Monetary and Financial System

MD SAIDUL ALAM RAJAN
Monetary and Financial System (MAFS)
MODULE-A: MONEY AND MONETARY SYSTEM
Question 1. What are the key measures of money supply in Bangladesh, and how have
they evolved over time?
Answer: The two key measures of money supply in Bangladesh are narrow money (M1) and broad money
(M2).
M1 includes physical currency in circulation, demand deposits, and other deposits that can be withdrawn
on demand. M2, on the other hand, includes M1 as well as time deposits, savings deposits, and other types
of deposits that are not immediately accessible.
Over time, the composition of these measures has changed in Bangladesh. For example, the share of
demand deposits in M1 has declined, while the share of savings deposits and time deposits in M2 has
increased.
Furthermore, the growth of money supply in Bangladesh has been influenced by various factors, such as
changes in the financial sector, government policies, and macroeconomic conditions. For instance, the
liberalization of the financial sector in the 1990s led to a surge in money supply growth, while the global
financial crisis in 2008 had a moderating effect on money supply growth.
The Central Bank of Bangladesh, the Bangladesh Bank, has used various tools and policies to regulate the
growth of money supply in the economy, such as setting reserve requirements for banks and adjusting
interest rates. Overall, the measures of money supply in Bangladesh have evolved in response to changes
in the financial sector and the broader economy, and have been shaped by the policies of the central bank.
Question 2. How is the demand for money determined in Bangladesh, and what
factors influence it?
Answer: The demand for money in Bangladesh is determined by several factors that affect the willingness
of households and firms to hold money balances. Some of the key factors that influence the demand for
money in Bangladesh are:
 Interest rates: The level of interest rates in the economy affects the opportunity cost of holding
money versus investing in other assets. Higher interest rates may encourage households and firms
to reduce their money holdings and increase their investments in interest-bearing assets.
 Inflation expectations: The expected rate of inflation in the economy can also influence the demand
for money. If people expect prices to rise in the future, they may want to hold more money to
protect against the higher cost of living.
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 Economic activity: The level of economic activity and income in the economy can affect the
demand for money as well. When economic growth is strong, households and firms may have
more income and want to hold more money to finance their transactions.
 Payment technologies: The availability and convenience of different payment technologies, such
as electronic payments or credit cards, can also influence the demand for money.
 Cultural factors: Cultural attitudes towards cash versus other forms of payment, such as digital
payments or checks, can also affect the demand for money in Bangladesh.
The Bangladesh Bank monitors these factors and other indicators to assess the overall demand for money
in the economy and adjust its monetary policy accordingly. By understanding the factors that influence
the demand for money, policymakers can help maintain price stability and promote economic growth.
Question 3. What are the different kinds of money in Bangladesh, and how do they
differ in terms of their liquidity and value?
Answer: In Bangladesh, there are several different types of money that are used as a medium of exchange
and store of value. These include:
 Currency: Physical notes and coins issued by the Bangladesh Bank that are widely used in daily
transactions. Currency is the most liquid form of money and can be used immediately for
transactions.
 Demand deposits: Funds held in checking or current accounts with commercial banks that can be
accessed on demand. Demand deposits are also highly liquid and can be used for transactions
without any significant delay.
 Time deposits: Deposits held in savings accounts, fixed deposits, or other accounts that require a
certain amount of time to mature before they can be withdrawn. Time deposits are less liquid than
currency and demand deposits but often offer higher interest rates.
 Savings deposits: Deposits held in savings accounts that usually earn a modest amount of interest.
Savings deposits are more liquid than time deposits but may have withdrawal restrictions.
 Digital money: Various forms of digital payment systems that enable electronic transactions, such
as mobile money or e-wallets. Digital money is becoming increasingly popular in Bangladesh due
to its convenience and accessibility.
The value of different kinds of money in Bangladesh depends on their liquidity and acceptability for
transactions. Currency and demand deposits are considered the most valuable as they are highly liquid
and widely accepted. Time deposits and savings deposits are less liquid but may offer higher interest rates.
Digital money is also becoming more valuable as it offers convenience and ease of use in transactions.
Overall, the different kinds of money in Bangladesh serve different purposes and provide varying levels
of liquidity and value to users.
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Question 4. How do commercial banks in Bangladesh create money, and what impact
does this have on the broader economy?
Answer: Commercial banks in Bangladesh create money through the process of lending. When a bank
lends money to a borrower, it creates a new deposit in the borrower's account, effectively creating new
money. This is known as the process of credit creation.
The impact of commercial bank money creation on the broader economy can be significant. By creating
new money through lending, banks increase the amount of money in circulation and stimulate economic
activity. This can lead to increased consumption, investment, and employment. However, if banks create
too much credit and lend excessively, it can lead to inflation and financial instability.
The central bank of Bangladesh, plays a crucial role in regulating the creation of money by commercial
banks. It sets reserve requirements for banks and adjusts interest rates to influence the amount of lending
and credit creation in the economy. By monitoring and regulating commercial bank credit creation, the
central bank can help maintain price stability and promote sustainable economic growth.
Question 5. What is the role of the central bank in the monetary system of Bangladesh,
and how does it regulate the money supply in the economy?
Answer: The Central Bank of Bangladesh, also known as the Bangladesh Bank, plays a critical role in the
monetary system of Bangladesh. It is responsible for formulating and implementing monetary policy and
regulating the money supply in the economy.
The Bangladesh Bank regulates the money supply in the economy through various policy tools, such as:
 Reserve requirements: The Bangladesh Bank sets reserve requirements that commercial banks
must hold as a proportion of their deposits. By adjusting these requirements, the Bangladesh Bank
can influence the amount of lending and credit creation in the economy.
 Open market operations: The Bangladesh Bank can buy or sell government securities in the open
market to influence the supply of money in the economy. When the Bangladesh Bank buys
securities, it injects new money into the economy, while selling securities withdraws money from
circulation.
 Discount rate: The Bangladesh Bank can adjust the interest rate at which it lends money to
commercial banks. By increasing or decreasing this rate, the Bangladesh Bank can influence the
cost of borrowing for banks and their willingness to lend.
 Moral suasion: The Bangladesh Bank can use moral suasion to encourage commercial banks to
adjust their lending behavior. This may involve issuing public statements or private
communications with commercial banks to encourage them to lend more or less.
Through these policy tools, the Bangladesh Bank can influence the amount of money in circulation,
control inflation, and maintain financial stability in the economy. The Bangladesh Bank also serves as a
lender of last resort to commercial banks and plays a critical role in maintaining the stability of the banking
system. Overall, the Bangladesh Bank's actions have a significant impact on the monetary system of
Bangladesh and the broader economy.
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MODULE-B: PAYMENT SYSTEM
Question1. What are the different payment options available in Bangladesh, and what
are the pros and cons of each option?
Answer: There are several payment options available in Bangladesh, including cash, cheques, debit cards,
credit cards, mobile payments, online payments, and electronic fund transfers. Here are some pros and
cons of each payment option:
 Cash:
 Pros: widely accepted, no need for technology, no transaction fees.
 Cons: Risk of theft or loss, not a secure method, can be inconvenient for large purchases.
 Cheques:
 Pros: No need for cash, can be used for large purchases, can be tracked, and provide
evidence of payment.
 Cons: Time-consuming and can take a few days to clear, can be forged or bounced, and
require additional verification.
 Debit Cards:
 Pros: Instant payment, no need for cash, can be used at ATMs and for online transactions.
 Cons: Limited usage compared to credit cards, risk of theft or loss, and potential for
overdraft fees.
 Credit Cards:
 Pros: Easy to use, widely accepted, offer rewards and cashback, provide purchase
protection, and can be used for emergency purchases.
 Cons: High-interest rates, potential for debt, fees and penalties for late payments, and risk
of fraud.
 Mobile Payments:
 Pros: Convenient, instant, and easy to use, low transaction fees, no need for physical cards
or cash, and accessible to people without bank accounts.
 Cons: Limited usage, risk of theft or loss of the mobile phone, potential security risks, and
not widely accepted.
 Online Payments:
 Pros: Convenient, easy to use, and accessible from anywhere with an internet connection,
can be used for international transactions.
 Cons: Potential for security breaches and fraud, additional transaction fees, and reliance on
internet connectivity.
 Electronic Fund Transfers:
 Pros: Safe, fast, and reliable, no need for physical cards or cash, can be used for large
transactions, and can be automated.
 Cons: Additional fees, limited usage, and require additional verification.
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Question2. How has the Bangladesh payment system evolved over the years, and what
are some of the significant milestones in its growth?
Answer: The payment system in Bangladesh has undergone significant changes over the years. Here are
some of the significant milestones in its growth:
 Introduction of Electronic Funds Transfer (EFT) system in 1983 by the Bangladesh Bank for
interbank transactions.
 Launch of the Real-Time Gross Settlement (RTGS) system in 2004 to facilitate large-value fund
transfers.
 Launch of the Automated Clearing House (ACH) in 2010 to facilitate bulk transactions and reduce
the usage of cheques.
 Introduction of mobile banking services in 2011 by various banks to facilitate payments and money
transfers through mobile phones.
 Launch of the National Payment Switch Bangladesh (NPSB) in 2011 to provide a common
platform for ATM and POS transactions.
 Introduction of online payment gateway services in 2013 by some banks to facilitate online
payments for e-commerce and other services.
 Introduction of the Bangladesh Electronic Fund Transfer Network (BEFTN) in 2013 to provide a
centralized platform for interbank fund transfers.
 Launch of the Bangladesh Automated Cheque Processing System (BACPS) in 2017 to facilitate
cheque processing through automation.
 Introduction of the Unified Payments Interface (UPI) in 2020 by some banks to facilitate real-time
payment transfers using a mobile application.
Overall, the payment system in Bangladesh has evolved significantly over the years, with the introduction
of new technologies and payment options to meet the changing needs of businesses and consumers. The
government and the central bank have also played an active role in promoting the growth of the payment
system and improving its efficiency and security.
Question3. What are some of the challenges faced by the Bangladesh payment system,
and what steps are being taken to overcome them?
Answer: While the payment system in Bangladesh has come a long way, there are still some challenges
that need to be addressed. Here are some of the challenges faced by the Bangladesh payment system and
the steps being taken to overcome them:
Lack of financial literacy and awareness among the general population about the different payment options
available to them. The government and various financial institutions are taking steps to educate the public
about the different payment options available and their benefits.
Cybersecurity threats and fraud, which can compromise the security of electronic payment systems. The
Bangladesh Bank has implemented several measures, such as setting up a cybersecurity and incident
response team, to enhance the security of the payment system.
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High transaction costs for some payment options, which can discourage their use, particularly for small-
value transactions. To address this issue, some banks have started offering low-cost or no-cost payment
options for small transactions.
Insufficient infrastructure, particularly in rural areas, can limit the accessibility of some payment options,
such as electronic payment systems. The government and various financial institutions are working to
expand the reach of electronic payment systems and mobile banking services to rural areas.
Limited interoperability between different payment systems can create inefficiencies and delays in fund
transfers. To address this issue, the Bangladesh Bank has introduced the National Payment Switch
Bangladesh (NPSB), which enables interoperability between different payment systems and enhances the
efficiency of the payment system.
Overall, the government and financial institutions in Bangladesh are taking steps to address these
challenges and improve the accessibility, efficiency, and security of the payment system.
Question4. In what ways have mobile payments impacted the payment system in
Bangladesh, and what are some of the benefits and risks associated with this payment
option?
Answer: Mobile payments have had a significant impact on the payment system in Bangladesh. Here are
some ways in which mobile payments have impacted the payment system:
 Increased accessibility: Mobile payments have made it easier for people to access financial
services, particularly in rural areas where traditional banking services may be limited.
 Convenience: Mobile payments offer a convenient way to make payments and transfer money
without the need for cash or physical bank visits.
 Cost-effective: Mobile payments can be a cost-effective way to make small transactions, with
lower transaction fees compared to some other payment options.
 Increased financial inclusion: Mobile payments have the potential to increase financial inclusion
by providing access to financial services to those who may not have access to traditional banking
services.
 However, there are also some risks associated with mobile payments:
 Security risks: Mobile payments can be vulnerable to fraud and hacking, which can compromise
the security of personal and financial information.
 Technical issues: Technical issues such as poor network coverage or device malfunction can
disrupt mobile payment transactions.
 Lack of regulation: The lack of regulation around mobile payments can create a risk of exploitation
by unscrupulous providers.
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Overall, mobile payments have had a positive impact on the payment system in Bangladesh, and their
adoption is expected to continue to grow in the future. However, there is a need for adequate regulations
to ensure the security and integrity of the system, as well as consumer protection.
Question5. What role do electronic fund transfers play in the Bangladesh payment
system, and how do they compare to other payment options in terms of efficiency and
security?
Answer: Electronic Fund Transfers (EFTs) play a significant role in the payment system in Bangladesh.
EFTs are electronic transactions that allow funds to be transferred from one bank account to another,
without the need for physical cash or cheques. Here are some ways in which EFTs compare to other
payment options in terms of efficiency and security:
 Efficiency: EFTs are highly efficient, allowing for real-time or near-real-time transfer of funds
between bank accounts. They are also highly automated, reducing the need for manual intervention
and processing.
 Security: EFTs are generally considered to be highly secure, with various security measures such
as encryption, digital signatures, and authentication protocols in place to protect against fraud and
unauthorized access.
 Cost: EFTs are generally considered to be cost-effective, with lower transaction fees compared to
some other payment options.
 Accessibility: While EFTs are widely available in Bangladesh, they require a bank account, which
may limit their accessibility for some individuals, particularly those in rural areas.
Compared to other payment options such as cash and cheques, EFTs offer several advantages in terms of
efficiency and security. However, they may not be as accessible to individuals who do not have bank
accounts. Overall, EFTs play a critical role in the payment system in Bangladesh and are expected to
continue to grow in popularity in the coming years.
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MODULE-C: FINANCIAL SYSTEM
Question1. What are the major concerns related to finance in Bangladesh, and how
are these concerns being addressed within the country's financial system?
Answer: One of the major concerns related to finance in Bangladesh is the lack of financial inclusion,
with many individuals and businesses having limited access to formal financial services. This is being
addressed through various initiatives aimed at expanding access to financial services, including
microfinance and mobile banking services.
Another concern is the high levels of non-performing loans (NPLs) within the banking sector, which can
lead to instability and hinder economic growth. The Bangladesh Bank, the central bank of Bangladesh,
has implemented various measures to address this issue, including the introduction of a loan rescheduling
program and the establishment of a credit information bureau.
Furthermore, the financial system of Bangladesh also faces challenges related to the regulation and
supervision of financial institutions, as well as issues related to corporate governance and transparency.
The Bangladesh Bank and other regulatory authorities are working to strengthen the regulatory framework
and improve oversight of financial institutions in the country. Additionally, efforts are being made to
promote greater transparency and accountability within the financial sector through initiatives such as the
introduction of corporate governance guidelines for banks and financial institutions.
Question2. How do direct and indirect modes of finance differ, and what role do they
play in the financial system of Bangladesh?
Answer: Direct and indirect modes of finance differ in terms of how funds are channeled from savers to
borrowers. Direct finance involves the direct transfer of funds from savers to borrowers, without
intermediaries. Examples of direct finance include equity financing, where investors purchase shares of
stock in a company, and debt financing, where investors purchase bonds or other debt securities issued by
a company.Indirect finance, on the other hand, involves the use of financial intermediaries such as banks
or other financial institutions to channel funds from savers to borrowers. This may involve the use of
financial instruments such as bank deposits, mutual funds, or insurance policies.
In the financial system of Bangladesh, both direct and indirect modes of finance play an important role.
While the banking sector is the dominant financial intermediary in the country, other types of financial
institutions such as insurance companies and capital markets also exist. The Bangladesh Bank regulates
and supervises these institutions to ensure the stability of the financial system.
In recent years, there has been a growing trend towards the development of capital markets in Bangladesh,
with the introduction of new financial instruments such as corporate bonds and the establishment of a
stock exchange. This has increased the availability of direct financing options for companies in the
country. However, indirect finance through the banking sector remains the primary mode of finance for
most individuals and businesses in Bangladesh.
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Question3. Can you explain the concept of a financial system, and how it relates to
the monetary and payment systems in Bangladesh?
Answer: A financial system refers to the set of institutions, markets, and intermediaries that facilitate the
transfer of funds between savers and borrowers. It encompasses all the activities involved in the creation,
distribution, and management of financial assets and liabilities, including money, securities, and loans.
In Bangladesh, the financial system is closely linked to both the monetary and payment systems. The
monetary system refers to the set of policies and procedures that regulate the supply and circulation of
money in the economy. The Bangladesh Bank, as the central bank of the country, plays a key role in
managing the monetary system through the implementation of monetary policy.
The payment system, on the other hand, refers to the infrastructure and mechanisms used to facilitate the
transfer of funds between buyers and sellers. This includes payment instruments such as cash, checks, and
electronic transfers. In Bangladesh, the payment system is overseen by the Bangladesh Bank, which
regulates and supervises payment service providers such as banks and mobile money operators.
The financial system in Bangladesh operates within this broader context of the monetary and payment
systems, with financial institutions and intermediaries playing a key role in facilitating the transfer of
funds between savers and borrowers. This includes banks, insurance companies, and capital markets,
which provide various financial instruments and services to individuals and businesses in the country.
Through the coordination of these various elements, the financial system contributes to the efficient
allocation of resources and the promotion of economic growth in Bangladesh.
Question4. What are the key constituents of the financial system in Bangladesh,
including financial institutions, financial instruments, and financial markets?
Answer: The financial system in Bangladesh is made up of several key constituents, including financial
institutions, financial instruments, and financial markets.
Financial institutions refer to the entities that intermediate between savers and borrowers, providing a
range of financial services to customers. In Bangladesh, financial institutions include banks, insurance
companies, non-bank financial institutions, and microfinance institutions.
Financial instruments refer to the various types of financial assets and liabilities that are traded in financial
markets. In Bangladesh, common financial instruments include government bonds, corporate bonds,
equity shares, and various types of derivative products.
Financial markets refer to the platforms through which financial instruments are bought and sold. In
Bangladesh, financial markets include the Dhaka Stock Exchange and the Chittagong Stock Exchange,
which provide a platform for trading equity shares and other securities.
In addition to these key constituents, the financial system in Bangladesh is also supported by a range of
infrastructure and superstructure elements, including payment systems, credit rating agencies, and
regulatory bodies such as the Bangladesh Bank and the Securities and Exchange Commission.
Overall, these various constituents work together to facilitate the transfer of funds between savers and
borrowers in Bangladesh, supporting economic growth and development in the country.
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Question5. How is the financial infrastructure of Bangladesh designed to support the

