Markets towards sustainable economic development: A Study in Bangladesh

1. Markets towards sustainable economic
development: A Study in Bangladesh
Submitted to:
MD. Joynal Abedin
Course instructor
Department of Finance
AIUB
Subject: FinancialInstitutions and Markets
Section-C
Submitted by:
Group No: 2
1) Ahsan, A F M Mahmudul 13-24651-2
2) Kanchan, Eleus 13-24002-2
3) Islam,jahidul 12-22422-3
4) saha,sudipta 13-24730-2
5) Israt, Fatema 13-23406-1
Date of Submission: 8th December 2015

2. Introduction
Bangladesh is a development country. This country’s GDP growth rate is about 6-7% and the inflation
rateapproximately 5-6%. This country’s geographical location is beside the sea. For that reason the south
side of this country in relatively low land. Every year the low land flooded by the sea water. For the
natural calamity’s the soil and the environment is losing its ecological balance. Every year the sea level is
increasing that means it is growing up n up. For that reason the low land flooded permanently. This
types of unwanted flood happen for the ecological imbalance. On the other hand, the temperature of the
earth is increased by 2-3°c from the last century. For that reason the ice of the north pool of the earth and
the sea level is increasingday by day. It is happening for the developed countries/western countries over
use natural resources.
Review of previous empirical literature
For the large production and the pollution of the environment,our earth is losing its balance.The earth
has not infinite resources to use in a huge amount and a infinitetime. The resources are limited but the
institutions aremorefocused about the generating profit. Now a day we can realizethat we should not
over use the resources and in improper way.So that institution should know the responsibility tosave
the naturebut taking some relativeaction .They should create environment friendly (eco friendly)
industry.The objectiveof this research is to identify thecontribution of financial institution in achieving
sustainabledevelopment (Pinter, 2014).
This research told us that what is sustainabledevelopment and the way of sustainable development. The
definition was like the growth of the organized should incurred by the use of natural resources for the
future. This project says that financial institutecan introducethe sustainabledevelopment by the
investors,innovation,valuers,stockholder,polluters etc. This sector can be sustainableby thegreen
banking, energy efficient, clean industry.Sustainable development and the privatesector. (European
Commission, 1997).
The project says the corporation Andina De Fomen to (CAF) supports the sustainable development. So
they took some action in private sector including financial institution. They consider some
environmental friendly project. Such as Recycling & purification of the water, corporate social
responsibility, investing in education and eco efficiency etc. They did some changes in managerial
system or policy to do the sustainable development (Garcia, 1997).
This paper disclose some information about the economic sustainable development and the
environmental factor it says that the banks as a financial institution it has no impact on natural

3. environment. If there is any, it is negligible. But they are trying to cover the social responsibility,
reputation, harmful risk. They says the monetary stability is the most vital things for the sustainable
development. They mention some barriers to create a sustainable development situation. Such as,
monetary instabilities, global financial crisis etc.(Sestakova, 2012).
Financial system in Bangladesh
The Financial System is a set of institutional arrangement through which surplus units transfer their fund
to deficit units. At present the financial system in Bangladesh is mainly composed of two types of
institutions like banks and non-bank financial institution (NBFIs). The formal financial sector in
Bangladesh includes: (a) Bangladesh Bank as the central bank, (b) 48 commercial banks, including 4
Government owned commercial banks, 30 domestic private banks, 9 foreign banks; and 5 government -
owned specialized banks (DFIs); (c) 28 non-bank financial institutions (NBFIs) – licensed by the
Bangladesh Bank); (d) 2 large government- owned insurance companies (life and general) and 60 private
owned (17 life and 43 general) insurance companies; (e) 2 stock exchanges and, (f) some co-operative
banks. Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in
Bangladesh.
Regulators of the financial system
Bangladesh Bank (BB), as the central bank, has legal authority to supervise and regulate all the banks. It
performs the traditional central banking roles of note issuance and of being banker to the government
and banks. It formulates and implements monetary policy manages foreign exchange reserves and
supervises banks and non-bankfinancial institutions.Its prudential regulations include minimum capital
requirements, limits on loan concentration and insider borrowing and guidelines for asset classification
and income recognition. BB has the power to impose penalties for non-compliance and also to intervene
in the management of a bank if serious problems arise. It also has the delegated authority of issuing
polity directives regarding the foreign exchange regime
Structure of Financial System
The main constituents of financial system are:
i) Financial Institutions
ii) Financial Instruments,and
iii) Financial Markets.
Financial Institutions
An organization which is borrow funds from lenders and lends them to borrowers on terms which are
better for both parties than if they dealt directly with each other.

