Posted on 27th Dec 2024 12:22:17 AM Finance
1.1 Introduction
The Economic development of a country depends on a sound financial system. Financial system provides a strong mechanism for collection and allocation of financial resources among the various alternatives. However, in a developing country like Bangladesh it is very hard to reach to a sound financial system due to the lack of requisite institutions, expertise and resources. Many legal and regulatory frameworks are needed to ensure discipline in the financial system. For these reasons, careful assessment of the financial system is necessary to determine about which features of the financial system are basic and which features are secondary and the types of institutions that are essential in the process. Actually, financial system is decomposed of into two basic types of institutions. One is the banking financial institutions (BFIs) and the other is the non-banking financial institutions (Leasing Companies). These two financial institutions are different in respect of their activities and treatment of the assets and liabilities in the financial market. Leasing Companies have an important role to uplift the economic activity. Leasing Companies represent one of the most important segments of the financial system of Bangladesh and play a very important role in mobilizing and channeling resources.
About 31 Leasing Companies who got license from Bangladesh Bank up to 2011 under the Financial Institution Act-1993 and Financial Institutions regulations 1994 from which 29 companies are in operation. Development of the Leasing Companies in a sustainable basis contributes to the speed and efficiency of the financial system. The necessity for the development of Leasing Companies could be best judged with the following issues.
Firstly, the Leasing Companies are markedly different from the banking institutions and with different phenomena. These two kinds of financial institutions are complementary rather than substitute organs in the financial system. Existence of banking and non-banking financial institutions, money market and capital market keep the financial sector complete and enhance the overall growth of the economy.
Secondly, there is a maturity mismatch in the sources and uses of funds in our financial system, which lead is not fully efficiency in the financial system. Commercial banks by their definition are unsuited for long term lending. Bank Financial institution (BFIs) is not fully efficiency in long-term loan management has already leaded an enormous volume of outstanding loan in our economy. Leasing Companies actively work in our economy and also help our BFIs by providing long-term loan management service to their customer. Private commercial banks are less experienced and less equipped in this regard and they would not take the load or be able to take future challenges of term lending of the country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, development of Leasing Companies is a compelling necessity for the economy.
Thirdly, sophisticated and well-developed capital market is considered as the hallmark for a market economy worldwide. The health of the capital market is largely relied upon the health of the banking and non-banking financial institutions. Day by day Leasing Companies participation in capital market is increasing. Although Leasing Companies have immense necessity and greater importance in the financial system of Bangladesh, they are severely suffering from some problems including the fund problem in terms of both availability and cost. Initiatives from all concerns are necessary to eradicate the fund constraints to ensure easy flow of fund. The existing regulatory and legal frameworks for Leasing Companies are not adequate in a greater extent as compared to BFIs. Bangladesh Bank has taken several initiatives in recent years to improve the suitability of the regulatory framework.
The Focus of this report is to highlight the necessity and importance of Leasing Companies along with BFIs to strengthen the financial system of overall economic development of the country. We also put insight into the problems and future prospects of Leasing Companies. The growth of Leasing Companies in terms of assets and liabilities and diversified areas of business has significantly increased. In this paper an attempt has been made to highlight different features of Leasing Companies to identify their importance in financial system of Bangladesh. Special emphasis has been given to the complementary role of Leasing Companies with BFIs for efficiency of financial system, contribution in term lending, role in capital market development, problems in availability of fund, impact of Leasing Companies’ Deposit Mobilization on the Monetary Policy etc.
1.2 Background of the study
Leasing Companies in Bangladesh are gaining increased popularity in recent times. Industrial Promotion and Development Company (IPDC) was the first private sector NBFI in Bangladesh, which started its operation in 1981. Since then the number has been increasing and in December 2011 it reached 31 but 30 companies are operating across the country. Of these, three are government owned, 18 are local (private) and the other 10 are established under joint venture with foreign participation.
Though the major business of most Leasing Companies is leasing, some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing and venture capital financing. The purpose of this paper is to highlight different features of Leasing Companies, their contribution to the overall economy and the product base of Leasing Companies. The paper also describes the performance of Leasing Companies as measured by different financial indicators, along with the effects of banks entry into the non-bank financing area. In addition, non-bank financial sector is important to increase the mobilization of term savings and for the sake of providing support services to the capital market. The focus of this paper is to highlight the necessity and importance of Leasing Companies to strengthen the financial system for rapid economic development of the country. Special emphasis has been given to identify the challenges faced by Leasing Companies in Bangladesh.
