer/Sock Broker: Under SEC (Stock Dealer, Stock Broker & Authorized Representative) Rules 2000, these entities are licensed and they are bound to be a member of any of the two stock exchanges. At present, DSE and CSE have 238 and 136 members respectively. 4. Merchant Banker & Portfolio Manager: These institutions are licensed to operate under SEC (Merchant Banker & Portfolio Manager Rules) 1996 and 45 institutions have been licensed by SEC under this rules so far. 5. Asset Management Companies (AMCs): AMCs are authorized to act as issue and portfolio manager of the mutual funds which are issued under SEC (Mutual Fund) Rules 2001. There are 15 AMCs in Bangladesh at present. 6. Credit Rating Companies (CRCs): CRCs in Bangladesh are licensed under Credit Rating Companies Rules, 1996 and now, 5 CRCs have been accredited by SEC. 7. Trustees/Custodians: According to rules, all asset backed securitizations and mutual funds must have an accredited trusty and security custodian. For that purpose, SEC has licensed 9 institutions as Trustees and 9 institutions as custodians. 8. Investment Corporation of Bangladesh (ICB): ICB is a specialized capital market intermediary which was established in 1976 through the ordainment of The Investment Corporation of Bangladesh Ordinance 1976. This ordinance has empowered ICB to perform all types of capital market intermediation that fall under jurisdiction of SEC. ICB has three subsidiaries: 8.1. ICB Capital Management Ltd., 8.2. ICB Asset Management Company Ltd., 8.3. ICB Securities Trading Company Ltd.
Insurance: Insurance sector in Bangladesh emerged after independence with 2 nationalized insurance companies- 1 Life & 1 General; and 1 foreign insurance company. In mid 80s, private sector insurance companies started to enter in the industry and it got expanded. Now days, 62 companies are operating under Insurance Act 2010. Out of them
18 are Life Insurance Companies including 1 foreign company and 1 is state-owned company, 44 General Insurance Companies including 1 state-owned company.
Insurance companies in Bangladesh provide following services: 1. 2. 3. 4. 5.
Life insurance, General Insurance, Reinsurance, Micro-insurance, Takaful or Islami insurance.
Micro Finance Institutions (MFIs): The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural Financial Market (RFM) in Bangladesh. Microcredit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks), specialized government organizations and Non-Government Organizations (NGOs). The growth in the MFI sector, in terms of the number of MFI as well as total membership, was phenomenal during the 1990s and continues till today. Despite the fact that more than a thousand of institutions are operating microcredit programs, but only 10 large Microcredit Institutions (MFIs) and Grameen Bank represent 87% of total savings of the sector and 81% of total outstanding loan of the sector. Through the financial services of microcredit, the poor people are engaging themselves in various income generating activities and around 30 million poor people are directly benefited from microcredit programs. Credit services of this sector can be categorized into six broad groups: i) general microcredit for small-scale self employment based activities, ii) microenterprise loans, iii) loans for ultra poor, iv) agricultural loans, v) seasonal loans, and vi) loans for disaster management. Currently, 599 institutions (as of October 10 2011) have been licensed by MRA to operate Micro Credit Programs. But, Grameen Bank is out of the jurisdiction of MRA as it is operated under a distinct legislationGrameen Bank Ordinance, 1983.