country's financial system, and what are some of the key elements of this
infrastructure?
Answer: The financial infrastructure of Bangladesh is designed to support the country's financial system
by providing the necessary platforms, tools, and systems for the smooth functioning of financial markets
and institutions. Some of the key elements of the financial infrastructure in Bangladesh include:
 Payment systems: Bangladesh has a well-developed payment system that supports various modes
of payment, including cash, checks, and electronic transfers. The Bangladesh Electronic Funds
Transfer Network (BEFTN) is a key component of the payment system, providing a secure and
efficient platform for electronic fund transfers.
 Credit information systems: Bangladesh has a centralized credit information system that collects
and maintains data on the creditworthiness of borrowers. This system helps lenders make informed
decisions about extending credit to borrowers, and also helps prevent fraud and identity theft.
 Regulatory bodies: The Bangladesh Bank and the Securities and Exchange Commission are the
primary regulatory bodies that oversee the financial system in Bangladesh. These bodies are
responsible for ensuring the stability and integrity of the financial system, and for enforcing
regulations and guidelines to promote fair and transparent financial practices.
 Financial market infrastructure: Bangladesh has several financial market infrastructure elements,
including the Dhaka Stock Exchange and the Chittagong Stock Exchange, which provide a
platform for trading securities. The Central Depository Bangladesh Limited (CDBL) is another
key element of the financial market infrastructure, providing a central platform for the settlement
of securities transactions.
 Financial literacy programs: The government of Bangladesh has launched several financial literacy
programs to promote financial inclusion and awareness among the general population. These
programs aim to increase financial literacy, encourage saving and investment, and promote
responsible financial behavior.
Overall, the financial infrastructure of Bangladesh is designed to support the country's financial system
by providing the necessary platforms, tools, and systems for the smooth functioning of financial markets
and institutions.
Question6. What is the role of the superstructure in the financial system of