And finally, development of Leasing Companies as well as their role in strengthening the financial system of Bangladesh has been discussed. It is found that despite several constraints, the industry as a whole is performing reasonably well. Given appropriate support, Leasing Companies will be able to play a more significant role in financial intermediation.
1.3 Rationale of the Study
Leasing Companies represent one of the most important parts of a financial system. In Bangladesh, Leasing Companies are new in the financial system as compared to banking financial institutions (BFIs).
Traditionally our banking financial institutions are involved in term lending activities, which are mostly unfamiliar products for them. Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of outstanding loan in our country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, Leasing Companies have immense importance in the economy. In addition, non-bank financial sector is important to increase the mobilization of term savings and for the sake of providing support services to the capital market. Though the financial institutions play a vital role of the economy hence the FIs are not strong enough compared with the Banking Institutions. The main problem of this industry is the raising of fund and the cost of fund also the tax rate is very high compared with other industries. So it is important to focus on the development of the Financial Institutions of our country.
1.4 Objective of the Study
The main objective of the report is to highlight the necessity and importance of Leasing Companies along with BFIs to strengthen the financial system of overall economic development of the country. We also put insight:
1.5 Methodology of the Study
Fixing the Study Area
The subject ‘Development of Leasing Companies to Strengthen the Financial Systems of Bangladesh’ is chosen for this study to highlight the current condition of the financial institutions in Bangladesh. The development of the FIs in Bangladesh have great prospect and these institutions also face some problems. The main competitor of this industry is banking sector industry, which is very strong and in leading position. So, it will be a great area for analyzing the present situations of the Leasing Companies.
1.5.1 Data Collection
Analysis has been made on the basis of the objectives mentioned before in the context of ‘Development of Leasing Companies to Strengthen the Financial Systems of Bangladesh’ A study on Department of Financial Institutions and Markets (DFIM) of Bangladesh Bank –The research paper will be written on the basis of information collected from primary and secondary sources.
a) Primary Data
Discussion with the respective organization's officials. The primary data are those which are fresh and authentic and thus happen to be original in character. We know there are several methods of collecting primary data. The main methods are:
In our study, we emphasize on the following three methods:
a) Observation Method
It is the most commonly used method. In such a way, we all observe things around us specially our related field. In our study, we have visited some department of BB, Head Office for observed and collected data.
b) Personal Communication method
It is another important method of collecting primary data. It is very effective method. We have gathered data through personal discussion with the officers and employees of different levels of the BB, Head Office. They provide information about banking operations. Other information has been collected by personal discussion with the coordination of accounts officers, management information division, etc.
c) Questionnaire Method
It is an important and effective method of data collection. We have collected some important data through questionnaire. At first, we make questionnaire as the direction of our supervisor. That is, firstly we have selected what is required to carry out our study and how to measure the variables and thereafter have prepared questionnaires and collected information.
b) Secondary Data
Secondary data means data that are already available i.e., they refer to the data which have already been collected and analyzed by someone else. We know, there are many sources of secondary data. It may be published or unpublished. The published data are available in-
The sources of unpublished data are many. They may be found in diaries, letters, unpublished biographic and autobiographies and also may be available with scholars and research workers, trade associations, labor bureaus and other public/private individuals and organizations. In our study, we have mainly gathered the secondary data from the following sources:
1.5.2 Preparation of Questionnaire
Questionnaire is the list of some question that is use by the researcher to generate necessary data. Depending on this subject matter of study, the researcher prepares a questionnaire. The Questionnaire is to be simple, clearly understandable and consistent with the study work. On the basis of structure questionnaire are of four types such as-
Open Ended Questions: In this case the respondents are free to give answers. Answerers of the questions may provide various answers of the same question here.
Close Ended Questions: In a close ended question, respondents are offered a set of answers from which they are asked to choose the one that most closely represent their viewed.
Contingence Questions: Contingency questions are those that should be answered only by those persons giving a particular response to some preceding questions.
Matrix Questions: Matrix questions are those in which a standardized set of close ended response categories are to be used in answering several questionnaire items.
1.5.3 Hypothesis of the research
We can take two logical assumptions. There is no problem of Development of Leasing Companies. Here, null hypothesis is- Ho:r=0
There is a problem of Development of Leasing Companies. So, here alternative hypothesis is-
HA:r ≠0 r = correlation between development of Leasing Companies is increasing their demand day by day. We assume the relationship is positive; e.i if the Leasing Companies is familiar their demand, it will be enriching in future.