Recent developments: Recent Developments in Financial Sector of Bangladesh Automation and Technological Development: Banking sector experienced remarkable progress in respect of automation in functioning in last several years. For the pro-active and forward-visioning approach of Bangladesh Bank, numbers of automation initiatives have been implemented in banking sector. These initiatives include:
Bangladesh introduced the Market Infrastructure (MI) Module for automated auction and trading of government securities. To create a disciplined environment for borrowing, the automated Credit Information Bureau (CIB) service provides credit related information for prospective and existing borrowers. With this improved and efficient system, risk management will be more effective. Banks and financial institutions may furnish credit information to CIB database 24 by 7 around the year; and they can access credit reports from CIB online instantly. L/C Monitoring System has been introduced for preservation and using the all necessary information regarding L/C by the banks through BB website. This system allows the authorized users of banks to upload and download their L/C information. In terms of article 36(3) of Bangladesh Bank Order, 1972, all scheduled banks are subject to submit Weekly Statement of Position as at the close of business on every Thursday to the Department of Off-site Supervision. This statement now is submitted through on-line using the web upload service of BB website within o3 (three) working days after the reporting date which is much more time and labor efficient that the earlier manual system. The e-Returns service has been introduced which is An Online Portal Service for Scheduled Banks to submit Electronic Returns using predefined template for the purpose of Macro Economy Analysis through related BB Departments. Online Export Monitoring System is used for monitoring export of Bangladesh. Through this service, Banks and AD Branches of Banks issue & reports export report. Bangladesh Automated Clearing House (BACH) started to work by replacing the ancient manual clearing system which allows the inter-bank cheques and similar type instruments to be to settled in instant manner. Electronic Fund Transfer (EFT) has been introduced which facilitates the banks to make bulk payments instantly and using least paper and manpower. The initiation of Mobile Banking has been one of the most noteworthy advancement in banking. Through this system, franchises of banks through mobile operators can provide banking service to even the remotest corner of the country. Almost every commercial bank is now using their own core banking solution which has made banking very faster and efficient. Usage of plastic money has much more increased in daily life transactions. Full or partial online banking is now being practiced by almost every bank.
Inauguration of internet trading in both of the bourses (DSE & CSE) in the country is the most significant advancement for capital market in last several years. Micro Finance Institutions submit their reports to the regulator through the Online Report Submission Tools for MFIs.
Institutional Development: Through the Central Bank Strengthening Project, there have been a good number of achievements regarding the institutional development in BB which can be observed below:
The implementation of Enterprise Resource Planning (ERP) has been a big step in automation of operational structure of BB. The establishment of Enterprise Data Warehouse (under process) will bring the whole banking and FI industry under a single network through which data sharing, reporting and supervision will enter in a new horizon. Bangladesh Bank now possesses the most informative and resourceful website of the country regarding economic and financial information. Internal networking system with required online communication facilities have been developed and in operation for the officers of BB. BB has hosted number of international seminars on different economic and financial issues over last several years.
MRA was established in 2006 for bringing NGO-MFIs under supervision. For the pro active role of MRA, this sector (MFI) is now in a good shape regarding the accountability and regulation. For abolishing anomaly and fetching discipline in insurance industry, IDRA was established in 2011. In one year, IDRA has taken number of appreciable steps to regularize this industry. After the massive crash of local bourses in 2010-2011, the executive body of SEC was redesigned in full and some good results have come after that. Regulatory Development: Banking and FI industries have experienced diversified regulatory development over last few years:
Basel-III has been introduced in a phased manner starting from the January 2015, with full implementation of capital ratios from the beginning of 2019. Guidelines on Environmental and Climate Change Risk Management for banks and FIs have been circulated. Policy guidelines on Green Banking also have been issued. Guidelines on Stress Testing for banks and FIs have been issued which is aimed to assess the resilience of banks and FIs under different adverse situations. Number of Policy initiatives for Financial Inclusion has been undertaken. Banks have been asked to build up separate Risk Management Unit for comprehensive and intensive risk management. Banks have been instructed to create separate subsidiary for capital market operations and capital market operations of banks are now minutely monitored. Supervision has been intensified to increase the participation of banks in Corporate Social Responsibility (CSR). For the efficient and timely action of BB, foreign exchange reserve of Bangladesh did not face any adversity during global financial turmoil of 2007-09. To meet international standard on Anti Money Laundering (AML)/Combating Financing of Terrorism (CFT) issues, guidelines for Money Changers, Insurance Companies and Postal Remittance have already been circulated.
SEC has updated Public Issue Rules, 2006 and Mutual Fund Rules, 2001. Apart from that, numbers of AMCs, merchant banks and are Mutual Funds are permitted by SEC which has increased the participation of institutional investors. The trend of capital market research has been upward which indicates the potential of analytical investment decision. Insurance Act 2010 was formulated to meet demand of concurrent time for shifting the insurance industry in a better shape. Apart from that, several initiatives have been undertaken by IDRA for prohibiting the malpractices in the industry regarding insurance commission, agent, premium etc and corporate governance issues.