Bangladesh, and how does it interact with the financial infrastructure?
Answer: In the financial system of Bangladesh, the superstructure refers to the legal, regulatory, and
institutional frameworks that govern the operations of financial institutions and markets. The
superstructure plays a critical role in ensuring the stability, transparency, and efficiency of the financial
system, and helps to protect the interests of investors, borrowers, and other stakeholders.
The superstructure interacts closely with the financial infrastructure in Bangladesh. The infrastructure
provides the necessary platforms and tools for the smooth functioning of financial markets and institutions,
while the superstructure provides the rules and regulations that govern their operations.
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The superstructure also plays a role in promoting financial inclusion and consumer protection in
Bangladesh. For example, the Bangladesh Bank has launched several initiatives to promote financial
inclusion and awareness among the general population, such as the Financial Inclusion Program and the
Financial Literacy Program. The superstructure also includes consumer protection mechanisms, such as
the Financial Ombudsman, which provides a channel for consumers to raise complaints against financial
service providers.
Overall, the superstructure and the financial infrastructure are closely interlinked in Bangladesh, with the
former providing the rules and regulations that govern the activities of the latter. Together, they help to
ensure the stability, transparency, and efficiency of the financial system, and support the growth and
development of the economy.
Question7. How has the financial system of Bangladesh evolved over time, and what
are some of the key factors that have driven this evolution?
Answer: The financial system of Bangladesh has evolved significantly over time, driven by various
factors such as economic, political, and social changes. Some of the key factors that have driven this
evolution include:
 Economic liberalization: In the 1980s and 1990s, Bangladesh underwent a process of economic
liberalization, which opened up the economy to foreign investment and trade. This led to the
growth of the financial sector, as banks and other financial institutions expanded their operations
to meet the needs of an increasingly globalized economy.
 Technological advancements: Technological advancements have played a significant role in the
evolution of the financial system in Bangladesh. The adoption of digital technologies has enabled
the development of new financial products and services, such as mobile banking and online
payments, and has increased access to financial services among the population.
 Government policies and initiatives: The government of Bangladesh has implemented various
policies and initiatives aimed at promoting the growth and development of the financial system.
For example, the Financial Sector Reform Program was launched in 1990 to modernize the
financial sector and improve its efficiency and effectiveness.
 Demographic changes: Changes in the demographic profile of Bangladesh have also driven the
evolution of the financial system. The growing middle class and increasing urbanization have led
to higher demand for financial services, while the younger generation has a greater appetite for
digital financial products and services.
 Global financial trends: The financial system of Bangladesh has also been influenced by global
financial trends. For example, the global financial crisis of 2008 led to increased regulatory
scrutiny and the implementation of stricter risk management policies in the financial sector.
Overall, the financial system of Bangladesh has evolved significantly over time, driven by various
economic, technological, and social factors. These changes have led to the growth and development of the
financial sector, increased access to financial services, and improved efficiency and effectiveness of the
financial system.
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Question8. What are some of the major challenges facing the financial system of
Bangladesh today, and what steps are being taken to address these challenges?
Answer: There are several challenges facing the financial system of Bangladesh today. Some of the major
challenges include:
 Low financial inclusion: Despite significant progress in recent years, financial inclusion remains
a challenge in Bangladesh, with a large proportion of the population still excluded from formal
financial services.
 Weak governance and risk management: Weak governance and risk management practices have
been identified as a key challenge facing the financial system in Bangladesh. This includes issues
such as weak corporate governance, inadequate risk management frameworks, and inadequate
regulatory oversight.
 Limited access to long-term finance: Bangladesh faces a shortage of long-term finance, which is
necessary to support investment and growth in key sectors such as infrastructure and
manufacturing.
 Limited market depth and liquidity: The financial markets in Bangladesh remain relatively
shallow, with limited market depth and liquidity, which can make it difficult for investors to enter
or exit positions.
 To address these challenges, the government of Bangladesh and other stakeholders are taking
several steps. For example:
 Promoting financial inclusion: The government has launched several initiatives aimed at
promoting financial inclusion, such as the Financial Inclusion Program and the Financial Literacy
Program. These initiatives are aimed at increasing access to financial services, particularly among
low-income and marginalized populations.
 Strengthening governance and risk management: The government has introduced several measures
aimed at strengthening governance and risk management in the financial sector. This includes the
implementation of new regulations and guidelines, the strengthening of regulatory oversight, and
the establishment of a Financial Reporting Council.
 Developing long-term finance: The government is taking steps to develop long-term finance, such
as the creation of a development bank and the promotion of public-private partnerships to finance
infrastructure projects.
 Enhancing market depth and liquidity: The government is taking steps to enhance market depth
and liquidity, such as the introduction of new financial instruments, the expansion of the securities
market, and the promotion of institutional investors such as pension funds.
Overall, the government of Bangladesh and other stakeholders are taking proactive steps to address the
challenges facing the financial system, with a focus on promoting financial inclusion, strengthening
governance and risk management, developing long-term finance, and enhancing market depth and
liquidity.
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MODULE-D: FINANCIAL INSTITUTIONS:
Question1. What are the key differences between banking financial institutions
(BFIS) and non-bank financial institutions (NBFIS) in Bangladesh?
Answer: Banking Financial Institutions (BFIs) and Non-bank Financial Institutions (NBFIs) are two types
of financial institutions operating in Bangladesh. The key differences between the two are as follows:
 Accepting deposits: BFIs are authorized to accept deposits from customers, while NBFIs are not
allowed to accept deposits.
 Capital adequacy: BFIs are subject to minimum capital adequacy requirements, while NBFIs are
subject to different capital adequacy requirements depending on the type of NBFI.
 Liquidity requirements: BFIs are subject to liquidity requirements, while NBFIs are subject to
different liquidity requirements depending on the type of NBFI.
 Functions: BFIs primarily focus on providing banking services such as accepting deposits, making
loans, and providing payment services. NBFIs, on the other hand, provide a wider range of
financial services, including leasing, factoring, investment management, and merchant banking.
 Risk management: BFIs generally have more established risk management systems in place
compared to NBFIs, which often have to develop their risk management capabilities.
 Access to funding: BFIs have greater access to funding sources, including deposits and interbank
lending, while NBFIs may have to rely more heavily on external sources of funding.
 Customer base: BFIs often serve a broader customer base, including individuals, small and
medium-sized enterprises, and large corporations. NBFIs, on the other hand, often focus on
specific customer segments, such as leasing companies or insurance providers.
 Market share: BFIs generally have a larger market share in the financial sector in Bangladesh,
while NBFIs have a smaller but growing market share as they continue to expand their services
and offerings.
Overall, BFIs are the main players in the banking industry in Bangladesh, while NBFIs play a
complementary role by providing specialized financial services to meet specific needs of customers.
Question2. How have BFIS and NBFIS contributed to the economic growth of
Bangladesh in recent years?
Answer: BFIs and NBFIs have played a significant role in the economic growth of Bangladesh in recent
years by providing financing and other financial services to different sectors of the economy. Some of the
key contributions are:
 Mobilizing savings: BFIs and NBFIs have mobilized savings from the public and provided the
necessary funds to different sectors of the economy, including agriculture, industry, and trade. This
has helped to increase investment, create employment opportunities, and boost economic growth.
 Facilitating trade and commerce: BFIs and NBFIs have facilitated trade and commerce by
providing various trade finance services such as letters of credit, guarantees, and factoring services.
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These services have helped to reduce transaction costs and mitigate risks associated with cross-
border transactions, thereby promoting international trade.
 Financing infrastructure development: BFIs and NBFIs have played a key role in financing
infrastructure development projects such as power plants, highways, and bridges. This has helped
to improve the country's infrastructure, attract foreign investment, and create employment
opportunities.
 Providing access to financial services: BFIs and NBFIs have expanded the reach of financial
services to remote and underserved areas of the country through the establishment of branches and
mobile banking services. This has enabled more people to access financial services, which in turn
has helped to increase savings, investment, and economic growth.
Overall, the contribution of BFIs and NBFIs has been crucial to the economic growth and development of
Bangladesh in recent years.
Question3. What are some of the major challenges faced by both BFIS and NBFIS in
Bangladesh, and how are they addressing these challenges?
Answer: BFIs and NBFIs in Bangladesh face several challenges, including:
 Competition: Both BFIs and NBFIs face intense competition in Bangladesh's financial sector,
which can limit their market share and profitability. To address this, some institutions are focusing
on niche segments, such as rural or low-income customers, and others are improving their product
and service offerings to differentiate themselves from competitors.
 Regulatory compliance: Compliance with regulations and reporting requirements is a major
challenge for both BFIs and NBFIs in Bangladesh. Institutions are addressing this by investing in
technology and personnel to improve their compliance capabilities.
 Asset quality: Both BFIs and NBFIs face challenges related to asset quality forming loans and
default risks. Institutions are addressing this by implementing more robust credit risk management
systems and increasing their focus on loan recovery.
 Digital transformation: BFIs and NBFIs in Bangladesh are facing the challenge of digital
transformation as more customers shift to digital channels. Institutions are addressing this by
investing in technology infrastructure and developing digital products and services.
 Talent retention: The financial sector in Bangladesh faces a shortage of skilled professionals, and
institutions are struggling to retain talent. To address this, institutions are investing in employee
training and development programs and offering competitive compensation packages.
 Funding constraints: Both BFIs and NBFIs in Bangladesh face challenges related to funding
constraints, including limited access to capital markets and high interest rates. Institutions are
addressing this by exploring alternative funding sources, such as deposits from retail customers
and institutional investors.
 Economic instability: Economic instability, including inflation and currency fluctuations, can have
a significant impact on BFIs and NBFIs in Bangladesh. Institutions are addressing this by
diversifying their portfolios and managing risks through hedging strategies.
 Political instability: Political instability and government policy changes can also impact the
financial sector in Bangladesh. Institutions are addressing this by monitoring political
developments and developing contingency plans to manage potential risks.
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 Cybersecurity threats: BFIs and NBFIs in Bangladesh are vulnerable to cybersecurity threats,
including data breaches and financial fraud. Institutions are addressing this by investing in
cybersecurity measures and training employees to recognize and respond to threats.
 Financial inclusion: Despite significant progress in recent years, BFIs and NBFIs in Bangladesh
continue to face challenges related to financial inclusion, including reaching underserved
populations and providing affordable financial services. Institutions are addressing this by
expanding their branch networks and developing innovative products and services to reach a wider
range of customers.
To address these challenges, BFIs and NBFIs in Bangladesh are taking various steps, including:
 Investing in technology: BFIs and NBFIs are investing in technology to offer digital banking
services and expand their reach to remote areas through mobile banking.
 Strengthening risk management: BFIs and NBFIs are enhancing their risk management practices
to mitigate risks associated with lending, investment, and other activities.
 Collaborating with international partners: BFIs and NBFIs are collaborating with international
partners to access financing, gain access to new technologies, and expand their operations.
 Supporting financial inclusion: BFIs and NBFIs are working to support financial inclusion by
offering new products and services tailored to the needs of underserved segments of the population.
Overall, BFIs and NBFIs in Bangladesh are taking a proactive approach to address the challenges they
face, and are working to position themselves for long-term growth and success.
Question4. What regulatory measures has the Bangladeshi government taken to

