Financial system is a system which tones up the savings-investment process of a country.Financial system plays a significant role in the economic development of a country. Theimportance of an efficient financial sector lies in the fact that, it ensures domestic resourcesmobilization, generation of savings, and investments in productive sectors. In fact, it is thesystem by which a country’s most profitable and efficient projects are systematically andcontinuously directed to the most productive sources of future growth. The financial systemnot only transfers funds from savers to investors, it also selects projects which will yield thehighest returns, accumulates sufficient quantities of capital to fund the range of investmentprojects across economic activities, accounts for price risks across assets, monitor performance,and enforce contracts. According to the McKinnon- Shaw hypothesis (1973), the conventionalwisdom is that flexibility and efficiency of the financial system are crucial to the growth anddevelopment of a market economy. A comprehensive study by King and Levine (1993) fromacross 119 developed and developing countries over the 1960-1989 period provides compellingevidence that economic growth is dramatically dependent on the size of financial sector, creditto private sector and enterprises and interest rates. The larger the financial sector in thecontext of the overall economy, the greater the share of lending by depository rather thancentral banks, and the greater the share of credit to private sector rather than public sector, thegreater is the rate of economic growth.
Major Components of a Financial System and their roles:
Financial System in Bangladesh
3.InvestmentCorporation of Bangladesh
B. Insurance,pension &provident fund
1.Controller of Insurance
2.General andlife insurancecompanies
5Private sectorpension funds(typically small)
5.Other non-government anddevelopmentorganizations.
Policy Analysis Unit (PAU), Bangladesh Bank.
Recent Developments in Financial Sector of Bangladesh:
Automation and Technological Development:
Banking sector experienced remarkable progress in respect of automation in functioning in last several years. For the pro-active and forward-visioning approach of Bangladesh Bank, numbers of automation initiatives have been implemented in banking sector. These initiatives include: •To create a disciplined environment for borrowing, the automated Credit Information Bureau (CIB) service provides credit related information for prospective and existing borrowers. With this improved and efficient system, risk management will be more effective. Banks and financial institutions may furnish credit information to CIB database 24 by 7 around the year; and they can access credit reports from CIB online instantly. •L/C Monitoring System has been introduced for preservation and using the all necessary information regarding L/C by the banks through BB website. This system allows the authorized users of banks to upload and download their L/C information. • In terms of article 36(3) of Bangladesh Bank Order, 1972, all scheduled banks are subject to submit Weekly Statement of Position as at the close of business on every Thursday to the Department of Off-site Supervision. This statement now is submitted through on-line using the web upload service of BB website within o3 (three) working days after the reporting date which is much more time and labor efficient that the earlier manual...