4. Financial institution can be defined into two parts one is Depository Financial Institution and another is
Non depository financial institution.
Depository Financial Institution includes:
a) Commercial Bank
b) Saving & loan association
c) Credit units
Non Depository Financial Institution includes:
a) Mutual Fund
b) Pension Fund
c) Insurance
Financial Instruments
A financial instrument is any contract that’s gives riseto financial asset of one entity and a financial
liability or equity instrument of another entity.
Example: Cash, Cheque, Commercial Paper, Negotiable Certificate of deposits, Banker Acceptances,
Bonds, Stocks, Govt. Securities, Bank & Consumer Commercial Paper, Debentures, Mortgages
Financial Markets
Market is mechanism to facility the exchange value of financial goods and services between two parties
one is buyer and another is seller.
Financial Market can be classified into three bases
a) Season of claim
b) Maturity
c) Organization
Season of claim
It is classified into two parts. One is Primary Market and other is Secondary Market.
Primary Market
First time, first hand new issue of securities, the funds or money directly go through the company.
Example: All the securities of the company that are enlisted with SEC. Initial public offering (IPO).
Secondary Market
Second time, second hand, existing securities trades in this market. The funds directly go through the
seller. Example: All the securities of the company that are enlisted with SEC. Gp, DBBL etc.

5. Maturity:
Money Market
It is short term,less than 1 year which is low risk, low return and high liquidity. Money market securities
are primary and debts securities.
Example: Treasure bill or T-bill, Commercial paper, Bankers acceptance
Capital market
It is long term, more than 1 year which is high risk, high return and low liquidity. Capital market
securities focus on secondary securities and it is debts and equity securities.
Example: Bond, Stock, Treasure note, Treasure bond.
Organization
Over the counter (OTC)
There is no structure, no physical presence no central location. They are connected through ware cable
network.
Example: National Association of Securities Dealers Automated Quoatitation (NASDAQ).
Organized
There is a structure, physical presence and central location. They are connected with both.
Example: Dhaka stock exchange, New York stock exchange etc.
Sustainable Development
In 1987 the world commission on Environment and development (Brundtland Commission), presented a
new concept - sustainable development on their report. The concept became one of the most successful
approaches to be introduced in many years and also it helped to shape the international agenda and the
international community's attitude towards economic, social and environmental development.
"Sustainable Development is a development which meets the needs of current generations without
compromising the ability of future generations to meet their own needs".
According to oxford dictionary “Economic development that is conducted without depletion of natural
resources”
After analyzing all the definition it can be said that sustainable development is a way of development in
which organization consider some benefit at present for the future long term benefit. It is also give benefit
for the future generation and the earth.

6. Theoretical framework between financial system and sustainable
development
Flow chart to adopt sustainable development and the result:
CSR VS REVENUE
Figure 1: CSR VS REVENUE RELATION
BDT 0.00
BDT 0.50
BDT 1.00
BDT 1.50
BDT 2.00
BDT 2.50
BDT 3.00
BDT 3.50
0 1 2 3 4 5 6 7
CSRCOSTINMILLION(TK)
REVENUE IN BILLION (TK)
COST
COST
TECHNOLOGICAL
ADVANCEMENT
USING ECO
FRIENDLY
MACHINE
CSR ACTIVITIES
SUSTAINABLE
DEVELOPMENT
(ULTIMATE
GOAL)
PROFIT
MARGIN
TOTAL
EFFICIENCYEFFICIENCY
ENVIRONMENT
AL WELL BEING
REVENUE
GREEN BANKING
USING DAY LIGHT