ensure the stability and growth of the financial sector, particularly with regards to
BFIS and NBFIS?
Answer: The Bangladeshi government has taken several regulatory measures to ensure the stability and
growth of the financial sector, particularly with regards to BFIs and NBFIs. Some of these measures
include:
 Introduction of Basel III framework: The government has implemented the Basel III framework
to strengthen the capital adequacy and risk management standards of BFIs in Bangladesh.
 Introduction of prudential regulations: The government has introduced prudential regulations for
BFIs and NBFIs to ensure that they maintain adequate capital and liquidity levels and manage their
risks effectively.
 Implementation of anti-money laundering (AML) measures: The government has implemented
AML measures to prevent money laundering and terrorist financing activities in the financial
sector.
 Development of credit bureaus: The government has facilitated the development of credit bureaus
in Bangladesh to improve credit information sharing and enhance the creditworthiness of
borrowers.
 Encouragement of mergers and acquisitions: The government has encouraged mergers and
acquisitions in the financial sector to increase the size and scale of BFIs and NBFIs and improve
their competitiveness.
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 Introduction of digital financial services: The government has introduced policies to promote the
development of digital financial services in Bangladesh, which has led to the growth of mobile
banking and other digital payment systems.
 Promotion of financial inclusion: The government has implemented policies and programs to
promote financial inclusion in Bangladesh, including the establishment of rural branches and the
development of microfinance institutions.
 Development of bond markets: The government has taken steps to develop bond markets in
Bangladesh to provide alternative sources of funding for BFIs and NBFIs.
 Provision of capital support: The government has provided capital support to BFIs and NBFIs in
Bangladesh to strengthen their balance sheets and improve their financial stability.
Overall, the regulatory measures taken by the Bangladeshi government have helped to ensure the stability
and growth of the financial sector, particularly with regards to BFIs and NBFIs. These measures have
enhanced the safety and soundness of financial institutions, improved access to financial services, and
facilitated economic growth and development.
Question5. What are some of the key financial products and services offered by BFIS
and NBFIS in Bangladesh, and how have these evolved over time to meet the changing
needs of customers?
Answer: BFIs and NBFIs in Bangladesh offer a wide range of financial products and services, which have
evolved over time to meet the changing needs of customers. Some of the key products and services offered
by BFIs and NBFIs in Bangladesh include:
 Deposit products: BFIs and NBFIs offer a variety of deposit products, including savings accounts,
fixed deposit accounts, and recurring deposit accounts. These products provide customers with a
safe place to store their money while earning interest.
 Loans and advances: BFIs and NBFIs provide loans and advances to customers for a variety of
purposes, including business expansion, home purchase, and education. These products have
evolved over time to become more flexible and tailored to the needs of customers.
 Payment services: BFIs and NBFIs offer payment services, including ATM cards, credit cards,
and online payment systems. These services have become increasingly important as digital
payments have become more common in Bangladesh.
 Investment products: NBFIs offer a range of investment products, including mutual funds, unit
trusts, and pension schemes. These products provide customers with opportunities to invest their
money and earn returns.
 Remittance services: BFIs provide remittance services, which allow customers to send and receive
money from abroad. These services have become increasingly important as the number of
Bangladeshis living and working abroad has grown.
Overall, BFIs and NBFIs in Bangladesh have evolved their product and service offerings over time to
meet the changing needs of customers. They have introduced new products and services, improved
existing ones, and embraced technology to enhance their reach and efficiency. As a result, BFIs and NBFIs
have played a critical role in expanding access to financial services in Bangladesh and supporting the
country's economic growth and development.
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MODULE-E: FINANCIAL MARKETS
Question1. What are the key functions of financial markets in Bangladesh, and how
do they contribute to the country's economic growth?
Answer: Financial markets in Bangladesh serve several important functions that contribute to the
country's economic growth. Some of the key functions are:
 Mobilizing savings: Financial markets provide a platform for individuals and institutions to invest
their savings. This helps to channel funds from savers to borrowers, which supports economic
growth by funding new business ventures and infrastructure projects.
 Facilitating capital formation: Financial markets facilitate the process of capital formation by
providing companies with access to capital through the issuance of stocks and bonds. This enables
companies to raise funds for new projects and expansion, which can contribute to economic
growth.
 Providing liquidity: Financial markets provide a platform for investors to buy and sell securities,
which creates liquidity and helps to ensure that there is a ready market for investments. This makes
it easier for investors to enter and exit the market, which supports investment and economic
growth.
 Managing risk: Financial markets provide a range of instruments that allow investors to manage
risk, including derivatives and insurance products. This helps to reduce the overall risk in the
economy and can encourage investment and growth.
Overall, financial markets play a crucial role in supporting economic growth in Bangladesh by providing
a platform for savings, capital formation, liquidity, and risk management. By providing access to capital
and managing risk, financial markets help to support entrepreneurship and business growth, which in turn
creates jobs and contributes to overall economic development.
Question2. How are financial markets in Bangladesh classified, and what are the key
differences between the money market and capital market?
Answer: Financial markets in Bangladesh are typically classified into two broad categories: the money
market and the capital market.
The money market is a market for short-term debt securities, with maturities of less than one year. The
key players in the money market are typically banks, financial institutions, and government entities. The
money market is primarily used for funding short-term liquidity needs, such as working capital and
inventory financing.
The capital market, on the other hand, is a market for long-term debt and equity securities, with maturities
of more than one year. The key players in the capital market are companies, government entities, and
institutional investors. The capital market is primarily used for raising long-term capital for business
expansion, capital expenditures, and other long-term projects.
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One of the key differences between the money market and the capital market is the duration of the
securities traded. Money market instruments are short-term in nature, while capital market instruments
have longer maturities. Another difference is the type of securities traded - the money market is primarily
focused on debt securities, while the capital market includes both debt and equity securities.
In Bangladesh, the money market is regulated by the central bank, the Bangladesh Bank, while the capital
market is regulated by the Bangladesh Securities and Exchange Commission (BSEC). The BSEC oversees
the issuance, trading, and settlement of securities in the capital market, and works to ensure transparency
and fairness in the market.
Overall, the money market and the capital market serve different purposes in Bangladesh's financial
system, and are both critical for supporting economic growth and development.
Question3. How do banking, security, and insurance markets operate in Bangladesh,

and what role do they play in the overall financial system?
Answer: Banking, security, and insurance markets operate in Bangladesh as separate entities, with their
respective regulatory bodies overseeing their activities. The Bangladesh Bank is the central bank of
Bangladesh and regulates the banking sector, while the Securities and Exchange Commission of
Bangladesh (SEC) regulates the securities market, and the Insurance Development and Regulatory
Authority (IDRA) regulates the insurance market.
The banking sector in Bangladesh is dominated by state-owned banks, which account for around half of
the market share. There are also many private commercial banks, foreign banks, and specialized banks
operating in the country. The banking sector provides various services such as deposit-taking, lending,
trade finance, foreign exchange, and remittance services. The role of the banking sector in the financial
system is to mobilize savings from the public and channel them into productive investments.
The securities market in Bangladesh is relatively small, with a market capitalization of around 20% of
GDP. The market is dominated by the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange
(CSE). The SEC regulates the securities market and oversees the issuance and trading of securities such
as shares, debentures, and bonds. The securities market plays an important role in providing long-term
financing to the private sector.
The insurance market in Bangladesh is relatively underdeveloped, with a penetration rate of around 1%
of GDP. There are both life and non-life insurance companies operating in the country. The IDRA
regulates the insurance market and oversees the licensing and supervision of insurance companies. The
role of the insurance market is to provide risk mitigation to individuals and businesses.
Overall, the banking, security, and insurance markets play important roles in the financial system of
Bangladesh. They provide financing, risk mitigation, and investment opportunities to individuals and
businesses, contributing to economic growth and development.
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Question4. What is the primary market in Bangladesh, and how does it differ from
the secondary market, including the OTC market?
Answer: The primary market in Bangladesh is a market where newly issued securities, such as stocks and
bonds, are bought and sold for the first time. This is also known as the initial public offering (IPO) market.
Companies seeking to raise capital from the public issue new securities in the primary market, and
investors purchase those securities directly from the issuer.
The primary market differs from the secondary market, which is a market where previously issued
securities are bought and sold among investors. In the secondary market, the securities are traded between
investors without any involvement from the issuer. The secondary market provides liquidity to the primary
market by allowing investors to buy and sell securities after the initial offering.
In Bangladesh, the secondary market is dominated by the two stock exchanges, the Dhaka Stock Exchange
(DSE) and the Chittagong Stock Exchange (CSE). Securities traded on these exchanges include stocks,
bonds, and mutual funds. The secondary market provides investors with an opportunity to buy and sell
securities based on their investment objectives and risk tolerance.
In addition to the secondary market, there is also an over-the-counter (OTC) market in Bangladesh. The
OTC market is a decentralized market where securities are traded directly between buyers and sellers,
without the involvement of an exchange. The OTC market is less regulated than the stock exchanges, and
it is typically used for trading debt securities and other less liquid securities.
Overall, the primary market in Bangladesh is where newly issued securities are bought and sold, while the
secondary market, including the OTC market, and is where previously issued securities are traded among
investors.
Question5. What is micro-finance, and how has it evolved in Bangladesh in recent

years?
Answer: Microfinance is a financial service that provides small loans, savings accounts, and other
financial services to low-income individuals and micro-enterprises, who have limited access to formal
financial services. Microfinance aims to empower people by providing them with the means to improve
their economic conditions and lift themselves out of poverty.
Microfinance has evolved significantly in Bangladesh in recent years. Bangladesh is considered the
birthplace of microfinance, and the country's microfinance sector has made significant progress in
expanding access to financial services to low-income people. The sector started in Bangladesh in the
1970s, and the Grameen Bank, founded by Nobel laureate Professor Muhammad Yunus in 1983, is widely
recognized as the pioneer of modern microfinance.
In recent years, the microfinance sector in Bangladesh has experienced significant growth, both in terms
of the number of clients served and the amount of financing provided. The sector has also evolved to
include a range of financial services beyond microcredit, such as savings, insurance, and remittance
services. Microfinance institutions (MFIs) have also diversified their lending products, offering loans for
housing, education, and healthcare.
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However, the microfinance sector in Bangladesh has also faced some challenges in recent years, such as
high interest rates, over-indebtedness, and client protection issues. In response, the regulatory framework
for microfinance has been strengthened to ensure greater transparency, accountability, and client
protection. The Bangladesh Bank has also introduced a regulatory framework for digital financial services,
which has the potential to further expand access to financial services to low-income people.
Overall, microfinance has evolved significantly in Bangladesh in recent years, and it continues to play an
important role in providing financial services to low-income individuals and micro-enterprises. The sector
has helped to improve the economic conditions of millions of people and has the potential to contribute to
Bangladesh's economic growth and development.
Question6. How does the micro-credit market operate in Bangladesh, and what
impact has it had on small businesses and entrepreneurs?
Answer: The micro-credit market in Bangladesh operates through microfinance institutions (MFIs) that
provide small loans to low-income individuals and micro-enterprises. The loans are typically short-term
and unsecured, and the repayment schedule is flexible, usually weekly or bi-weekly. The micro-credit
market is regulated by the Microcredit Regulatory Authority (MRA) in Bangladesh.
MFIs in Bangladesh use a group-based lending model, where borrowers are organized into groups of five
to ten people, who are jointly liable for the repayment of the loan. This model has been successful in
reducing default rates and increasing loan recovery rates.
The impact of the micro-credit market on small businesses and entrepreneurs in Bangladesh has been
significant. Micro-credit has helped to expand access to finance for low-income people, who have limited
or no access to formal financial services. The loans have enabled them to start or expand their small
businesses, which has contributed to poverty reduction and economic development in the country.
The micro-credit market has had a particularly significant impact on women, who make up the majority
of micro-credit borrowers in Bangladesh. The loans have enabled women to become entrepreneurs,
increase their income, and improve their social and economic status.
However, the micro-credit market has also faced some criticism, particularly around high-interest rates,
over-indebtedness, and aggressive loan recovery practices. The high-interest rates charged by some MFIs
have led to accusations of exploitation of vulnerable borrowers, and over-indebtedness has been a concern
in some areas, leading to default and loan delinquency.
Overall, the micro-credit market in Bangladesh has had a positive impact on small businesses and
entrepreneurs, particularly women, by expanding access to finance and promoting economic development.
However, there is a need to address some of the challenges and criticisms associated with the micro-credit
market to ensure its continued success in promoting financial inclusion and economic development.
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Question7. How does Bangladesh participate in the international financial market,

