Bangladesh's capital market must not remain an untapped growth engine

Bangladesh’s capital market remains one of the weakest components in its financial architecture. After independence, formal trading on the Dhaka Stock Exchange (DSE) started in 1976. Five decades on, it has funded only a tiny fraction of national investment. A recent Bonik Barta report stated that, as of March 2026, the total issued capital on the country’s capital market stood at Tk 103,258 crore, compared to the gross fixed capital formation (GFCF) of a little over $138 billion. This means market capitalisation stands at just 6.22 percent of GDP. In practical terms, the stock market has funded barely six percent of the country’s investment needs.

This is not simply a stock market problem but a structural financing failure. Successful Asian economies have capital markets that serve as second engines of long-term finance through equity, corporate bonds, mutual funds, and securitised instruments. In Bangladesh, that engine remains stalled. Banks have become the default financier of almost everything, including long-term industrial projects far better suited to equity or bond markets.

As a result, there is a dangerous maturity mismatch between short- and medium-term deposits collected by banks and term loans provided for projects that may take 10-15 years to generate stable returns. Per the Bangladesh Bank data, industrial credit stood at Tk 764,117 crore in December 2025. Tk 423,587 crore of that credit was extended in term loans—more than seven times the amount raised through equity over the last five decades. When these projects fail or rates rise, the stress falls directly on bank balance sheets.

Further evidence of the cost of this imbalance can be seen in the banking sector’s non-performing loan (NPL) crisis. The total defaulted loans stood at just over Tk 544,831 crore in December 2025. A recent column in The Daily Star reveals that the reported NPL ratio dropped to 30.60 percent in December 2025 from 35.73 percent in September 2025 largely because of relaxed rescheduling rather than genuine recovery. This indicates delayed financial fragility, not health.

An equally important factor is that a deeper capital market would reduce pressure on the banking system. Equity financing carries no scheduled repayment obligations for debtors. Corporate bonds can match project maturities. Sukuk can mobilise Shariah-compliant savings for productive investments. A balanced mix of bank loans, equity, and bonds will lower capital costs, distribute risk, and lessen the systemic burden placed upon banks. A serious policy consideration may be a 60-40 financing split between banks and capital markets for large-scale projects.

With the announcement of the next national budget around the corner and with a newly constituted Bangladesh Securities and Exchange Commission (BSEC) in place, there is an opportunity to set an agenda for expanding market capitalisation.

Why has the market failed to mature?

There are several reasons behind that. First, investor confidence has collapsed. Companies that offered more than Tk 11,000 crore through initial public offers (IPOs) over the past 15 years included some who later became distressed, misused proceeds, or faced allegations of price manipulation. When investors believe insider shareholders are able to sell their shares at higher prices than they could obtain through an IPO, and when actions are rarely taken against those who commit violations, investors withdraw or act as speculators.

Second, Bangladesh is currently experiencing the longest IPO drought in decades. Per a report by The Business Standard, no company has gone public in the country since approval was granted to Techno Drugs in March 2024. A stock market cannot support serious investors if listings don’t continue to occur regularly. It becomes illiquid, narrow, and vulnerable.

Third, Bangladesh’s corporate culture remains dominated by family-controlled firms that resist diluting ownership and acceptance of scrutiny by minority shareholders. Disclosure requirements, independent directors, and accountability to minority shareholders are all required to list stocks. As long as banks remain accessible and require fewer disclosures, strong private companies will avoid listing their shares on the stock exchange.

Fourth, the market is too shallow. Only 16 listed corporate bonds exist as of April 2026, as indicated by CEIC data. Bonik Barta reports that among the 645 securities traded on the DSE, only 360 are companies, with 32 having suspended production and 38 classified as going-concern doubtful. Foreign investors have also primarily left the country. Net portfolio flows have been negative consistently in recent years.

The reform agenda is clear. Credibility must be established in the enforcement process. The reconstituted BSEC must clearly prosecute manipulation, misuse of IPO proceeds, insider trading, and fraudulent disclosure. Without credibility in enforcement processes, investor confidence will never return.

Rules governing IPOs must allow productive refinancing of bank debt. Currently, rules restrict using IPO proceeds to retire bank loans. If firms can use equity to replace 12-14 percent of bank debt, both the firm’s balance sheet and banking system stress will strengthen. Companies should be allowed to deleverage. However, only legitimate companies should benefit from this option; weak ones should not be permitted to use this option as a loophole.

Bangladesh must build a real corporate bond and Sukuk market. Tax parity must exist between bank deposits and other sources of funding for this purpose. Reliable secondary markets, credible credit ratings, and benchmark sovereign yield curves are also necessary to develop these markets. Commercial bank deposits alone cannot sustainably finance infrastructure and industrial expansion.

The promoter behaviour must shift due to meaningful differences between taxes paid by listed companies versus unlisted companies. Stronger governance and disclosure requirements must apply to larger unlisted companies, and benami structures must be actively discouraged.

Large-scale projects above a defined threshold must include a capital market component—either equity, corporate bonds or Sukuk. Patient capital can be provided by pension funds, insurers, mutual funds and the Universal Pension Scheme, but only if the capital market is transparent, liquid and trustworthy.

Bangladesh’s capital market crisis is a development crisis, not a narrow issue related to stock prices. The economy cannot finance its next phase of industrialisation through an overstressed banking system alone. After five decades of operation, the stock market still funds only a small fraction of national investment. The question now is whether the authorities have political will to make the capital market a true engine of growth.

Dr M Kabir Hassan is professor and Moffett chair in finance at the University of New Orleans in the US, recipient of the 2016 IDB Prize in Islamic banking and finance, and a member of the AAOIFI Ethics and Governance Board.

Views expressed in this article are the author's own. 

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