OREANDA-NEWS. The Asian Development Bank (ADB) has approved a loan of $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 $80 million and $170 million as agreed policy milestones for reforms are reached. The program will be completed by the end of 2017.

“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 third program supports policy actions to strengthen the Bangladesh Securities and Exchange Commission, boost institutional investor demand, broaden the supply of financial instruments, including sukuk, and to promote a more liquid government bond market.”

The government is targeting annual average gross domestic product (GDP) growth of 10% by fiscal year (FY) 2021. But to achieve this goal it will need to take steps to attract more private investment, including developing the capital markets. 

The second program helped stabilize the Bangladesh stock market after a major sell-off in 2010 and supported the passage of key financial sector legislation. 

The third program 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.

To improve enforcement and to 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 which 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. 

The program will also spur a more liquid bond market with pilot sales of floating-rate government bonds and by allowing primary dealers to short sell government securities. Meanwhile, rule changes on taxes and exchange-traded funds will seek to promote a more robust mutual fund industry. 

ADB’s loan will be complemented by technical assistance of $700,000 to support the implementation of key reforms, including the installation of an information and communications technology system. ADB will provide a $400,000 grant and it will administer a $300,000 grant from the Republic of Korea’s e-Asia and Knowledge Partnership Fund.
 
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.