and what are some of the key challenges and opportunities it faces?
Answer: Bangladesh participates in the international financial market through various means, including
borrowing from international financial institutions, issuing sovereign bonds, and attracting foreign direct
investment. The country has also taken steps to integrate its financial system with global financial systems,
such as introducing electronic payment systems and participating in cross-border payment networks.
One of the key challenges that Bangladesh faces in participating in the international financial market is its
low credit rating, which makes it more difficult and expensive to access international capital markets. The
country also faces challenges related to infrastructure and governance, which can make it less attractive
to foreign investors.
However, there are also significant opportunities for Bangladesh to participate more fully in the
international financial market. The country has a large and growing population, which presents
opportunities for investment in areas such as infrastructure, healthcare, and education. Bangladesh's
strategic location, adjacent to India and close to Southeast Asia, also presents opportunities for trade and
investment.
In addition, Bangladesh has made progress in improving its business climate and has taken steps to
modernize its financial system. The country has introduced a range of financial sector reforms, including
strengthening regulations and supervision, improving corporate governance, and promoting financial
inclusion.
Bangladesh's participation in regional initiatives such as the Belt and Road Initiative and the Bay of Bengal
Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) also provides
opportunities for greater integration with regional and global financial systems.
Overall, while Bangladesh faces challenges in participating in the international financial market, there are
also significant opportunities for the country to attract investment, improve its infrastructure, and promote
economic growth and development.
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Question8. How does the regulatory environment in Bangladesh support the

functioning of financial markets, and what measures are in place to ensure
transparency and accountability?
Answer: The regulatory environment in Bangladesh supports the functioning of financial markets by
promoting transparency, accountability, and stability. The regulatory framework is overseen by several
regulatory bodies, including the Bangladesh Bank (BB), the Securities and Exchange Commission (SEC),
and the Insurance Development and Regulatory Authority (IDRA).
The Bangladesh Bank is the central bank of Bangladesh and is responsible for regulating and supervising
banks and other financial institutions in the country. The bank is responsible for maintaining monetary
stability, promoting economic growth, and ensuring financial sector stability.
The Securities and Exchange Commission (SEC) is responsible for regulating the securities market in
Bangladesh. The SEC oversees the issuance of securities, registration of securities brokers and dealers,
and enforcement of securities regulations.
The Insurance Development and Regulatory Authority (IDRA) is responsible for regulating the insurance
market in Bangladesh. The authority oversees the licensing of insurance companies, registration of
insurance agents, and enforcement of insurance regulations.
To ensure transparency and accountability in financial markets, Bangladesh has implemented various
measures, including:
 Disclosure requirements: Financial institutions are required to disclose information about their
operations, financial performance, and risk management practices.
 Audit requirements: Financial institutions are required to undergo regular audits by independent
auditors to ensure compliance with regulations and accounting standards.
 Supervision and enforcement: Regulatory bodies such as the Bangladesh Bank, SEC, and IDRA
are responsible for supervising financial institutions and enforcing regulations.
 Code of conduct: Financial institutions are required to follow a code of conduct that outlines ethical
practices, fair treatment of customers, and compliance with regulations.
Overall, the regulatory environment in Bangladesh supports the functioning of financial markets by
promoting transparency, accountability, and stability. The regulatory bodies oversee financial institutions
and ensure compliance with regulations, and measures are in place to promote transparency and
accountability in financial reporting and risk management practices.
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MODULE-F: ISLAMIC FINANCIAL SYSTEM
Question 1. What is the role of Islamic economics, finance, and banking in

Bangladesh’s financial system?
Answer: Islamic economics, finance, and banking play a significant role in Bangladesh's financial system.
Bangladesh is a predominantly Muslim country, and the demand for Islamic financial products and
services has been increasing rapidly in recent years.
The Islamic financial system operates based on the principles of Shariah law, which prohibit the payment
and receipt of interest and promote risk-sharing between parties. Islamic finance offers a unique alternative
to conventional banking, and it has become a popular choice for individuals and businesses in Bangladesh
who want to avoid interest-based transactions.
The government of Bangladesh has been supportive of the growth of Islamic finance and banking, and it
has created a regulatory framework to ensure the industry's stability and growth. The Bangladesh Bank,
the central bank of Bangladesh, has issued guidelines for Islamic banking and finance institutions and has
authorized the establishment of several Islamic banks and financial institutions in the country.
Islamic finance has also played a role in promoting financial inclusion in Bangladesh, by providing
financial products and services to underserved segments of the population, such as rural communities and
low-income households. Overall, Islamic economics, finance, and banking have become an important
component of Bangladesh's financial system and are likely to continue to grow in importance in the future.
Question 2. How does the Islamic financial system differ from conventional banking
systems in terms of principles, such as the prohibition of interest and risk-sharing?
Answer: The Islamic financial system differs from conventional banking systems in several ways,
including its principles regarding interest and risk-sharing. In Islamic finance, interest is prohibited, and
transactions must be based on principles of risk-sharing and mutual cooperation.
One of the main differences between Islamic finance and conventional banking is the concept of riba,
which refers to the payment or receipt of interest. Islamic finance prohibits riba, as it is considered to be
unjust and exploitative. Instead of interest-based transactions, Islamic finance promotes profit and loss
sharing between parties, where both parties share the risk and the rewards of the investment.
Another key principle of Islamic finance is the concept of moral and ethical values in financial
transactions. Islamic finance emphasizes transparency, fairness, and social responsibility in financial
dealings, which is reflected in the types of financial products and services offered. For example, Islamic
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finance offers products such as sukuk (Islamic bonds), which are based on asset-backed securities and are
used to finance projects that are considered socially responsible.
Overall, the Islamic financial system places a greater emphasis on ethical and moral values in financial
transactions, promotes risk-sharing between parties, and prohibits interest-based transactions. These
differences reflect the fundamental differences in the underlying principles and values that guide Islamic
finance and conventional banking.
Question 3. How does the Islamic financial system in Bangladesh relate to the
country's religious and cultural beliefs?
Answer: The Islamic financial system in Bangladesh is closely tied to the country's religious and cultural
beliefs, as Bangladesh is a predominantly Muslim country. Islam is the state religion of Bangladesh, and
its cultural and religious values play a significant role in shaping the country's economic and financial
systems.
The Islamic financial system in Bangladesh is based on the principles of Shariah law, which are derived
from the Quran and the Sunnah. These principles reflect the values and beliefs of the Muslim community
in Bangladesh, and they guide the development and implementation of Islamic finance and banking
products and services in the country.
The popularity of Islamic finance in Bangladesh is also a reflection of the country's religious and cultural
values. Many Muslims in Bangladesh prefer to use Islamic financial products and services because they
are consistent with their religious beliefs and values. Moreover, the principles of Islamic finance, such as
the prohibition of interest and promotion of risk-sharing, align with the values of fairness and social justice
that are important in Bangladeshi culture.
Overall, the Islamic financial system in Bangladesh is closely tied to the country's religious and cultural
beliefs, and it reflects the values and principles that are important to the Muslim community in the country.
Question 4. What are the sources of Shariah law that inform Islamic finance and
banking practices in Bangladesh?
Answer: The sources of Shariah law that inform Islamic finance and banking practices in Bangladesh are
primarily the Quran, the Sunnah (the teachings and practices of the Prophet Muhammad), and the Ijma
(consensus of Islamic scholars).
The Quran is the primary source of guidance for Islamic finance and banking practices in Bangladesh. It
contains several principles and guidelines related to financial transactions and commerce, such as the
prohibition of riba (interest) and the promotion of risk-sharing and fair dealing in business transactions.
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The Sunnah, which consists of the teachings and practices of the Prophet Muhammad, provides additional
guidance on the application of Islamic principles in daily life. Islamic finance and banking institutions in
Bangladesh often consult the Sunnah for guidance on issues related to financial transactions and business
practices.
The Ijma, or consensus of Islamic scholars, is also an important source of guidance for Islamic finance
and banking practices in Bangladesh. Islamic scholars often work together to provide guidance on issues
related to Islamic finance and banking, and their consensus is considered authoritative.
In addition to these primary sources, Islamic finance and banking institutions in Bangladesh also consult
secondary sources of Islamic law, such as Qiyas (analogical reasoning) and Ijtihad (independent
reasoning), to help interpret and apply Shariah law to modern financial transactions and business practices.
Overall, the sources of Shariah law provide the guiding principles and ethical framework for Islamic
finance and banking practices in Bangladesh. These principles are applied through the development of
specific products and services that comply with the principles of Shariah law.
Question 5. What are some examples of Islamic financial instruments used in

