The document provides information about the financial system and banking system of Bangladesh. It discusses the key components of Bangladesh's financial system including different types of banks, insurance companies, and non-bank financial institutions. Bangladesh Bank is the central bank and regulatory authority for the banking system. The Securities and Exchange Commission regulates capital market activities. The document then provides details about the history and regulations of banking in Bangladesh, the categories of banks (nationalized commercial banks, specialized banks, private commercial banks, trans-national banks), and various bank services available to customers like savings accounts, fixed deposits, letters of credit, internet banking, automated teller machines, and telebanking.

1. GEBS-101 Bangladesh Studies
Conducted by: Cdre M Muzibur Rahman, (E), psc, PhD, BN (Retd)
Cdre Muzib, psc, PhD
Financial System of Bangladesh
A financial system is a system that to channels finances from lenders to borrowers, to make
liquidity and money, to supply an outgoing system, to provide financial services such as insurance
and pensions and to offers portfolio adjustment facilities. A developed financial system is one that
has a protected and well-organized payment system, security market and financial intermediaries
that plan financing and derivative markets and financial institutions that provide right to use to risk
management instruments.
The current structure of the financial system in Bangladesh comprises of different types of banks,
insurance companies, and non-bank financial institutions. Bangladesh Bank is at the top of the
banking system and is responsible for assuring prudential administration and central banking
actions for all types of banks working within the banking industry. In contrast, the Securities and
Exchange Commission (SEC) of Bangladesh is the regulatory body for stock-market correlated
activities.

2. Cdre Muzib, psc, PhD (Retd)
BB – Bangladesh Bank
NBFIs – Non-Banking Financial Institutes
HBFC – House Building Financing Corporation
PKSF – Palli Karma-Sahayak Foundation
AMCs – Asset Management Companies

3. Cdre Muzib, psc, PhD (Retd)
Bank:
A bank is a financial institution and intermediary licensed by a government. Its primary activities include providing financial
services to customers while enriching its investors. It collects money through its different deposit mechanism and provides
loans and advances among the clients/investors to earn profit. Thus a bank is a a dealer of loans and debts. In financial
concept, banking means safe custody of money and at the same time an institution for money transaction. The level of
government regulation of the banking industry varies widely, with countries such as Iceland, having relatively light regulation,
and countries such as China having a wide variety regulations but no systematic process that can be followed typical of a
communist system.
History of Bank:
The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The name ‘bank’
was derived from the Italian word ‘banco’ which probably came from the word ‘bench’ as during ancient time Jews used to
do money-lending business using a desk/bench.
In fact, the word traces its origins back to the Ancient Roman Empire, where money lenders would set up their stalls in the
middle of enclosed courtyards called ‘macella’ on a long bench called a ‘bancu’, from which the words ‘banco’ and then
‘bank’ are derived. As a moneychanger, the merchant at the bancu did not invest so much money as merely convert the
foreign currency into the only legal tender in Rome.
The earliest evidence of money-changing activity is depicted on a silver drachm coin from ancient Hellenic colony Trapezus on
the Black Sea, modern Trabzon, and c. 350–325 BC, presented in the British Museum in London.
First modern banking was introduced in 1668 in Stockholm as ‘Svingss Pis Bank’ which opened up a new era of banking
activities throughout the European Mainland. In the South Asian region, early banking system was introduced by the Afghan
traders popularly known as ‘Kabuliwalla’. They came to India and started money lending business in exchange of interest
sometime in 1312 AD.

4. Cdre Muzib, psc, PhD (Retd)
Regulation for Banking :
To regulate the banking business some financial laws of the government are followed, the old ones are the British
Stamp Law, 1881 and English Exchange Bill, 1882. Other laws include the English Financial Act of 1915 and Indian
Company Act of 1931 and the Indian Banking Regulation Act of 1949.
Formation of Bangladesh Bank:
After the liberation war, the Government of Bangladesh recognized the Dhaka branch of the State Bank of Pakistan as
the central bank of the country, naming it Bangladesh Bank (BB) as per the Bangladesh bank order, 1972 (president's
order no. 127 of 1972) [31st October, 1972] which was enforced with effect from 16 December, 1971.
o Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities
of all public monetary matters.
o BB is also responsible for planning the government’s monetary policy and implementing it thereby.
o BB has a governing body comprising of nine members with the Governor as its chief.
o At present it has ten offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra, Rajshahi, Sylhet, Barisal,
Rangpur and Mymensingh in Bangladesh

5. Cdre Muzib, psc, PhD (Retd)
Guidelines and Regulations
Bangladesh Bank Regulation:
o Bank procurement regulations, 2004
o The Bangladesh Bank Procurement Processing and Approval Procedures (BBPPAP)
o Bangladesh Bank (Bangladesh Bank expenditure regulations, 1977
o Bangladesh Bank leave rules, 2003
o Bangladesh Bank accommodation allotment rules, 2003
o The Bangladesh Note Refund) Regulations-2012
There are many regulations for different types of banks and banking systems in
Bangladesh.