7. Green Banking vs Cost
Fixed cost and variable cost after adopting green banking, day light use, introducing
technology.
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6
Fixed Cost Per Unit
FCPU
0
100000
200000
300000
400000
500000
600000
0 1 2 3 4 5 6
GREEN BANKING VS COST
GREEN
BANKING
VS COST

8. Variable Cost Per Unit
Year 1
Year 2
Year 3
Profit in 2014 after adopting green financing, use day light, technoly etc. (assumption)
Revenue ( 1million taka)
Profit Margin (.3 m)
Variablecost(.2 m taka
Fixed Cost (.5 million taka)
Profit in 2015 (Assumption)
Revenue (1.3 m)
Profit margin (.65 m)
Variablecost (.2 m)
Fixed cost (.45 m)

9. Climate Risk of Bangladesh ( By German Watch)
Bangladesh reached in the 6th position in climaterisk index in 2015. This report published on German
Watch.In 2013 Bangladesh was not even in 10th position.

10. The role of financial institution and market in sustainable development
Financial sector consist of financial institution and market.
Financial institution is classified into two categories they are:
1. Depository institutions:Examples of depository institutions arecommercial banks,savings institutions,
credit unions that obtain funds mainly through deposits from the public.
2. Non-depository institutions: : example of non- depository institutions . finance companies, mutual
funds, securities firms, insurance companies, pension funds that finance their investment activities from
the sale of securities or insurances.
Financial market is classified in five categories
(1) commodity market, (2) money market, (3) capital market, (4) currency market, and (5) derivative
market.
sustainable development and financial institution and market
Depository institution:
Depository financial institution like commercial banking sector is in its relationship with Small and
Medium sized Enterprises, where banks can be very influential through their lending practices and by
providing information.
Most of the commercial banks have focused on twoareas: Firstly. many have made considerable progress in
developing internal environmental management systems to reduce their own environmental impact.
Secondly, most banks include some environmental analysis into their credit assessment process although
this tends to be focused on liability.
Non-depository institutions
Non-depository institutions likeinsurance company achieving sustainable development lies in its ability to
price various types of environmental risk and to help pay for environmental damage.
Potentially environmental issues can affect risks in a number of areas, but to date the industry has taken an
issue based approach and has focused on the environment in two main areas:
 Environmental liability: has had a seriously adverse affect on theindustry,particularly in theBangladesh
and has resulted in the industry takinga very cautious approach to environmental issues. It is important
that in any development of environmental liability in the.
 The industry has also become clearly concerned about the potential impact of climate change on its
business. Changing climate at best undermines the historic basis for evaluating risk and at worst could
significantly increaselosses, from increased storms and floods, to the extent that even the very viability of

11. the industry could be threatened. In response, the leaders in the industry have developed a
comprehensive set of measures,
ranging from an increasing lobbying at the climate change convention, through working with
governments on research and preventative measures, to adjusting premiums and their areas of activity.
Data and Method of Analysis
Barriers to have sustainability
There are many reasons for which the financial institution cannot attracted for sustainable development. I
am mentioning some points.
Fixed cost( initial Cost)
For sustainabledevelopment, theorganization or financial institution have to take new initiations. Those
new initiation can be creating technology environment. That means There will be more use of technology
instead of paper work. To established this typeof technology or new idea like this is too costly. The initial
investment will be huge. So the huge amount of money sometimes discourage people to invest for the
sustainable development. This fixed cost can be a barrier for sustainable development.
Government Rules and Regulation
In some country, There ar many types of rules and regulation on financial institutions. Such as, the
structure of the institution physical or product structure. They have to obey the rules of the government.
Some times if the financial institution wants to change their structure or product for the sustainable
development, they can not do the changes.
Monetary instability:
It also can be a barrier to introduce sustainable development in financial institution and markets
instability basically occur for the supply of the money. If there is no sufficient supply of the money in
financial market, if can be happen that the efficiency of the market can fall down. So at this stage the
sustainable economic development can not be adopted.
Global financial crisis
In financial crisis thefinancial market try tostable in terms of profit margin. In this situation the problem
is to invest in sustainable development. In this time they ar concern about the current situation instead
future.