Bangladesh, and how do they operate in practice?
Answer: There are several Islamic financial instruments used in Bangladesh, each of which operates
according to the principles of Shariah law. Here are some examples:
 Musharakah: Musharakah is a partnership arrangement between two or more parties. In this

arrangement, all parties contribute capital, and profits and losses are shared based on a pre-agreed
ratio. In Bangladesh, Musharakah is often used for financing business ventures and real estate
development projects.
 Mudarabah: Mudarabah is a profit-sharing arrangement between an investor (the Rab al-maal) and
an entrepreneur (the Mudarib). The Rab al-maal provides the capital, while the Mudarib provides
the expertise and manages the investment. Profits are shared between the two parties based on a
pre-agreed ratio. In Bangladesh, Mudarabah is often used for project financing and investment
purposes.
 Murabaha: Murabaha is a cost-plus financing arrangement where the financial institution
purchases an asset on behalf of the customer and sells it to the customer at a marked-up price. The
customer repays the cost plus profit in installments over an agreed period of time. In Bangladesh,
Murabaha is commonly used for financing the purchase of consumer goods such as cars and
household appliances.
 Sukuk: Sukuk are Islamic bonds that are issued to raise funds for specific projects. Instead of
paying interest, the issuer pays a share of profits to the bondholders based on the performance of
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the underlying assets. In Bangladesh, Sukuk has been used for financing infrastructure and
development projects.
These are just a few examples of the Islamic financial instruments used in Bangladesh. Each of these
instruments operates according to the principles of Shariah law, which emphasize risk-sharing,
transparency, and ethical business practices.
Question 6. How has the growth of Islamic finance and banking impacted the broader
economic development of Bangladesh in recent years?
Answer: The growth of Islamic finance and banking has had a significant impact on the broader economic
development of Bangladesh in recent years. Here are some ways in which Islamic finance and banking
has contributed to economic development in Bangladesh:
 Increased financial inclusion: Islamic finance and banking has helped to increase financial
inclusion in Bangladesh by providing a range of financial products and services that cater to the
needs of underserved segments of the population, such as small business owners and low-income
households.
 Increased investment in key sectors: Islamic finance and banking has played a role in financing
key sectors of the economy, such as infrastructure, agriculture, and manufacturing. This has helped
to stimulate economic growth and create job opportunities in these sectors.
 Increased foreign investment: The growth of Islamic finance and banking has also attracted foreign
investors to Bangladesh, who are interested in participating in the country's growing Islamic
finance industry. This has helped to increase foreign investment in the country and boost economic
growth.
 Improved financial stability: Islamic finance and banking operates based on the principles of risk-
sharing, transparency, and ethical business practices. This has helped to improve financial stability
in Bangladesh by reducing the risks of financial imbalances and reducing the likelihood of
financial crises.
Overall, the growth of Islamic finance and banking has contributed to the broader economic development
of Bangladesh by promoting financial inclusion, increasing investment in key sectors, attracting foreign
investment, and improving financial stability.
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MODULE-G: REGULATORY FRAMEWORK

FOR FINANCIAL, MONETARY AND
PAYMENT SYSTEM:
ROLE OF BB, BSEC, IDRA AND MRA.
INTRODUCTION:
The regulatory framework for financial, monetary and payment system is an essential component of a
stable and efficient financial system in any economy. In Bangladesh, the regulatory framework is divided
among several regulatory bodies, including the Bangladesh Bank (BB), the Bangladesh Securities and
Exchange Commission (BSEC), the Insurance Development and Regulatory Authority (IDRA), and the
Microcredit Regulatory Authority (MRA). Each of these regulatory bodies has a specific role in ensuring
the stability and integrity of the financial, monetary, and payment systems in Bangladesh.
The Bangladesh Bank (BB) is the central bank of Bangladesh and the primary regulator of the banking
sector in the country. The BB is responsible for formulating and implementing monetary policy, regulating
the banking system, and maintaining the stability of the financial system. The BB is also responsible for
issuing licenses to new banks, supervising and regulating banks' activities, and ensuring compliance with
relevant laws and regulations. The BB is also responsible for overseeing the payment system in
Bangladesh and ensuring the efficient functioning of payment systems.
The Bangladesh Securities and Exchange Commission (BSEC) is responsible for regulating the capital
markets in Bangladesh. The BSEC's primary role is to ensure the integrity of the capital markets by
enforcing regulations and preventing fraud and insider trading. The BSEC also regulates the issuance and
trading of securities and oversees the activities of stock exchanges and other market intermediaries. The
BSEC also plays a critical role in investor protection by ensuring that market participants have access to
accurate and timely information.
The Insurance Development and Regulatory Authority (IDRA) is responsible for regulating the insurance
industry in Bangladesh. The IDRA's primary role is to ensure the stability and integrity of the insurance
sector by regulating insurers' activities and enforcing compliance with relevant laws and regulations. The
IDRA is responsible for issuing licenses to insurance companies, approving insurance products, and
overseeing the activities of insurance intermediaries.
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The Microcredit Regulatory Authority (MRA) is responsible for regulating microfinance institutions in
Bangladesh. The MRA's primary role is to ensure the stability and integrity of the microfinance sector by
regulating the activities of microfinance institutions and enforcing compliance with relevant laws and
regulations. The MRA is responsible for issuing licenses to microfinance institutions, supervising and
regulating their activities, and ensuring that they comply with relevant laws and regulations.
Overall, the regulatory framework for financial, monetary, and payment system in Bangladesh is designed
to ensure the stability and integrity of the financial system, promote financial inclusion, and protect the
interests of consumers and investors. The roles and responsibilities of the regulatory bodies in Bangladesh
are complementary, and they work together to ensure that the financial system operates efficiently and
effectively. The regulatory bodies also collaborate with each other and with other stakeholders to address
emerging risks and challenges in the financial system and ensure that regulations and policies are up to
date and relevant.
MAJOR ROLE OF BB:
The Bangladesh Bank (BB) is the central bank of Bangladesh, and it has several major roles and
responsibilities in the country's financial system. Some of the major roles of the Bangladesh Bank are
discussed below:
 Formulating and implementing monetary policy: One of the most crucial roles of the Bangladesh
Bank is formulating and implementing monetary policy in Bangladesh. The bank is responsible
for setting interest rates and managing the money supply to achieve price stability and support
economic growth.
 Regulating and supervising the banking sector: The Bangladesh Bank is responsible for regulating
and supervising the banking sector in Bangladesh. It issues licenses to new banks and monitors
and supervises their activities to ensure compliance with relevant laws and regulations. The
Bangladesh Bank also supervises the activities of non-bank financial institutions, such as leasing
companies and merchant banks.
 Managing the foreign exchange reserve: The Bangladesh Bank manages the country's foreign
exchange reserve and maintains the exchange rate stability of the Bangladeshi taka against other
major currencies. It intervenes in the foreign exchange market to maintain a stable exchange rate
and ensures that the country has adequate foreign exchange reserves to meet its import and other
payment obligations.
 Overseeing the payment and settlement system: The Bangladesh Bank is responsible for
overseeing the payment and settlement system in Bangladesh. It regulates and supervises payment
systems, such as the Real-Time Gross Settlement (RTGS) system, to ensure that payments are
settled efficiently and securely.
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 Promoting financial inclusion: The Bangladesh Bank plays an important role in promoting
financial inclusion in Bangladesh. It formulates policies and initiatives to increase access to
financial services for underserved and marginalized segments of the population, such as rural areas
and women entrepreneurs.
 Conducting research and providing advice: The Bangladesh Bank conducts research on various
aspects of the economy and financial system and provides advice to the government on economic
and financial policy issues. It also represents Bangladesh in international forums, such as the
International Monetary Fund (IMF) and the World Bank.
In conclusion, the Bangladesh Bank is a critical institution in Bangladesh's financial system, and its roles
and responsibilities are essential for maintaining stability and promoting economic growth in the country.
MAJOR ROLE OF BSEC:
The Bangladesh Securities and Exchange Commission (BSEC) is the primary regulatory body for the
capital markets in Bangladesh. It has several major roles and responsibilities in ensuring the integrity and
stability of the capital markets. Some of the major roles of the BSEC are discussed below:
 Regulating securities offerings: The BSEC regulates the issuance of securities in Bangladesh. It
reviews and approves prospectuses and other offering documents to ensure that they comply with
relevant laws and regulations. The BSEC also monitors the activities of underwriters, registrars,
and other market intermediaries involved in securities offerings.
 Regulating securities trading: The BSEC is responsible for regulating securities trading in
Bangladesh. It monitors stock exchanges and other trading platforms to ensure that they comply
with relevant laws and regulations. The BSEC also investigates cases of insider trading, market
manipulation, and other fraudulent activities in the securities markets.
 Ensuring investor protection: The BSEC plays a critical role in ensuring investor protection in
Bangladesh. It requires companies to disclose accurate and timely information to investors and
imposes sanctions on companies and individuals that violate securities laws and regulations. The
BSEC also works to increase investor education and awareness to promote informed investment
decisions.
 Promoting market development: The BSEC is responsible for promoting the development of the
capital markets in Bangladesh. It formulates policies and initiatives to attract new investors and
issuers and improve market liquidity. The BSEC also works to develop new financial products and
services that meet the needs of investors and issuers.
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 Collaborating with other regulators: The BSEC collaborates with other regulators in Bangladesh
to promote a stable and efficient financial system. It works closely with the Bangladesh Bank, the
Insurance Development and Regulatory Authority (IDRA), and the Microcredit Regulatory
Authority (MRA) to coordinate regulatory activities and address emerging risks and challenges in
the financial system.
In conclusion, the Bangladesh Securities and Exchange Commission plays a critical role in regulating the
capital markets in Bangladesh. Its roles and responsibilities are essential for ensuring the integrity and
stability of the capital markets and promoting investor protection and market development.
MAJOR ROLE OF IDRA:
The Insurance Development and Regulatory Authority (IDRA) is the regulatory body responsible for
overseeing the insurance industry in Bangladesh. It has several major roles and responsibilities in ensuring
the integrity and stability of the insurance sector. Some of the major roles of the IDRA are discussed
below:
 Regulating insurance companies: The IDRA is responsible for regulating insurance companies in
Bangladesh. It issues licenses to new insurance companies and monitors and supervises their
activities to ensure compliance with relevant laws and regulations. The IDRA also sets capital and
solvency requirements for insurance companies to ensure that they have adequate financial
resources to meet their obligations to policyholders.
 Protecting policyholders: The IDRA plays a critical role in protecting policyholders in Bangladesh.
It requires insurance companies to disclose accurate and timely information to policyholders and
imposes sanctions on companies and individuals that violate insurance laws and regulations. The
IDRA also works to increase policyholder education and awareness to promote informed insurance
decisions.
 Promoting market development: The IDRA is responsible for promoting the development of the
insurance industry in Bangladesh. It formulates policies and initiatives to attract new insurers and
increase insurance penetration in the country. The IDRA also works to develop new insurance
products and services that meet the needs of consumers and businesses.
 Ensuring market stability: The IDRA plays an important role in ensuring market stability in the
insurance sector. It monitors market developments and takes action to address emerging risks and
challenges in the sector. The IDRA also collaborates with other regulators and stakeholders to
coordinate regulatory activities and promote a stable and efficient financial system.
 Conducting research and providing advice: The IDRA conducts research on various aspects of the
insurance industry and provides advice to the government on insurance policy issues. It also
represents Bangladesh in international forums, such as the International Association of Insurance
Supervisors (IAIS), to share knowledge and best practices with other insurance regulators.
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In conclusion, the Insurance Development and Regulatory Authority plays a critical role in regulating the
insurance industry in Bangladesh. Its roles and responsibilities are essential for ensuring the integrity and
stability of the insurance sector and promoting policyholder protection and market development.
MAJOR ROLE OF MRA
The Microcredit Regulatory Authority (MRA) is the regulatory body responsible for overseeing the
microfinance industry in Bangladesh. It has several major roles and responsibilities in ensuring the
integrity and stability of the microfinance sector. Some of the major roles of the MRA are discussed below:
 Regulating microfinance institutions (MFIs): The MRA is responsible for regulating MFIs in
Bangladesh. It issues licenses to new MFIs and monitors and supervises their activities to ensure
compliance with relevant laws and regulations. The MRA also sets capital and solvency
requirements for MFIs to ensure that they have adequate financial resources to meet their
obligations to clients.
 Protecting clients: The MRA plays a critical role in protecting clients in Bangladesh. It requires
MFIs to disclose accurate and timely information to clients and imposes sanctions on MFIs and
individuals that violate microfinance laws and regulations. The MRA also works to increase client
education and awareness to promote informed microfinance decisions.
 Promoting market development: The MRA is responsible for promoting the development of the
microfinance industry in Bangladesh. It formulates policies and initiatives to attract new MFIs and
increase microfinance penetration in the country. The MRA also works to develop new
microfinance products and services that meet the needs of clients.
 Ensuring market stability: The MRA plays an important role in ensuring market stability in the
microfinance sector. It monitors market developments and takes action to address emerging risks
and challenges in the sector. The MRA also collaborates with other regulators and stakeholders to
coordinate regulatory activities and promote a stable and efficient financial system.
 Conducting research and providing advice: The MRA conducts research on various aspects of the
microfinance industry and provides advice to the government on microfinance policy issues. It
also represents Bangladesh in international forums, such as the Consultative Group to Assist the
Poor (CGAP), to share knowledge and best practices with other microfinance regulators.
In conclusion, the Microcredit Regulatory Authority plays a critical role in regulating the microfinance
industry in Bangladesh. Its roles and responsibilities are essential for ensuring the integrity and stability
of the microfinance sector and promoting client protection and market development.
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MAJOR CHALLENGES FACED BY THE BB, BSEC, IDRA AND MRA
The major challenges faced by the regulatory bodies in Bangladesh, including the Bangladesh Bank (BB),
Bangladesh Securities and Exchange Commission (BSEC), Insurance Development and Regulatory
Authority (IDRA), and Microcredit Regulatory Authority (MRA), are discussed below:
 Lack of resources: One of the major challenges faced by these regulatory bodies is a lack of
resources. This can include limited funding, staffing, and technical expertise. This can make it
difficult for these bodies to effectively carry out their regulatory responsibilities and keep up with
the rapid changes in the financial, monetary, and payment systems.
 Weak enforcement: Another major challenge faced by these regulatory bodies is weak
enforcement of regulations. Despite having strong regulatory frameworks in place, there have been
instances of non-compliance and fraud in the financial sector, which can undermine public
confidence in the regulatory bodies. Effective enforcement requires strong collaboration between
regulatory bodies, the government, and other stakeholders.
 Rapid innovation: The financial, monetary, and payment systems are constantly evolving, with
new technologies and financial products being developed. Keeping up with these changes can be
a challenge for regulatory bodies, who must balance the need to promote innovation and
competition with the need to ensure stability and protect consumers.
 Political interference: Regulatory bodies may face political pressure from government officials or
other stakeholders, which can undermine their independence and effectiveness. It is important for
these bodies to maintain their independence and act in the best interests of the public and the
financial system.
 Lack of coordination: Coordination among regulatory bodies can be a challenge, particularly when
there are overlapping jurisdictions or conflicting regulations. It is important for regulatory bodies
to work together to develop common standards and coordinate their activities to promote a stable
and efficient financial system.
In conclusion, the regulatory bodies in Bangladesh face several challenges in regulating the financial,
monetary, and payment systems. Addressing these challenges will require strong collaboration among
regulatory bodies, the government, and other stakeholders, as well as ongoing efforts to strengthen
regulatory frameworks and ensure effective enforcement of regulations.
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Question 7. How regulatory authorities in Bangladesh, including bb, BSEC, IDRA