6. Cdre Muzib, psc, PhD (Retd)
Banking Sector of Bangladesh
Banking sector is one of the major sectors of Bangladesh and contributes greatly to the economy of
the
country. There are a number of banks under various categories in Bangladesh.
Banks can be classified in four major categories in respect of ownership such as:
1. nationalized commercial bank (NCBs)
2. specialized banks(SPBs)
3. private commercial banks(PCBs)
4. trans-national banks (TNBs)
There is a great impact of the commercial banking system on the financial sector of Bangladesh. BB
controls the whole banking sector. It takes all the major decisions about the banking sector. Here are
total 57 states owned, private, foreign and specialized banks in Bangladesh. More specifically there
are 6 state-owned commercial banks, 31 private commercial banks, and 10 foreign banks.
Nobel Prize winning the Grameen bank is a specialized micro-finance institution. The Grameen bank
and its micro-credit system have brought a great revolution to the nation’s economy and has
contributed to poverty reduction. The Grameen bank has also focused on women empowerment
which has helped the economy of Bangladesh in great extent.

7. Cdre Muzib, psc, PhD (Retd)
Scheduled Banks
The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are
termed as Scheduled Banks. They include State owned commercial banks, private commercial
banks, Islamic commercial banks, foreign commercial banks. Some specialized banks are also
Scheduled Bank.
Non-Scheduled Banks
The banks which are established for special and definite objective and operate under the acts that
are enacted for meeting up those objectives are termed as Non-Scheduled Bank. These banks
cannot perform all functions as like as scheduled banks. Grameen Bank, Probashi Kallyan Bank,
Karmasangsthan Bank, Progoti Co-operative Land Development Bank Limited (progoti Bank) and
Answer VDP Unnayan Bank are Non-Scheduled Bank

8. Cdre Muzib, psc, PhD (Retd)
Bank Services (Accounts, FDR, PDS, Deposit Scheme, L/C, etc.)
Current Account: Generally this sort of account opens for business purpose. Customers can withdraw money
once or more against their deposit. No interest can be paid to the customers in this account. If the amount of
deposit is below taka 1,000 on an average the bank has authority to cut taka 50 from each account as
incidental charge after every six months. Against this account loan facility can be ensured. Usually one can
open this account with taka 500. One can open this account through cash or check/bill. All the banks follow
almost the same rules for opening current account.
Savings Bank Account: Usually customers open this sort of account at a low interest for only security. This is
also an initiative to create people’s savings tendency. This account can be opened at taka 100. Interest is to be
paid in June and December after every six months. If money is withdrawn twice a week or more than taka
10,000 is withdrawn (if 25% more compared to total deposit) then interest is not paid. This account
guarantees loan. Almost all the banks follow the same rules in the field of savings account, except foreign
banks for varying deposit.
Internet Banking: An Internet Banking customer will be given a specific user ID and a password. The customer
can then view his account balances online. It is the industry-standard method used to protect
communications over the Internet. To ensure that customers’ personal data cannot be accessed by anyone
but them, all reporting information has been secured using Version and Secure Sockets Layer (SSL).

9. Cdre Muzib, psc, PhD (Retd)
Bank Services (Accounts, FDR, PDS, Deposit Scheme, L/C, etc.)
Electronic Banking Services for Windows (EBSW)
Electronic Banking Service for Windows (EBSW) provides a full range of reporting capabilities, and a
comprehensive range of transaction initiation options. The customers will be able to process all
payments as well as initiate L/Cs and amendments, through EBSW. They will be able to view the
balances of all accounts, whether with Standard Chartered or with any other banks using SWIFT.
Additionally, transactions may be approved by remote authorization even if the approver is out of
station.
Automated Teller Machine (ATM)
Automated Teller Machine (ATM), a new concept in modern banking, has already been introduced to
facilitate subscribers 24 hour cash access through a plastic card. The network of ATM installations will
be adequately extended to enable customers to non-branch banking beyond banking.
Tele Banking
Tele Banking allows customers to get access into their respective banking information 24 hours a day.
Subscribers can update themselves by making a phone call. They can transfer any amount of deposit to
other accounts irrespective of location either from home or office.