12. Technological Risk
It is a problem to implement the technology for the sustainability. Such as the breakdown of the new
technology. If there will be no expert then the institutional work will be stop for a certain period of time.
Sometime it is a risk of confidential work also.
Driver of sustainability
The financial market can become the positive driver for sustainability. There r many aras to work to
change. Such as Green banking, using day light, advance technology, efficient employee, using energy
saving interior lighting, using ecofriendly, machine, heater and CSR activities. I am going some
description on them.
Green banking
Green banking is a typeof strategy in which there ar no paper work. Instead of this paper work bank will
use the technology. If it is implemental in the financial institution , they can get the benefit in some way.
Such as, the variablecost per unit will decrease, but thereis a draw backfor theinstitution and that is the
fixed cost but in long run the fixed cost will give the fruitfull return that means the fixed cost per unit will
be too low than the current position. It is all about the long run benefit. There is another benefit for our
investment. If we do not ude the paper that means we ar not responsible for cutting trees. So the t ree will
be alive. So the country will be green and this strategy call green banking.
Using day light
Using day light instead of electric light also a good way sustainable development. In financial institution,
they need adequad light to work. So the energy expenses is a major factor for that. If want to save this
energy, then we have to day light properly. To use the daylight we have to adopt the glass structure in
organization.So that we can get the utilize it properly instead of electric light. If we do so, variable cost of
electricity will decline and the overall cost will be decrease by good amount.
Advance technology
Advance technology can be a important driver for the sustainability in financial institution. If financial
institution adopt the advance technology the work efficiency will be high. So the cost of the institution
will decrease. However the cost of adopting advance technology high but it will be capture in long run
and it will give the fritful result.
Efficient employee
It means the less time to work and high quality production of product. He That means the performance is
good. So the cost and time give benefit ina positive way. It also can be a driver to do sustainable
development.

13. Using energy saving interior tools
It means the value of using electricity is low. If the financial institution use this types of tools, the first
benefit will be the cost reduction and the second benefit will be the save electricity. It will using energy
saving interior tools is a driver to adopt sustainable development.
Using eco friendly machine
Normal electronic machine produce tremendous amount of Carbon oxide, Cloro floro Carbon ( CFC ) UV
ray Which is not good for the human life and environment as well. This type of gas is bad for O3 also. So
if financial institution use Eco friendly machine than it will be a big step sustainable development.
Corporate social Responsibility
CSR activities are the activities by which organization can serve the people for the people of the society
and themselves as well. Tree plantation, aware about environmental condition, recycling some wastage
can be that type of work. CSR activities are not only important for the environmental and earth also for
the business itself. So financial institution do the CSR activities the people will be benefited, the
environmental also benefit and the profit margin and the revenue also be increased.
Incentives to have sustainable development
There are many types of incentives could be applied to promote more long-term sustainability such as
reducing interest rate , tax deduction as sustainable development tools.
Government investment
government can invest on financial institution to promote sustainable development since financial
institution is one of the backbone of country’s economy, it will be an important beneficial decision to
invest on financial institution to promote sustainable development.
Tax exemption in financial sector to introduce sustainable development:
IF the government exempted some portion of tax, it will be more appreciable step to have sustainable
developments to others .discourage to use those types of structure .so government can deduct the tax on
tempered glass for the sustainable development in financial institutions. It would be an incentive to
sustainable development.
TDS (Tax Deduction at Source) decrease in bank who adopted green banking
To Compensate the financial institution who already adopted the green banking , government can
reduce the tds rate .so that the the customer will attracted to those institution .as a result those
institution revenue will be increase automatically it can be an indirect to financial institution .
Deduction rate for the central bank revenue:

