The Current State of the Financial Sector of Bangladesh: An Analysis

Chu V. Nguyen (), Anisul M. Islam () and Muhammad Mahboob Ali ()
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Chu V. Nguyen: University of Houston-Downtown, Texas, USA
Anisul M. Islam: University of Houston-Downtown, Texas, USA

No AIUB-BUS-ECON-2011-03, AIUB Bus Econ Working Paper Series from American International University-Bangladesh, Office of Research and Publications (ORP)

Abstract: The financial sector of Bangladesh is generally small and underdeveloped. This sector consists of a banking segment and an emerging but still nascent capital market segment. The banking segment in the country is relatively more developed than the equity market segment, even though both are quite underdeveloped in international comparison. The root causes of the Bangladeshi financial sector problem are the lack of market discipline due to lack of competition in the banking industry. Excessive government intervention and political connections, economic and political corruptions, operational and managerial inefficiency and ineffectiveness result in vicious circle that inhibits economic development, industrialization, and social progresses in poor and developing countries in general and in Bangladesh in particular. Authors’ suggested that in the financial regulation should be strengthened and further needed reforms should be carried out. In addition, an ombudsman may be appointed in the financial sector. The ombudsman can act independently to investigate any complaints regarding financial services and must work freely and independently. Better financial services and diversified financial products would be the natural consequence of competitive financial industry. The authors argue that a strengthened regulatory environment and additional much needed financial sector reforms, a better and more efficient financial sector may evolve over time and serve better the development needs of the country.

Date: 2011-11, Revised 2011-11
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