10. Letters of Credit ( L/C )
L/C is a letter addressed to the seller, written and signed by a bank who acts on the buyer’s
behalf. It is a written undertaking by the issuing bank to the beneficiary, under which the
bank will pay a sum certain in money to the beneficiary if the beneficiary of the L/C
provides the bank with specified documents within a prescribed time period, which all
comply with the terms and conditions of the credit.
• LC should comply with Foreign Exchange Management regulations of concerned
countries and are also subject to provisions of Uniform Customs and Practices for
Documentary Credit (UCPDC) framed by International Chamber of Commerce (ICC).
Characteristics of a L/C
A.Primary liability of the issuing bank to make payment
B.Separated from the sales
C.Dealing with documents Only
D.High level of protection and security to both buyers and sellers
Cdre Muzib, (E), psc, BN

11. Contents of a L/C
• Items on the credit itself
• Basic parties
• Items on draft
• Settlement conditions
• Items on goods, shipping documents , transport and insurance
• L/C amount and currency
• Additional conditions
• Reimbursement of the paying, accepting and negotiating bank
• The notation of the credit subject to provisions of law
Cdre Muzib, (E), psc, BN

12. Cdre Muzib, (E), psc, BN
Procedures of L/C

13. Procedures of L/C
Step 1: A buyer and a seller enter into a sales contract providing payment by a
documentary credit.
Step 2: The buyer applies to the issuing bank and instructs the bank to issue a
documentary credit in favor of the seller.
Step 3: The issuing bank opens a documentary credit according to the instructions of
the applicant.
Step 4: The issuing bank asks another bank, usually in the country of the seller, to
advise and perhaps also to add its confirmation to the documentary credit.
Step 5: The seller examines the documentary credit, and requires an amendment of
the credit if necessary and makes the shipment of goods.
Step 6: The seller presents his documents to the advising bank for settlement. The
negotiating bank forwards documents to the issuing bank, claiming reimbursement as
agreed between the two banks. The issuing bank examines the documents and make
reimbursement..
Step 7: The issuing bank makes debit from buyer’s account.
Step 8: The issuing bank provides the shipping documents to the buyer.
Step 9: The buyer redeems the documents and picks up the goods against the
documents
Cdre Muzib, (E), psc, BN

14. Types of L/C
Revocable L/C and Irrevocable L/C
Normally LC issued is irrevocable, which means that no single party can unilaterally make
any changes to the LC, unless it is mutually agreeable to both the parties involved. However
an LC is said to be revocable if the terms allow any one single party to be able to make
changes to the LC unilaterally. However it is in the interest of the buyer that he should
always insist on irrevocable Letter of Credit.
Confirmed L/C and Unconfirmed L/C
A Letter of Credit is always sent by the Buyer’s bank to the Seller’s Bank or any bank that
becomes an advising bank. Normally the Seller’s bank becomes an advising bank when a
normal LC is received and it delivers or advises the buyer regarding the receipt of LC with no
responsibility towards it. In case of a Confirmed LC, the Seller’s bank checks out the
authentication of the LC from the Buyer’s bank and confirms to stand responsible for
negotiating, collecting payment from the Buyer’s bank and making payment to the seller in
line with the terms and conditions stipulated in the LC. By adding confirmation to the LC, the
Seller’s bank too becomes equally responsible to make payment for the transaction under
the LC.
Seller’s Bank in turn will charge and collect service charges from the Seller for the same.
Cdre Muzib, (E), psc, BN

15. Special Types of L/C
Transferable L/C : a credit that specifically states it is “transferable”. A transferable
credit may be made available in whole or in part to another beneficiary.
Back to Back Credit : Once the letter of credit is received by the middleman from the
opening bank, that letter of credit is used as security to establish a second letter
of credit drawn on the exporter in favour of his supplier. So a back-to-back
documentary credit process actually involves two separate documentary credits:
one opened by the buyer in favor of the middleman, and one opened for the
account of the middleman naming the actual supplier of the goods as the
beneficiary.
Reciprocal credit: A reciprocal credit is mostly used in a barter trade, a trade of
processing of incoming materials, a counter trade, or a compensation trade. In the
above types of trade, there are usually two transactions and letters of credit
involved. The applicant of one credit (the original credit) may assume the position
of the beneficiary of the other credit (the reciprocal credit), and the beneficiary of
the first credit is the applicant of the second credit.
Revolving L/C: The amount of the credit can be renewed or reinstated without
specific amendments to the credit. Resolving L/C may be around time or value.
Anticipatory credit : Anticipatory credit includes red clause letter of credit and
green clause credit. Under this LC variation, the beneficiary is able to obtain
advances or funds against (from within) the LC in order to purchase or process
merchandise or carry out other activities. The beneficiary does not have to borrow
money or to get money from other sources.