14. those five adopted the sustainable development, bb can reduce the deposit rate.
Tax deduction on solar plant
Solar Plant is an innovation by which the pressureon traditional electricity reduce . It is a plant which is
use sunlight and convert the sun power into electricity . With the solar plant the financial institution can
reduce the cost and can help to create help to create healthy environment for the future so government
can deduct the tax on solar plant so that the financial institution can purchase and use it.
Tax deduction on ecology friendly machine and energy and light
The Ecology friendly machine and energy pricewill be decreased then financial intuition will attracted to
adopted that types of machines and lights . It can be possible if government deduct the tax on ecology
friendly machine and energy saving light.
Tax reduction on tempered glass
To Use the daylight in an organization . They need to use glass structure, if the glass price is expensive
then they will be very depressed.
Encouraging instrument to have sustainable development
There are many way to have sustainable development such as.
Aware about the problem of climate change
If there is no sustainable work in the world, the world will be destroy soon because we do not use the
resources properly and without thinkingabout the future generation.So this awareness should introduce
in the market.
Aware about the need of sustainable development:
To promote the sustainable development of financial institutions have to know the importance of the
sustainable development. They should aware about the sustainable development. They should aware
about the sustainabledevelopment goal positive side. So, they can adopt the sustainable development for
their own needs and the environment as well.
Introduce business ethics
Business ethics can change every person perspective .so it should introduce in the organization. As a
result the organization will do for the long term instead of short of term instead of short for the future
generation. So the sustainable development will introduce in the financial institution.

15. Empirical results and discussion
Since sustainable development is needed for the whole world to survive and present the resource for the
future and future generation so the all types of organization and institution and markets should adopt the
sustainable development. These types of step are very much necessary for those countries who are
already in danger. Bangladesh is one of those countries which is in the sixth position of global climate
risk index 2015. But in 2013 Bangladesh was not any position in top ten. So from these report it can be
said that Bangladesh is in the climate risk for the global warming. The western counties are basically
responsible for that. From 2012 to 2015 there were many natural calamities in Bangladesh. So the whole
world should adopt sustainable development for the long run. From the conceptual literature review, it
also can be implemented by the investors’innovators, values, and stakeholder etc. if the companies do so,
the efficiency will be increase gradually. As a climate risky country the financial institution and markets
also can play a vital role for the sustainable economic development in Bangladesh. To promote the
sustainable development financial institutions need to introduce some ideas. Such as green banking,
using day light, advance technology using efficient employee, using energy saving interior tools, using
eco friendly machine and some CSR activities. If financial institution adept those activities then they can
do enjoy benefits. The benefit will be the reducing variable cost, efficient intems of time and quantity,
energy saving environment well being and increase the revenue as well. But there are many problems to
promote the sustainable development in financial sectors in Bangladesh. Such as the initial cost to
promote is a very big factor. It can be a barrier to promote sustainable development in financial
institutions and markets. The monetary instability also can be a problem to sustainable economic
development. If the monetary position is instable then the financial sector also should instable and in
instability the sustainable development cannot be adopted. The global financial crisis also that type of
problem. There is a vital risk is the technological risk in financial institutions and markets to promote
sustainable development. Bangladesh is not too much aware about the technological crime and they are
not that much strong and knowledgeable in IT sector. So it will be major barrier to promote sustainable
development by the technology. To remove the barriers there are some incentive which can be promoted
by the government. Bangladesh bank and the financial institutions and markets, government can invest
in some green project for the sustainable development. Government can reduce the tax in solar plant,
energy saving machine eco friendly machine, tempered glass etc. Government can also exempted some
portion of tax those who adopt thesustainabledevelopment. Bangladesh bankcan reduce the reserverate
those who adopt the sustainable development. To encourage in sustainable development government
and other organization have to let those people or organization aware about the sustainable
development. Government should also aware about the problem about the climate change and the
sustainable development needs.
Recommendation
For financial institution and markets
a) All the financial institution (Bank) should introduce the green banking.
b) Financial institution should adopt the technology with a proper backup (security)