Now we can say HA:r>0
We want to reject the null hypothesis in future to prove that demand familiarity reduces Leasing Companies challenges in Bangladesh.
1.5.4 Definition, Assumption and Limitations of the research
a) Definition of Terms
b) Assumptions
c) Limitations
1.5.5 Conceptual Design or Theoretical Framework
My research problem related some variables are as follows:
From title variable we can say Leasing Companies development problem is related with three different variables, e.i SMP = F(unfamiliarity,no urbanization,unsystematic strategy
So, development strategy is dependent variable where Leasing Companies is independent variable.
Analyzing Data
Various tools and techniques are used by the author in order to convert financial statement data into formats that facilitates the evaluation of a firm’s financial condition and performance, both over time and in comparison with industry competitors. These include different ratios, trend analysis, growth analysis and most important of all, common sense and judgment. Representing the Data and Preparing the Report:
The report has two main parts
Part One: This is basically introductory part, the objective and scope of the study, limitations, and research methodology has been highlighted. Brief Introduction of Bangladesh Bank and Non-Bank Financial Institutions, Leasing Companies products and services, Role of Bangladesh Bank, Functions of NBFI and brief discussions about Financial Institutions operating in Bangladesh etc. are presented.
Part Two: Detail about NBFI, Difference of Bank and Financial Institutions, Role of NBFI, Present condition of NBFI, Challenging issues of NBFI, Development of the Capital Market and the Leasing Companies Impact of Leasing Companies, Deposit Mobilization on the Monetary Policy, The Phenomenon of Long Term Financing and the Analysis of Leasing Companies Performance in Term Financing, this part also contains the recommendation, conclusion, reference & appendix of the report.
1.6 Literature Review
Financial institutions have traditionally been the major source of long-term funds for the economy in line with the development objective of the state. A wide variety of financial institutions (FIs) emerged over the years. While most of them extend direct finance, some also extend indirect finance and still some others extend largely refinance. FIs can be broadly categorized as nature of their operations.
Leasing Companies in Bangladesh are gaining increased popularity in recent times. Though the major business of most leasing some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing and venture capital financing. The purpose of this paper is to highlight different features of Leasing Companies, their contribution to the overall economy and the product base of Leasing Companies. The paper also describes the performance of Leasing Companies as measured by different financial instruments, along with the effects of banks entry into the non-bank financing area. In addition, non-bank financial sector is important to increase the mobilization of term savings and for the sake of providing support services to the capital market. The focus of this paper is to highlight the necessity and importance of Leasing Companies to strengthen the financial system for rapid economic development of the country by introducing the diversified product.
Special emphasis has been given to identify the challenges faced by Leasing Companies in Bangladesh. And finally, development of Leasing Companies as well as their role in strengthening the financial system of Bangladesh by introducing the new financial instruments has been discussed. It is found that despite several constraints, the industry as a whole is performing reasonably well. The financial institutions industry in our country represents one of the most important industries those control the monetary flow in the economy. From the very first of its journey (Started by Industrial Promotion Company of Bangladesh Limited in 1981.) this industry has shown so much prospect as well as progress. In the same time it witnessed impressive growth during the last years. But currently the industry seems to become matured with so many competitors. The recent inclusion of another two new financial institutions (Agrani SME Financing Company Limited & Bangladesh Infrastructure Finance Fund Limited BIFFL.) in the market has increased the number of competitors at 31. From the research & provided data it is very clear that the companies are trying to strengthen their position in the market as the investment in fixed asset seems to on the rise. Besides following the stock market crash in 2010 and recent rise in the dollar price, the cost of fund has also significantly jumped. Altogether these factors are provoking the decline in the growth in income for the companies.
As per Section 7 of the Banking Companies Act 1991, commercial banks also started different activities offered by financial institutions, specially leasing. Following the act, commercial banks started their leasing operation effectively in 1995. At present, almost all major private commercial banks are involved in non-bank financial operations. And now following the recent emergence of new Banks and three specialized NRB (Non-Resident Bangladeshi) banks, the competition seems to be worsened. Not only these institutions are competing in a very highly competitive industry but also they have to compete with the banking sector to survive. In our country like most other industries, financial institutions are also big city especially Dhaka concentrated. Financial institutions rarely spread their branches outside divisional cities let alone the urban areas. So the fierce competition among as well as across the group is strengthening. So the market segmentation, expansion and product diversification may be some key tools to get out of the situation for the FIs. In case of 3 branches when 2 are situated in Dhaka then another 1 is must be situated in outside in Dhaka.