16. SWIFT
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. It's an
organization that was founded in Brussels, Belgium in 1973 to establish some common processes
and standards for financial transactions.
It is a bank owned non-profit co-operative servicing the financial community worldwide. It ensures
secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries,
24 hours a day.
SWIFT global network carries an average 4 million message daily and estimated average value of
payment messages is USD 2 trillion.
Swift is a highly secured messaging network enables banks to send and receive fund transfer, L/C
related and other free format messages to and from any banks active in the network. Having SWIFT
facility, bank is capable to serve its customers more profitable by providing L/C, Payment, etc
efficiently and with utmost security for clients dealing with Imports, Exports or Remittances.
SWIFT assigns each financial organization a unique code that has either eight characters or 11
characters. The code is called interchangeably the bank identifier code (BIC), SWIFT code, SWIFT
ID, or ISO 9362 code.
•First four characters: the institute code
•Next two characters: the country code
•Next two characters: the location/city code
•Last three characters: optional, but organizations use it to assign codes to individual branches.
Cdre Muzib, (E), psc, BN

17. • Bangladesh Bank was established as a body corporate vide the Bangladesh Bank
Order, 1972 with effect from 16th December 1971 . All the members of he body
must have experience and proven capacity in the fields of banking, trade,
commerce, industry or agriculture - all nominated by the government. The broad
objectives of the Bank are :
a) To regulate the issue of the currency and the keeping of reserves;
b) To manage the monetary and credit system of Bangladesh with a view to
stabilizing domestic monetary value;
c) To promote and maintain a high level of production, and to foster growth and
development of the country's productive resources for the national interest
Overview of Bangladesh Bank (BB):

18. The core functions of BB are briefly discussed as follows:
a) BB formulates and implements monetary policy aiming at stabilizing domestic
monetary value and maintaining competitive external per value of taka for fostering
growth.
b) BB formulates and implements intervention policies in the domestic money market
and foreign exchange market.
c) BB, as the central bank of Bangladesh reserves sole responsibility to issue bank note
d) BB performs as a clearing house for the scheduled banks to clear and settle inter-bank
payment arising through drawing cheque, drafts, bills, etc to one another.
e) BB acts as a banker to the government;
f) BB functions as a lender of the last resort for the government as well as for the
country’s scheduled banks;
g) BB acts as an advisor to the government;
Core functions of BB:

19. Reserve Management Strategy:
Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies to
minimize the risk emerging from widespread fluctuation in exchange rate of major currencies and
very irregular movement in interest rates in the global money market. BB has established Nostro
account arrangements with different Central Banks. Funds accumulated in these accounts are
invested in Treasury bills, repos and other government papers in the respective currencies. It also
makes investment in the form of short term deposits with different high rated and reputed
commercial banks.

20. Interest Rate Policy:
Under the Financial sector reform program, a flexible interest policy was formulated. According to
that, banks are free to charge/fix their deposit (Bank /Financial Institutes) and Lending
(Bank /Financial Institutes) rates other than Export Credit. Yet, banks can differentiate interest
rate up to 3% considering comparative risk elements involved among borrowers in same lending
category.

21. Exchange Rate Policy:
• The exchange rate policy of Bangladesh Bank aims at maintaining the competitiveness of Bangladeshi
products in the international markets, encouraging inflow of wage earners' remittances, maintaining internal
price stability, and maintaining a viable external account position. Under the existing floating exchange rate
regime (that started from 31/05/2003), the interbank foreign exchange market sets the exchange rates for
customer transactions and interbank transactions based on demand-supply interplay; However, along with
intervention in the taka money market, the US dollar purchase or sale transactions take place by the
Bangladesh Bank as needed, to maintain orderly market conditions.

22. Bangladesh offers generous opportunities for investment under its liberalized Industrial Policy and
export-oriented, private sector-led growth strategy. All but four sectors (i.e. (1) arms and ammunition
and other defense equipment and machinery, (2) forest plantation and mechanized extraction within
the bounds of reserved forests, (3) production of nuclear energy, and (4) mining are open for private
investment in Bangladesh.
Tax holiday
Tax holiday facilities will be available for 5 or 7 years depending on the location of the industrial
enterprise. For industrial enterprises located in Dhaka and Chittagong Divisions ( excluding Hill Tract
districts of Chittagong Division) the tax holiday facility is for 5 years while it is 7 years for locations in
Khulna, Sylhet, Barisal, and Rajshahi, Divisions and the 3 Chittagong hill districts.
Tax exemptions are allowed in the following cases:
* Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm,
company and expert.
* Tax exemption on income of the private sector power generation company for 15 years from the
date of commercial production.
Industrial undertakings not enjoying tax holiday will enjoy accelerated depreciation allowance
opportunities for investment