Asian Development Bank (ADB) aims to help reinforce investor confidence in Bangladesh's financial markets through a US$3.0 million loan to improve good governance practices in the capital market and the insurance sector.
ADB's loan will meet 75 per cent of the project's total estimated cost of $4.0 million, according to an ADB press release received in Dhaka Friday.
The loan comes from ADB's concessional lending window -- Asian Development Fund (ADF) -- and carries a 32-year repayment term, including a grace period of 8.0 years.
Interest rate is set at 1.00 per cent per annum during the grace period and 1.5 per cent per annum thereafter.
The government will shoulder the balance of $1.0 million. The Finance Division of the Ministry of Finance is the executing agency for the project, which is due to terminate in December 2007.
Investor confidence in the capital market has not fully recovered since the stock market crash in 1996, largely due to weak governance and market gaps. Lack of market interest has, in turn, marginalised the role of the capital market in mobilising long-term funds for economic development.
The insurance sector, on the other hand, is underdeveloped. It is characterised by a very limited range of products and services, poorly trained insurance staff, and few investment opportunities. In addition, its legal framework is weak, leading to the industry's poor public image and reputation.
"With better governance and greater investor participation, activities in the capital market and the insurance sector should be revived, and will play a more significant role in mobilising long-term funds for infrastructure and industry, and for spurring economic growth," says Soo-Nam Oh, an ADB Senior Financial/Capital Markets Specialist.
The project will strengthen the regulation and supervision of the capital market, boost the capacity of regulators, and provide recommendations to increase demand for, and supply of, securities by addressing market gaps.
The project will also support government-led reforms being pursued in the insurance sector, including a revamp of the insurance legislation and the establishment of a new regulatory authority, based on international best practices.
"The government's national poverty reduction strategy aims to substantially increase private investment, savings, and economic growth, and the development of the country's financial sector is critical to achieving this," adds Oh.