The seminar held by the Dhaka Stock Exchange with big, reputable companies that took place on Tuesday to bring them into the capital market is a very significant move. This is the first time the DSE has formally invited and sat with such companies for this purpose.
The steps the DSE has previously taken to bring them into the capital market were not fruitful and effective. This current endeavour is not only a big step but an organised one.
Currently, Bangladesh has approximately 30,000 companies and although many of them have been doing good business, they never show any interest to get listed in the capital market.
One of the common complaints made by the speakers at the seminar organised by the DSE was that tight regulations made to prevent irregularities in the capital market discourage entrepreneurs from listing.
During the seminar, Rahimafrooz Group's director Munawar Misbah Moin said that the company wanted to go public thrice over the last 65 years but backtracked due to the complexities in the listing process.
Romana Rouf Chowdhury, director of Rangs Group was also present and spoke at the seminar. She said that they preferred running a private business as listing meant that they would have to make a compromise with the board and go through numerous compliance issues.
But this tendency of not getting listed in the country's capital market is a great problem for Bangladesh economy and its revenue.
Experts Professor Abu Ahmed and Md. Sayadur Rahman, President of the Bangladesh Merchant Bankers Association, have weighed in on the topic to share their observations on why companies avoid being listed.
"They do not come to the stock market because it means increased accountability and transparency for them. Their income has to be disclosed and people come to know it. They have to submit a financial report every three months," said economist Abu Ahmed. "For this reason, they do not show any interest to join the capital market," he added.
Being listed in the capital market is beneficial for the country. The National Board of Revenue (NBR) will get the most benefit if they become listed. The Dhaka Stock Exchange has only 347 companies listed. Around 80 percent of the total corporate tax in the country comes from the listed companies.
As most of our companies are not listed in the capital market, people have little idea regarding the income of these non-listed companies.
Unilever is a listed company with the Bombay Stock Exchange. It is a listed company with Karachi and Bangkok too but not in Dhaka.
"Why is the company not listed in our capital market?" asked Abu Ahmed. There is a listed company in our capital market named Unilever Consumers Limited. The main Unilever is not listed," said Abu Ahmed.
He believes that there are thousands of small non-listed companies in the country because the government cannot properly pressurise them into joining. Now is the time to bring them to the capital market.
Economists believe that the inclusion of non-listed companies in the capital market has not yet happened due to a lack of political decision-making. To make it happen, the government will have to give non-listed companies a 'strong message'.
"Only discussion will not do. The government will have to apply a carrot and stick policy. If the companies do not come to the capital market, they will increase the corporate tax but if they come to the capital market, the corporate tax will be brought down," said economics professor Abu Ahmed. "If needed, the BSEC can seek support from The Prime Minister's Office."
He also added that the NBR can bring down corporate tax to around 18 to 20 percent as a way of luring them into the capital market. The government would also have to increase their facilities if they want to woo big companies.
Md. Sayadur Rahman also said, "The difference between the corporate tax of non-listed companies and listed companies is 7.5 percent. So the corporate tax for listed companies should be brought down to 15 percent from its current 22.5 percent. It will encourage companies to come into the capital market."
He also added that the government will have to simplify the tax assessment and collection process.
"The government can also make policy improvements. The government can say a company will not get bank loans for more than a specific amount of money. This will compel a company to come to the capital market," said Sayadur Rahman.
But there are still some companies who come into the capital market to raise funds.
"In Bangladesh, there are two reasons why a company would come to the capital market to raise funds. The first reasoning may be that their listing in the capital market is made mandatory by the government. Another is when those companies do not have easy access to get bank loans and getting listed becomes the only way to fund themselves," said Sayadur Rahman.
He said that as well-established companies, unlike these smaller companies, have easy access to bank loans, they do not show interest in getting listed in the capital market. The bigger companies do not get the incentive to be encouraged to get listed in the capital market.
"If a company wants to come to the capital market, it will have to go through many formalities to get listed to raise funds. A company can get finance from a bank very easily. Then who is to blame? It is the process," said Md. Sayadur Rahman, echoing the complaints made by the speakers at the seminar.