and MRA coordinate with each other’s?
The regulatory authorities in Bangladesh, including the Bangladesh Bank (BB), Bangladesh Securities
and Exchange Commission (BSEC), Insurance Development and Regulatory Authority (IDRA), and
Microcredit Regulatory Authority (MRA), coordinate with each other and work together to ensure the
integrity and stability of the financial, monetary, and payment systems. Some of the ways in which these
regulatory bodies coordinate and work together are discussed below:
 Information sharing: The regulatory bodies share information on developments and risks in their
respective areas of jurisdiction. This helps them to identify potential threats to the financial system
and coordinate their responses.
 Collaborative inspections: The regulatory bodies conduct joint inspections of financial institutions
to ensure compliance with relevant laws and regulations. This helps to avoid duplication of efforts
and streamline regulatory activities.
 Joint policy development: The regulatory bodies work together to develop common policies and
regulations to promote a stable and efficient financial system. For example, they may collaborate
on developing standards for corporate governance or risk management.
 Coordination of enforcement actions: When there are violations of regulations, the regulatory
bodies coordinate their enforcement actions to ensure consistent and effective responses. This
helps to deter future violations and promote compliance with regulations.
 Regular meetings and consultations: The regulatory bodies hold regular meetings and
consultations to discuss regulatory issues and coordinate their activities. This helps to ensure that
regulatory policies are consistent and effective in promoting the stability and integrity of the
financial system.
In conclusion, the regulatory bodies in Bangladesh coordinate and work together to promote a stable and
efficient financial, monetary, and payment system. Their collaboration is essential for effective regulation
and ensures that regulations are consistent and complementary across different sectors.
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MONEY CREATION
Money creation, or money issuance, is the process by which the money supply of a country, or of an
economic or monetary region, is increased. In most modern economies, money creation is controlled by the
central banks. Money issued by central banks is termed base money. Central banks can increase the quantity
of base money directly, by engaging in open market operations. However, the majority of the money supply
is created by the commercial banking system in the form of bank deposits. Bank loans issued by commercial
banks that practice fractional reserve banking expands the quantity of broad money to more than the original
amount of base money issued by the central bank.
HIGH POWER MONEY

High powered money is the liability of the monetary authority of the country. This is also called the
monetary base and is created by the Bangladesh Bank. High powered money includes currency (notes and
coins), deposits with the government and reserves of commercial banks with Bangladesh bank. So, to sum
up, high powered money is
H=C+R
Where
H - High powered money
C - Currency
R - Cash Reserves of commercial banks
NOMINAL INTEREST RATE VS REAL

INTEREST RATE
In finance and economics, the Nominal Interest rate refers to the interest rate without adjusting inflation. It
is the rate which does not take inflation, compounding effect of interest, tax, or any fees in the account. It
is also known as Annualized Percent Rate. It is the interest compounded or calculated once a year.
𝑖 𝑛
𝑟 = (1 + ) − 1
𝑛
Where
r- Effective rate
i- Nominal rate
n- The number of compounding periods per year
REAL INTEREST RATE: The real interest rate is the rate of interest an investor, saver or lender receives
(or expects to receive) after allowing for inflation. It can be described more formally by the Fisher equation,
which states that the real interest rate is approximately the nominal interest rate minus the inflation rate. Put
simply, this interest rate provides insight into the actual return received by a lender or investor after a rate
of inflation is acknowledged.
Real Interest Rate = Nominal Interest Rate – Actual or Anticipated Rate of Inflation
BACH
Bangladesh Automated Clearing House (BACH) is a computer network-based clearing and settlement
system to exchange of electronic bank instruments among the Participating Bank. BACH has two
components- the Automated Cheque Processing System and the Electronic Funds Transfer. Both the
systems operate in batch processing mode- transactions received from the banks during the day are
processed at a pre-fixed time and settled through a single multilateral netting figure on each individual
bank's respective books maintained with the Bangladesh Bank.
RTGS
Bangladesh Bank launched Real Time Gross Settlement (RTGS) system on 29th October 2015 to facilitate
safe, secured and efficient interbank payment system. The term real-time gross settlement (RTGS) refers to
a funds transfer system that allows for the instantaneous transfer of money and/or securities. RTGS is the
continuous process of settling payments on an individual order basis without netting debits with credits
across the books of a central bank. RTGS ensures transfer of funds from one account of a bank to that of
another bank on a real-time and on gross basis. Once completed, real-time gross settlement payments are
final and irrevocable.
NPSB
National Payment Switch Bangladesh (NPSB) is a domestic ATM sharing network governed by the
Bangladesh Bank. Through this network NPSB member bank’s customers are to perform ATM transactions
at other NPSB member banks’ ATM terminals using their Debit/Credit/ATM cards. NPSB facilitate fund
transfer to other banks account from any bank account instantly. Currently, four types of interbank ATM
transaction (i.e. cash withdrawal, balance enquiry, fund transfer and mini statement) could be done through
NPSB. By using NPSB an individual can transact maximum BDT 3,00,000.00 with maximum 10 times
transaction frequency not more than 10 lac per day.
POS
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is
completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that
amount, may prepare an invoice for the customer (which may be a cash register printout), and indicates the
options for the customer to make payment. It is also the point at which a customer makes a payment to the
merchant in exchange for goods or after provision of a service. Point-of-sale (POS) systems have evolved
from cash registers to modern hubs that manage sales, customer experience, promotional offers, and
operational processes.
FINANCIAL SYSTEM OF 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 three broad fragmented
sectors:
Formal Sector: The formal sector includes all regulated institutions like Banks, Non-Bank
Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage
Houses, Merchant Banks etc.; Micro Finance Institutions (MFIs).
Semi-Formal Sector: The semi-formal sector includes those institutions which do not fall under
the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any
other sanctioned financial regulator. Like House Building Finance Corporation (HBFC), Palli
Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc.,
Informal Sector: The informal sector includes private intermediaries which are completely
unregulated.
Financial System Structure of Bangladesh:
The main constituents of financial system are:
 Financial Institutions: The modern name of Financial Institution is Financial Intermediary
(FI)
 Financial Instruments: Financial Instruments are of two types, Primary (or Direct),
Secondary (or Indirect)
 Financial Markets: Financial markets facilitate the flow of funds in order to finance
investments by governments, corporations, and individuals.
GREEN BANKING
Green Banking means promoting environmental – friendly practices and reducing carbon footprint from
banking activities. It is also called as ethical banking or a sustainable banking. Green Banking is a process
practiced by the banks to make the earth environmentally appeasing and safe habitable for all of the species
on the earth. A Green Bank considers all the social and environmental /ecological factors in its normal
banking operations with an additional agenda toward taking care of the Earth's environment / habitats /
resources. Green Banking involves the tenets of sustainability, ethical investing, conservation and energy
efficiency to protect the environment and natural resources.
MORAL HAZARD
A moral hazard is a situation where a party can engage in a risky action because some other party is bearing
the consequence. The party taking the risk has minimal responsibility related to it and the consequence’s
cost. In financial markets, moral hazard occurs when investors or market participants are able to take on
excessive risk because they believe that they will be bailed out if those risks lead to losses.
Various types of moral hazards:
Financial crisis
Misuse of office goods
Insurance hazard
ASYMMETRIC INFORMATION
Asymmetric information, also known as "information failure," occurs when one party to an economic
transaction possesses greater material knowledge than the other party. This typically shows when the seller
of a good or service possesses greater knowledge than the buyer. Asymmetric information is seen as a
desired outcome of a healthy market economy in terms of skilled labor, where workers specialize in a trade,
becoming more productive, and providing greater value to workers in other trades.
ADVERSE SELECTION
Adverse selection refers generally to a situation in which sellers have information that buyers do not have,
or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric
information is exploited. If one party has more knowledge than other party in a financial transaction that
the disadvantage lies the party who has less knowledge. The asymmetry of information often leads to
making bad decisions, such as doing more business with less profitable or riskier market segments.
FINANCIAL INFRASTRUCTURE
Financial infrastructure refers to the underlying systems, institutions, and technologies that facilitate the
functioning of a financial system. It provides the necessary framework for economic activities related to
banking, payments, investments, and the movement of money and financial assets.
Key components of financial infrastructure include:
Banks and Financial Institutions:
Payment Systems
Securities and Exchanges
Central Banks
Clearing and Settlement Systems
Regulatory Framework
Technology and Information Systems
A well-functioning financial infrastructure ensures the smooth operation of financial markets, facilitates
capital allocation, and supports economic transactions at both domestic and international levels.
FINANCIAL SUPERSTRUCTURE
The term "financial superstructure" is not commonly used in finance or economics. However, it seems to
refer to a broader concept encompassing the overarching framework, policies, and regulatory environment
that govern the financial system. While the financial infrastructure refers to the underlying systems and
institutions, the financial superstructure can be seen as the higher-level framework that shapes and governs
the operation of the financial infrastructure.
THE ANTICIPATED INCOME THEORY
The anticipated income theory was developed by H.V. Prochanow in 1944 on the basis of the practice of
extending term loans by the US commercial banks. According to this theory, regardless of the nature and
character of a borrower’s business, the bank plans the liquidation of the term-loan from the anticipated
income of the borrower. A term-loan is for a period exceeding one year and extending to less than five
years. It is granted against the hypothecation of machinery, stock and even immovable property. The bank
puts restrictions on the financial activities of the borrower while granting this loan. At the time of granting
a loan, the bank takes into consideration not only the security but the anticipated earnings of the borrower.
Thus a loan by the bank gets repaid out of the future income of the borrower in instalments, instead of in a
lump sum at the maturity of the loan.
MONEY MARKET INSTRUMENTS

