Moving the economy forward

The topic of Bangladesh being one of the next economical hubs of the globe has been much talked about. Powerhouses like Goldman Sachs have already certified this rich delta of Asia as one of the next eleven biggest economical phenomena. Such positive forecast in tune with the investment policy of the government has encouraged foreign investors again and again to consider Bangladesh as an investment option.
The stock exchanges in Bangladesh situated in Dhaka and Chittagong have witnessed the inclusion of MNCs such as Grameenphone, Lafarge Surma Cement along with others bolstering their capital to a substantial margin. Over the past 20 years, apart from the rare glitches, the capital market has shown promise to not only organisational investors but individuals too. In 2010, the combined market capitalisation of listed companies on the Dhaka bourse stood at over $50 billion.
There are many segments of financial market including money market, stock market, bond market, insurance market, foreign exchange market and derivatives market, etc. However, money moves from one segment to another segment of the financial market due mostly to the relative rates of return in different segments. Normally, money goes to the segment in which the rate of return is higher. As long as the rate of return in a particular segment of the financial system is higher, the volume of investment in that segment will continue to grow. If the financial market is automated, any opportunity for arbitrage will lead to an acceleration of investment in the segment with high rate of return and to a corresponding deceleration of investment in other segments of the financial market. Therefore, the automation of financial market and the consequent reduced opportunities for arbitrage are essential for stabilising the flow of funds to different segments of the financial market promptly and efficiently. The automation of financial market is important for healthy and balanced growth of all the major components/pillars of the financial system and allows market participants to realize broadly similar rates of returns after allowing for risk and tenor in different segments of financial market.
In the context of the subcontinent, though, it may be said that there is a lot of scope for applicability of financial market automation. With respect to Bangladesh, the financial sector industry is highly fragmented, with limited degree of overlap among  formal, semi-formal and informal markets for credit, savings, insurance and various other non-bank financial services such as lease financing, mutual funds and mortgages (South Asian Network of Microfinance Initiatives, 1998). Accordingly, efficient market intermediation here is constrained by two crucial barriers-institutional and policy environment. The institutional rigidities in place serve to constrain the operating and implementing effectiveness while an almost obsolescent legal and regulatory framework also poses considerable barriers to market automation. Importantly asymmetry regarding knowledge of information may be cited as a crucial factor.
In the recent years, an integrated automation initiative was undertaken in the small but steadily growing market of Bhutan. Driven in large part by privatisation, the government remains a major corporate owner. However, even with steady growth, domestic investors contribute turnover and liquidity. Twenty companies are listed on the Royal Securities Exchange of Bhutan Limited (RSEBL) where four brokers transact on behalf of their nation-wide customers. As of June 2012, the total market capitalisation was Nu. 15.17 billion or US$ 275.8 million. Market capitalisation has increased steadily each year over the last decade, and was about 20 per cent per cent of GDP.
To create a more investment friendly atmosphere, global automation support companies such as InfoTech have been offering integrated software solutions in the financial systems for a better output from the capital market. Systems can be altered or re-mapped according to the needs of the infrastructure or help in the creation of it. Currently, the capital market in Bhutan is equipped with all modern systems required to promote stock investment and fund raising at next level. Technology infrastructure is well in line with several emerging and advanced capital markets for regional integration or exploiting potential at local. These modern systems are quite conducive in winning the public confidence through transparency and direct market access while investment community being the focus of whole automation. A similar approach in the Bangladesh market can be replicated in a more complex and effective manner to ensure free flowing process of market optimisation and ease of use for the investors.
The writer is research assistant of UK-based University of Hull.
 fahad.Ibraheem85@gmail.com