Besides, FIs in Bangladesh may also explore the possibilities of gaining access to new sources of funds like issuance of commercial paper and discounting or sale of lease receivables. In this connection, IPDC launched first asset backed securities in 2004 of 358.58 million tk. and ULC launched zero coupon bonds in 2005 of 400 million tk. And IDLC launched zero coupon bonds in 190 million tk. Of 2005 and letter on IDLC launched new zero coupon bonds in 2013 of 150 million tk. As an alternative source of funding, this new instrument emerged as an important tool and added a new dimension in the financial market. But changes in taxation policy in 2005 by the government have made the future of this instrument less attractive for the concerned financial institutions. Despite these constrains the industry has performed remarkably well.
1.7 Scope of the Study
Writer will assign in Bangladesh Bank (Head Office) as an internee for three months. It will writer’s very first on the job exposure & provided author with learning experience & knowledge in several areas. This internship report covers all the related activities handled by the Bangladesh Bank. Writer will have an opportunity to gather experience by working in the different desks of the financial institutions and markets department of Bangladesh Bank. I will able to enhance my knowledge on fundamentally on the subject matters, with the best support and co-ordinance guidance of all employees of financial intuitions and markets department of Bangladesh Bank.
1.8 Limitations of the Study
To make a report resourceful, various aspects and experiences are needed. But I have already started working on my report and faced some complex situation to complete the report. The barriers or limitations, which hider my work are as follows:
I have been appointed only for 12 weeks to work in this department and prepare the report. Most of the employees remain very busy in their own works. Though they remain very busy most of the time they have tried to help me but due to their work pressure and confidentiality I am not getting opportunity to learn all the analysis properly.
Table of Contents
Letter of Transmittal
Acknowledgement
Acceptance Letter
Preface
Chapter One
1.1 Introduction
1.2 Background of the Study
1.3 Rationale of the Study
1.4 Objective of the Study
1.5 Methodology of the Study
1.5.1 Data Collection
1.5.2 Prepare of Questionnaire
1.5.3 Hypothesis of the Research
1.5.4 Definition, Assumption and Limitations of the research
1.5.5 Conceptual Design or Theoretical Framework
1.6 Literature Review
1.7 Scope of the study
1.8 Limitations of the Study
Chapter Two
2.1 Economy of Bangladesh
2.2 Overview of Financial Market of Bangladesh
2.3 Overview of Financial System in Bangladesh
2.4 Financial Sector in Bangladesh
2.5 Difference between Bank and Leasing Companies in Bangladesh
2.6 Non-bank Financial Institutions
Chapter Three
3.1 About Bangladesh Bank
3.2 Vision
3.3 Mission
3.4 Strategic Plan
3.5 Organogram of BB
Chapter Four
4.1 About DFIM
4.2 Section
4.2.1 License section
4.2.2 Policy and Control Section
4.2.3 Statement section
4.2.4 Bond and Securities section
4.2.5 BASEL Implementation cell
4.2.6 General Section
Chapter Five
5.1 Overview of Leasing Companies
5.2 Historical Background of the Leasing Companies in Bangladesh
5.3 Leasing Companies in Bangladesh
5.4 Products and Services Offered by Leasing Companies
5.5 Present Condition of Leasing Companies
Chapter Six
6.1 Development of Leasing Companies in Bangladesh
6.2 Performance and Rating of Leasing Companies in Bangladesh:
6.2.1 Capital Adequacy
6.2.2 Asset Quality
6.2.3 Management Efficiency
6.2.4 Earnings and Profitability
6.2.5 Liquidity
6.2.6 Sensitivity to Market Risk
6.2.7 Composite CAMEL Rating
6.3 Legal Framework and Prudential Regulations
6.4 Consumer Protection Regulations
6.5 Regulations for Socially-Responsible Financing
6.6 Performance Analysis of Financial Institutions of Bangladesh
Chapter Seven
7.1 Findings
7.2 Recommendations
7.3 Conclusion
7.4 Reference
Development, Leasing, Companies, Strengthen, Financial, Systems, Bangladesh, Study, Department, Financial, Institutions, Markets, DFIM, Bangladesh, Bank, Conceptual, Design, Theoretical, Framework, Non-Bank, Legal, Protection, Prudential, Regulations
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