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A Government initiative for investment and private sector growth, supported by the World Bank, has contributed significantly, injecting a term funding of US$45.6 million (Taka.2.6 billion) into the cash-starved Bangladesh economy.
Completed in February last year, Financial Institutions Development Project of the Government established the Credit, Bridge & Financing Facility at the Bangladesh Bank. The participating non-banking financial institutions raised term finance by issuing US$38.4 million (Taka.2.4 billion) in fixed-income securities to outside investors such as banks and insurance companies. It also raised Taka Five billion debts, compared to Taka 5.9 billion of total equity capital raised via Bangladesh capital market during the same five-year project period.
Six participating financial institutions used newly raised fund to finance start or expansion of 147 subprojects in various sectors, such as ready-made garments, food, textiles, transportation, ceramic, power, education, medical, accessories, and so on. These subprojects generated direct employment of 14,218 people, a major portion of which included women; and additional profits of Tk.3, 842 million.
These six participating financial institutions issued bonds and debentures (a total of 23 issues to 22 investors), and three of them issued Asset Backed Securities. The first securitized bond issue in Bangladesh took place under this initiative in November 2004. It mitigated some of the existing impediments to securitized transactions, including lack of legal and institutional infrastructure, high issuance costs, high regulatory compliance costs, and lack of sufficient local skills. It also came a long way toward creating an enabling environment for securitization in Bangladesh. After the project closed, a securitization of micro credit receivables by the BRAC took place in July 2006, which was a pioneering transaction in microfinance market.
The initiative also strengthened the financial condition of the participating financial institutions through a Technical Assistance and strengthened their governance and management practices; treasury operations; credit evaluation techniques; and asset-liability management capabilities, to name a few. It also helped to achieve a number of other outcomes such as progress in alignment of national saving schemes rates with the market, stimulation of liquidity, trading of Treasury Bills/Bonds (the first reverse repo transaction occurred under the project), advances in the regulatory framework for bond issuance, and intensive regulator and other stakeholder training.
Meanwhile, another World Bank funded initiative of the Government named Investment Promotion and Financing Facility embarked in August 2006 aimed at supporting infrastructure development in Bangladesh with US$50 Million. It supplements the resources of Bangladesh financial markets to provide long-term finance for infrastructure projects beyond the capacity of local financial institutions and promotes the role of private sector entrepreneurs in the development projects, especially infrastructure.
April 2007
Contacts:
Rezwan-ul-Alam (8802) 815-9015, Ext 4242,     E-mail: salam3@worldbank.org
for more information on the World Bank in Bangladesh, please visit: www.worldbank.org.bd & www.worldbank.org
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