16. c) All financial institution should use the day light instead of using electricity (glass structure)
d) Financial institution should let government aware/understandable about the sustainable
development and should attract to invest on it.
e) Financial institution should use eco friendly equipment.
For Government
a) Government should aware the people or industry or financial institution about the sustainable
development.
b) Government should insist financial institution to adopt sustainability
c) Government can impose more tax those institution do not adopt sustainable development
d) Government can reduce tax rate on those financial institution which implement sustainable
development
e) Government should deduct tax on solar plant
For Bangladesh bank
a) Bangladesh bank should new rules and regulation to adopt the sustainable development in
institution.
b) Bangladesh bank should reduce the reserve rate or deposit who adopt sustainable development
Conclusion
For the development financial institution plays a vital role in the economy. So a developing country
Bangladesh government has to care about the financial institution and markets. To grow the financial
institution adoption of a sustainable development can be a key factor. Since the humidity, Temperature,
Rainfall is changing gradually due to the global warming.So the sustainabledevelopment of theindustry
is very important. Global climate risk index 2015 says that Bangladesh also in a risk and Bangladesh
position is 16th where as in 2013 Bangladesh was not even in 10th position. So it can be said that the
climate risk is increasing gradually. In Bangladesh, there are many financial institutions. So government
should encourage financial institution to promote the sustainable development. Financial institution can
use the green banking, use day light, energy saving machines for the future generation that means for
sustainabledevelopment.To do this adoption thereare many barriers exist in our country such the initial
investment, government rules, monitory instability, Inflation risk, Technological risk etc. Financial
institution can reduce those types of risk by using technological securities. But they need government
help also. Such as tax exemption of green banks sector, technology, energy saving machine sectors. So
that financial institution will beencouraged to do sustainabledevelopment.If financial institution does so

17. there will be win situation for the govt., people and financial institution as well. When financial
institution adopt sustainabledevelopment, though their initial cost will be increased by a big amount but
in long run the FCPU will be decrease in a big amount. Their variablecost will reduce and sometime their
revenue will also increase. So they can enjoy a stable profit margin. People will get a fresh environment
and some times the cost of govt. also decrease. Bangladesh bank and govt. of Bangladesh already give
emphasis on sustainable development. Bangladesh bank gives the guide to Islamic bank to finance in
green projects (IDLC Amount Report). Govt. also awarding people to have sustainable development by
the tree plantation, energy saving machine use and some rules regulation. Such as , In summer govt.
officer have to wear half sleve shirt in office. Since how a days the sustainable development is becoming
mandatory things . So govt. should aware people about the changing climate , the problem of changing
climate etc . If the sustainable development is adoped by the financial institution properly then all of the
people , institution and the overall country will be benifited . So it can be said that the sustainable
economic development can be adopted by the financial institutionof Bangladesh and it will be a better
start tohavesustainabledevelopment for all the country. And financial institution will be the pioneer for
this initiatives.
References
 Pinter, E., Deutsch, N., Ottmar, Z., (2014). New direction line of sustainable development and
marketing in green banking,Social science research network, 1-10.
 Lele, S.M. (1991), Sustainabledevelopment: a critical review , World development. Vol 19(6), 607-621.
 Attah,N.V.(2010), Environmental sustainabilityand sustainable growth: a global outlook, University
of pennsylviniascholary commons, 1-65.
 Pisano, U., Martinuzzi, A,. Bruckner, B. (2012). Financial sector and sustainable development:
logistics, principles and actors. ESDN quarterly report N27, 6-53.
 Garcia, L.E (1997), Sustainable development and private sector: A financial institution perspective,
Bridges to sustainability, 130-141.
 Sestakova, M. (2012). Financial sector and sustainable economic development, 6-17.

18.  European Commission, (1997). The role of financial institutions in achieving sustainable
development. 1-137.
 Global climate risk index (2015). Brifing paper. Retrieved from German watch. Website:
https://germanwatch.org at 6th December 2015.
 Development of four decade long climate scenario and trend temperature, rainfall, sunshine and
humidity, (2014). Ministry of disaster management and relief.
 Sustainable development, Retrieved from Oxford dictionary
http://www.oxforddictionaries.com/definition/english/sustainable-development , at 9th december.