High issuance cost coupled with the lack of an effective secondary bond market and the required level of financial literacy remains the key hurdle to overcome in building a vibrant fixed income market in the country, says a keynote paper.
It also says absence of benchmark indices and some unresolved issues concerning uniform tax benefits for zero coupon bonds are also barriers to developing a bond market.
The paper was presented at the roundtable on 'Development of Bond Market in Bangladesh' organised by the City Bank Capital (CBC) at a city hotel on Saturday.
Bangladesh Investment Development Authority (BIDA) Executive Chairman Md Sirazul Islam addressed the programme as the chief guest.
Bangladesh Securities and Exchange Commission (BSEC) director Mohammad Rezaul Karim and World Bank's senior financial sector specialist AKM Abdullah were also present.
IPDC Finance managing director and CEO Mominul Islam and Prime Bank Investment Ltd (PBIL) managing director and CEO Dr Md Tabarak Hossain Bhuiyan also spoke.
Delivering his speech, the BIDA executive director said Bangladesh needs to work hard to become a developed country by 2041 and the country's financial sector can collect its development funds from the bond market.
He said many Bangladeshis are established businessmen in different countries including the UK, the USA, Australia and the UAE. They can be potential investors in the bond market.
For the period from 2016 to 2040, Bangladesh needs US$608 billion in infrastructure investment alone to achieve its target of becoming a developed country.
But as per the current investment trend, there might be a deficit of $200 billion, especially in power, telecom and water sectors. The deficit can be met with funding from an effective bond market.
The PBIL CEO said initially regulations need to be flexible to encourage corporate bonds and with the markets' maturity, the regulations can be enforced gradually.
Mentioning that there are around 10 million non-resident Bangladeshis (NRBs) across the world, he said the NRBs are very interested in investing here, but they cannot invest due to lack of financial literacy and a special programme for them.
He said: "It should be accepted that existence of undisclosed money is a reality in developing countries and such money can be channelled into the promising bond market."
Mr Tabarak also said the required funds for infrastructure projects taken on the public-private partnership (PPP) basis can be collected from the bond market for the long term as banks only offer short and medium-term finance.
Calling for flexibility in approval of bond issuance, the IPDC CEO said it takes around six months to get approval for issuance of even a Tk 10 million bond by the Bangladesh Bank and the BSEC, which needs to be changed.
Mr Moinul also underlined the need for developing the equity market in the country and reducing default rates of financial institutions for a better bond market.
BSEC director Mr Karim said that the regulator had been working to modify the rules to ease issuance of corporate bond apart from introducing Islamic bond known as sukuk, green bond and scrutinising possibility of long-term municipality bond.
Presenting the keynote, CBC CEO Ershad Hossain noted that there is lack of literacy about bond market among the general investors as well as people working with financial institutions about the financial instrument.
Related authorities can take special programmes to raise literacy level of investors and enhance benefits of investing in the bond market.
He said to mitigate credit risk, companies that are the leaders in their respective segments and have good credit profiles should be allowed to issue bonds.
A secondary market having instruments that are traded through an electronic platform needs to be developed to address the liquidity issues, he added.
In a bid to reduce cost of bond issuance, coordinated efforts with various stakeholders like Ministry of Finance, Insurance Development & Regulatory Authority (IDRA), BSEC, central bank, National Board of Revenue (NBR) are required.
Sonali Bank Ltd Chief Financial Officer (CFO) Subhash Chandra Das, Bangladesh Institute of Bank Management (BIBM) director Professor Prashanta Kumar Banarjee and Finance Ministry deputy secretary Mohammed Shafiul Alam, among others also spoke at the programme.
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