Removing barriers to long-term finance  

The World Bank's listing of the factors impeding the availability of long-term finance in Bangladesh is not that different from what the local experts and institutions have been saying for years. Yet the WB finding does deserve a closer look, for, as a multilateral institution having global reach, the institution has a far greater expertise in dealing with such issues. There is no plausible reason to dispute factors that the WB has identified as impediments to the development of a sustainable long-term finance mechanism. The availability of long-term finance at an affordable cost is an important prerequisite for growth of industries and physical infrastructures.

The WB in its diagnostic report has identified five major barriers to the development of long-term finance mechanism in Bangladesh. The policymakers here are aware of the existence of the impediments, but they until now have not demonstrated any serious intention to remove those. Thus, the absence of credible and affordable sources of long-term finance has become a serious problem for entrepreneurs willing to make large investment in industries and infrastructures.

In such a situation, the private sector is now greatly dependent on the banking sector for meeting its long-term investment need. The banks too have been meeting, partially, the requirement for decades, but not without adverse impact on their own financial health. The banks encounter operational distortions, for they take short-term deposits and lend funds for longer terms. The situation becomes more difficult for the banks when the long-term borrowers default on their repayments. Most banks in Bangladesh are now facing serious problems with the funds they have lent for longer period.

World over, the capital market remains an affordable and dependable source of long-term finance. Unfortunately, what is scarce in Bangladesh capital market is one basic thing - lendable capital. The stock market, even decades after its birth, lacks depth and investors' confidence. The number of listed companies is still small while that of companies registered with the Registrar of Joint Stock Companies and Firms (RJSC&F) is quite large. Private companies do not feel encouraged to go public for lack of incentives and for fear of shareholders' scrutiny. A couple of market crash has made things even worse for the stock market.

The capital market needs sustained flow of funds that could be used for long-term investments. Pension and life funds are handy tools to meet that requirement. But relevant regulations are considered impediments to the flow such funds to the capital market. These rules and regulations need updating to ensure an unhindered flow of pension and life funds to the capital market. Once the necessary changes are made, the problem with the availability of funds for long-term finance would be largely solved.

Another sore point of the Bangladesh capital market is the absence of an active and vibrant secondary bond market. There is a bond market, but it exists only in name. The WB in its report has rightly pointed out the absence of credible reference rate and yield curve 'representative of true cost of funds'. In such a situation, the private sector finds no incentive to issue bonds and the investors to put in their money in those.

There are evidently lots of policy-related inconsistencies with regard to the country's capital market. Apart from a few sporadic reform initiatives, the government has not until now demonstrated its seriousness to right the wrongs and plug the loopholes in the operation of the capital market.  Major reforms are necessary to ensure unhindered flow of capital into the market and its smooth outbound movement to help finance long-term investments in the country. The reforms should also encompass the regulatory bodies that oversee money market, fiscal operations and capital market.