Bond markets link issuers having long-term financing needs with investors willing to place funds in long-term, interest-bearing securitiBangladeshes. has both the issuers and the investors in place but it still has not been able to link them effectively through a bond market.
The positive effect of developing a domestic bond market on the economy is well-known. On the one hand, bond markets are essential for a country to enter a sustained phase of development driven by market-based capital allocation and increased avenues for raising debt capital. On the other hand, the central position occupied by domestic bond markets in markedly increasing the resilience of a country’s financial system and insulating it against external shocks, contagion and reduction of access to international capital markets is established.
Capital markets are essentially about matching the needs of investors with those that need capital for development. Bangladesh has no shortage of both such parties, a young and dynamic population that increasingly wants, and is able to, make provision for lifetime events, to save for children’s education, for the possibility of ill health and ultimately for old age and retirement. On the other side of the equation, Bangladesh has a pressing need for investment resources to bolster its stretched infrastructure resources, to build more power stations, bridges, ports and gas-pipelines to empower the people in the development of enterprise and the creation of jobs. Debt markets are an extremely effective mechanism for matching the long term needs of savers with those of entrepreneurs. Term capital is a precious commodity and it has been a frustration to see the process of long term savings, such as provident funds and life insurance contracts, being invested in short term instruments such as bank deposits, a process we call ‘reverse term transformation’ but we could equally call it “reverse alchemy” in which the gold of term capital is turned into the lead of short term liabilities.
As a development institution it is our goal to establish sustainable capacity. As Bangladesh has led the world in its development of the microfinance industry, you have impressed us all with your ability to mobilize funds for productive purposes at the community level in the villages. What we need to see now is a similar degree of success at the institutional level in terms of mobilizing resources for infrastructure and other uses of long term funds. At the World Bank, we would like to help you in this endeavor; it is much more useful that Taka funds are mobilized to fund projects whose sole revenue source will be in Taka. I am sure that it is a shared ambition of us all that Bangladesh should play a larger role in mobilizing its own capital resources and reducing the dependency upon donor institutions such as ourselves. We at the World Bank would like to work with you to this end, so that we can move on from providing infrastructure finance for sustainable development to a higher level of developing a sustainable, national, infrastructure financing capacity.
Bond markets in most countries are built on the same basic elements: a number of issuers with long-term financing needs, investors with a need to place savings or other liquid funds in interest-bearing securities, intermediaries that bring together investors and issuers, and an infrastructure that provides a conducive environment for securities transactions, ensures legal title to securities and settlement of transactions, and provides price discovery information. The regulatory regime provides the basic framework for bond markets and, indeed, for capital markets in general. Efficient bond markets are...