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Bangladesh: Third Capital Market Development Program

Sovereign (Public) Project | 45253-002 Status: Active

The Asian Development Bank is helping Bangladesh develop the local capital market to support infrastructure financing and other investments. The program supports policy reforms to establish a legal and regulatory framework for the market to grow. The third stage reforms include strengthening the Bangladesh Securities and Exchange Commission and broadening the supply of financial instruments.

Project Details

Project Officer
Zhang, Dongdong South Asia Department Request for information
Country
  • Bangladesh
Modality
  • Loan
  • Technical Assistance
Sector
  • Finance
 
Project Name Third Capital Market Development Program
Project Number 45253-002
Country Bangladesh
Project Status Active
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 3318-BAN: Third Capital Market Development Program
Ordinary capital resources US$ 150.00 million
Ordinary capital resources US$ 150.00 million
Loan 3319-BAN: Third Capital Market Development Program
concessional ordinary capital resources lending / Asian Development Fund US$ 100.00 million
concessional ordinary capital resources lending / Asian Development Fund US$ 100.00 million
TA 8994-BAN: Supporting Third Capital Market Development
Technical Assistance Special Fund US$ 400,000.00
Technical Assistance Special Fund US$ 400,000.00
Republic of Korea e-Asia and Knowledge Partnership Fund US$ 300,000.00
Republic of Korea e-Asia and Knowledge Partnership Fund US$ 300,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Finance sector development

Gender Equity and Mainstreaming No gender elements
Description The objective of the Third Capital Market Development Program (CMDP3) is the enhanced capacity and size of the capital market that is grounded on a strong legal and regulatory framework.
Project Rationale and Linkage to Country/Regional Strategy

ADB''s focus area in its Bangladesh public sector operations is capital and bond market development, focusing on the provision of long-term infrastructure. This is in line with the government's Sixth Five-Year Plan and the Midterm Review of ADB's Strategy 2020 priorities.

The project was envisaged to support the government's Vision 2021. Vision 2021 laid out a roadmap for Bangladesh to attain middle-income status and set target gross domestic product (GDP) annual growth of 10% by FY2021.

To attain GDP growth targets and sustainable economic growth, Bangladesh should address structural deficiencies in the capital markets by deregulating the financial system to support the real economy and promoting private sector investment to reduce the infrastructure deficit.

CMDP3 builds on the progress of the Second Capital Market Development Program (CMDP2) in 2012. The CMDP2 was aimed at stabilizing the market since the stock market debacle in December 2010 and bringing about reforms that set the foundation for sustainable market development through the passages of critical legislations, such as amendment to the Securities and Exchange Commission Act, 1993, as well as the enactment of the Demutualization Act, 2013, and the Financial Reporting Act, 2015. Despite the major stride toward strengthening its capital markets, there remained constraints. The government and ADB agreed to deepen and broaden the outreach of the second program reforms through the CMDP3.

Against this background, the CMDP3 was designed to support several structural reforms, which includes (i) strengthening enforcement capacity of Bangladesh Securities and Exchange Commission (BSEC) and Insurance Development and Regulatory Authority (IDRA) , (ii) ensuring quality financial reporting by public companies as per international standard, (iii) facilitating demutualization of the two stock exchanges, (iv) facilitating recapitalization of intermediaries, (v) developing market infrastructure, (vi) introducing new regulations for Sukuk (Sharia-compliant bonds) and derivatives, (vii) developing mutual fund and private equity/venture capital industry, and (viii) developing more liquid government securities market.

Impact A well -functioning financial system that supports basic capital and investment needs, as well as Bangladesh''s longer term economic objectives.
Project Outcome
Description of Outcome Enhanced capacity and size of the capital market in a strong legal and regulatory framework
Progress Toward Outcome Two of the three outcome indicators have been achieved as of August 2019, specifically, (i) enlistment of 570 new securities and (ii) stock market capitalization increased to 20.40% of gross domestic product. Pending indicator is total value of corporate bonds issued increased to Tk. 19 billion.
Implementation Progress
Description of Project Outputs

Strengthened market stability

Enhanced market facilitation

Enhanced supply measures

Enhanced demand measures

Status of Implementation Progress (Outputs, Activities, and Issues) The loan is provided in two tranches. Upon loan effectiveness on December 2015, the first tranche, was released and 8 policy actions were completed. The second tranche (T2) release against 18 policy actions was planned before the original program completion date of 30 June 2018. There had been progress and 10 policy actions, including exchange traded funds rules and establishment of an independent Financial Reporting Council, were completed by June 2018. However, eight policy actions remained to be uncomplied mainly due to the unavailability of government clearance on ADB's Technical Assistance (TA) supports until April 2018. The loan and TA were extended to 30 June 2019, upon government request. By 30 June 2019, six policy actions have been completed with the TA support including risk-based capital rules for intermediaries, sukuk and derivative rules. To complete the two remaining policy actions, the government requested for a loan extension and the completion date was extended to 31 December 2019. The two remaining policy actions, as of August 2019, are: (i) BSEC revised organogram and (ii) asset investment rules for insurance companies. The TA was extended to 21 October 2020 to strengthen the capacity of BSEC by the new ICT installation and IDRA on the risk management of insurance companies.
Geographical Location Nation-wide
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The capital market reforms under the program are likely to have no adverse environmental impacts.
Involuntary Resettlement The program has no involuntary resettlement impacts.
Indigenous Peoples The program has no impact on indigenous peoples.
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation ADB has been consulting public and private stakeholders in capital markets on a regular basis to effectively implement the program.
Business Opportunities
Consulting Services

ADB recruited a consulting firm to provide 17 person-months of international and 8 person-months of national consulting services for (i) installing and operationalizing BSEC new ICT system, (ii) drafting rules for derivatives by BSEC, (iii) facilitating establishment of a clearing and settlement company, (iv) drafting regulations for issuance of Sukuks by BSEC and (v) provide trainings to IDRA.

ADB mobilized consultants to conduct inception mission on 7 May 2018. During the TA implementation, all the disbursements under the TA will be made in accordance with ADBs Technical Assistance Disbursement Handbook (2010, as amended from time to time).

Procurement not applicable
Responsible ADB Officer Zhang, Dongdong
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Bank and Financial Institutions Division-MOF
[email protected]
Bangladesh Secretariat
Dhaka-1000 Bangladesh
Timetable
Concept Clearance 25 Nov 2013
Fact Finding 08 Feb 2015 to 12 Feb 2015
MRM 03 Jul 2015
Approval 20 Nov 2015
Last Review Mission -
Last PDS Update 30 Sep 2019

Loan 3318-BAN

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
20 Nov 2015 22 Nov 2015 11 Dec 2015 30 Jun 2018 31 Mar 2020 20 Mar 2020
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 300.00 Cumulative Contract Awards
ADB 300.00 20 Nov 2015 150.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 20 Nov 2015 150.00 0.00 100%

Loan 3319-BAN

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
20 Nov 2015 22 Nov 2015 11 Dec 2015 30 Jun 2018 31 Mar 2020 20 Mar 2020
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 200.00 Cumulative Contract Awards
ADB 200.00 20 Nov 2015 98.09 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 20 Nov 2015 98.09 0.00 100%

TA 8994-BAN

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
20 Nov 2015 17 Jul 2016 17 Jul 2016 30 Jun 2018 21 Oct 2020 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,100,000.00 300,000.00 0.00 0.00 0.00 0.00 1,400,000.00 20 Nov 2015 418,558.39

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Evaluation Documents See also: Independent Evaluation

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Procurement Plan

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