Bangladesh is no one's topic of discussion when it comes to the capital market, despite making high economic progress recently.
The capital market, ideally set to provide long-term industrial capital, plays a negligible role to finance projects and businesses here.
The last 11 years' official data shows that the capital market's contribution to the total annual capital – provided by the banking system and the market altogether – never went beyond 5 percent.
And the deepening depression in recent years brought it below 1 percent.
However, the banking industry's all-out involvement in financing long-term projects, despite its dependency on short-term deposits, has created a systematic problem and increased the burden of non-performing loans.
The experts said this on July 29 at the online dialogue "Can Our Capital Market Provide with Industrial Capital?" jointly organised by the Lawyers and Jurists and MMH Chartered Accountants and Management Consultants.
The Business Standard was the media partner of the event.
Bangladeshi commercial banks were involved in short-term and mid-term commercial lending until The World Bank's prescription to use commercial banks for financing industrialisation was accepted, in 1992, "when the development financing institutions were not performing well," said former Bangladesh Bank Governor Professor Mohammed Farashuddin.
"We are now seeing the consequence of the wrong policy."
He also called for widened incentives and other necessary reforms that would help increase financing from the capital market.
The government, in the budget for this fiscal year, cut corporate tax for non-listed companies only, which reduced the corporate tax gap between listed and non-listed companies to 7.5 percent from 10 percent in general.
Professor Shibli Rubayat-Ul-Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), said his commission would advocate for restoring and enhancing incentives for the stock market listing of well-governed and performing companies.
While discussing the capital market's internal problems, the BSEC chairman reiterated his commitment to bring about desired changes in product diversification; ensuring efficiency and transparency in processes, good governance, and being tough on non-compliant actors.
Dr A B Mirza Azizul Islam, former chairman of the securities regulator and also an advisor to the former caretaker government, focused on quality initial public offerings (IPO) at the programme.
Over the last decade, the previous commission at the securities regulator failed to make it happen and also many fraudulent IPO schemes took place, said the discussants while calling for a turnaround through increasing investors' confidence and undertaking new initiatives.
None of the world's biggest entrepreneurs lines up for bank loans, they instead depend on the capital market for financing, Professor Shibli said, adding that size of the world's capital market – including debt securities – outnumber the one of bank lending.
"The BSEC is working hard to build an effective market for bonds," Professor Shibli said.
"Treasury bonds will be exchange-traded soon and municipalities and corporates will also be dominantly financed from bonds in future."
The capital market regulator's main tasks include making the government understand the importance of capital market development for long-term financing and ensuring market confidence and governance, Farashuddin said.
He suggested forming a search committee to select independent directors at both the demutualised bourses.
Mirza Azizul Islam also spoke about the need for improvement in coordination among the regulators, policy offices; of the overall economic situation, and at the level of financial literacy among market participants so that they can properly handle debt securities in future.
The discussion was hosted by The Business Standard Editor Inam Ahmed, moderated by MMH and Company's Managing Partner Mahmud Hossain and addressed by the Lawyers and Jurists' Chamber Head Barrister A M Masum.
A M Masum discussed different legal issues including how the wrongdoers in the capital market can be penalised and how other countries' regulations are benefitting the general shareholders and helping them gain trust in the market system.
Also, several online participants talked about overhauling the delisting process so that the consequences of non-compliance and non-performance by listed companies fall on their promoters and directors instead of the public.
In India, if a company faces forceful delisting, its sponsors are asked to buy the public shares back in time and the regulator bars the entrepreneurs from re-entering the market for a decade, A M Masum said.
Supporting the recent quick steps taken by the new commission at the BSEC, the discussants suggested the securities regulator go tough on non-compliances and malpractices to protect investors' rights and regain their confidence.
The BSEC, in the last two months, sped up enforcing actions against non-compliances, next-level automation of the market infrastructure for efficiency and transparency; approved new debt securities while being selective in giving IPO approval.
"To increase financing through the capital market will require fiscal incentives," BSEC chairman said.