The money market is a financial market wherein short-term assets and open-ended funds are traded between
institutions and traders. The market offers very high liquidity as the assets can easily convert into cash.
Thus, it helps businesses and the government in meeting their working capital requirements. A money
market provides easily available cash to businesses, institutions and governments for day-to-day operations.
Types of Money Market Instruments:

Call Money: Call money is one of the most liquid instruments. The validity is generally one working
day.
Treasury Bills: T-bills are issued by a country’s central bank on behalf of its government.
Commercial Papers: Companies generally use commercial papers to fund their short-term working
capital needs, such as payment of accounts receivables, inventory purchases, etc.
Certificate of Deposits: A certificate of deposit is a type of time deposit with the bank. Only a bank
can issue a CD.
Repos: Repo is a repurchase agreement. For example, Bank A in need of funds, with Bank B having
surplus funds. Bank A will enter into an agreement with Bank B to sell its securities (mostly
Treasury Bills). Bank B will receive the required funds.
COMMERCIAL PAPER
Commercial paper is an unsecured, short-term debt instrument issued by corporations. It's typically used to
finance short-term liabilities such as payroll, accounts payable, and inventories. Commercial paper is
usually issued at a discount from face value. It reflects prevailing market interest rates. CPs come with an
average maturity of two odd months. However, just like the Treasury Bills, these are also issued at a
discount, and therefore, they don’t come with separate interests.
REPURCHASE AGREEMENT
A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In
the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys
them back the following day at a slightly higher price. That small difference in price is the implicit overnight
interest rate. Repos are typically used to raise short-term capital. They are also a common tool of central
bank open market operations.
YIELD TO MATURITY
Yield to Maturity refers to the expected returns an investor anticipates after keeping the bond intact till the
maturity date. The yield to maturity measures the value of the bond at the end of its bond term. In other
words, a bond’s expected returns after making all the payments on time throughout the life of a bond. Yield
to maturity is considered a long-term bond yield but is expressed as an annual rate. Yield to maturity is the
total rate of return that will have been earned by a bond when it makes all interest payments and repays the
original principal.
CURRENT YIELD
The current yield of a bond calculates the rate of return on a bond by using the market price of the bond
instead of its face value. It is calculated as the annual coupon payment divided by the current market price.
The current yield is an accurate measure of bond yield as it reflects the market sentiment and investor
expectations from the bond in terms of return.
PERPETUAL BOND/ CONSOL BOND

Perpetual bond refers to a bond without an expiration date. It is a fixed income financial instrument with no
maturity date; hence it offers interest income to the instrument holder for an indefinite period. It is also
known as “perps” or Consol bonds. Consol bonds, typically issued by governments, qualified banks, and
public companies. One major drawback to these types of bonds is that they are not redeemable. However,
the major benefit of them is that they pay a steady stream of interest payments forever.
ZERO COUPON BOND/ DICOUNT

BOND
Zero-Coupon Bond (Also known as Pure Discount Bond or Accrual Bond) refers to those bonds which are
issued at a discount to its par value and makes no periodic interest payment, unlike a normal coupon-bearing
bond. In other words, its annual implied interest payment is included in its face value which is paid at the
maturity of such bond. Therefore this bond is the one where the sole return is the payment of the nominal
value on maturity.
JUNK BOND
Junk bonds are fixed-income debt instruments offering higher profits than conventional corporate bonds
with a higher risk of default and volatility. These bonds are attractive to investors as they guarantee
significant returns on investment with increased interest payments. Companies and governments issue these
bonds with a high debt ratio and a low investment-grade credit rating. Junk bonds represent bonds issued
by companies that are financially struggling and have a high risk of defaulting or not paying their interest
payments or repaying the principal to investors.
PEGGED EXCHANGE RATE SYSTEM
A currency peg is defined as the policy whereby the government or the central bank maintains a fixed
exchange rate to the currency belonging to another country, resulting in a stable exchange rate policy
between the two. For example, the currency of China was pegged with US dollars until 2015. Pegged
exchange rate system is defined as the exchange rate fixed between two countries to supplement their trade.
In such a system, the central bank aligns its domestic currency with its other currency. It helps the exchange
rate maintain a good and narrow area.
SUKUK
Sukuk is the Arabic name for financial certificates, also commonly referred to as "sharia compliant" bonds.
Sukuk are defined by the AAOIFI (Accounting and Auditing Organization for Islamic Financial
Institutions) as "securities of equal denomination representing individual ownership interests in a portfolio
of eligible existing or future assets. In other words, Sukuk refers to financial instruments issued through a
special purpose vehicle as certificates or notes for Muslims. It complies with Sharia, an Islamic religious
law, and serves as a viable alternative to traditional interest-bearing bonds. The issuer uses proceeds from
the certificate sale to purchase a tangible asset, giving the investor direct partial ownership.
MUDARABA
Mudaraba is a partnership in profit whereby one party provides capital and the other party provides skill
and labor. The provider of capital is called "Shahib al-maal", while the provider of skill and labor is called
"Mudarib". So, Mudaraba may be defined as a contract of partnership where the Shahib al-maal provides
capital to the Mudarib for investing it in a commercial enterprise by applying his labor and work. Both the
parties share the profit as per agreed upon ratio and the losses, if any, being borne by the provider of funds.
OPEN MARKET OPERATION

Open market operations refer to the selling and purchasing of the treasury bills and government securities
by the central bank of any country in order to regulate money supply in the economy. It is one of the most
important ways of monetary control that is exercised by the central banks. Under this system, the central
bank sells securities in the market when it wants to reduce the money supply in the market. It is done to
increase interest rates. This policy is also known as the contractionary monetary policy. Similarly, when the
central bank wants to increase the money supply in the market, it will purchase securities from the market.
This step is taken to reduce the rate of interest and also to help in the economic growth of the country. This
policy is known as the expansionary monetary policy.
LENDER OF LAST RESORT

A lender of last resort (LoLR) refers to an institution that provides liquidity or emergency credit to banks
experiencing financial difficulties. Usually, central banks in many countries come forward to lend the
necessary funds to bail out financial entities on the verge of bankruptcy. A lender of last resort provides
emergency credit to financial institutions that are struggling financially and near collapse. Bangladesh Bank,
typically acts as the lender of last resort to banks that no longer have other available means of borrowing,
and whose failure to obtain credit would dramatically affect the economy.
CRR (CASH RESERVE RATIO)
CRR rate is the minimum percentage of cash deposits that must be maintained by every commercial bank
as per the requirement of the Central Bank. Cash Reserve Ratio Rate is computed as a percentage of the net
demand and time liabilities of each bank. Net Demand and Time Liability is reached with the total of the
savings account, current account, and fixed deposit balances.
The formula used for calculating the cash reserve ratio is given below:
𝑪𝑹𝑹 = 𝑹𝒆𝒔𝒆𝒓𝒗𝒆 𝑹𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕 / 𝑫𝒆𝒑𝒐𝒔𝒊𝒕𝒔
SLR (STATUTORY LIQUIDITY RATIO)

The statutory liquidity ratio (SLR) is the minimum percentage of liquid assets that every commercial bank
needs to retain. It acts as a reserve and comprises cash, securities, and gold. It is evaluated as the percentage
value of the bank’s liquid assets divided by an aggregate of its net demand and time liabilities. The central
bank has the power to change the SLR for regulating bank credit and for correcting the economy–during
inflation, recession, or deflation scenarios.
𝑺𝑳𝑹 = [𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 / (𝑵𝒆𝒕 𝑫𝒆𝒎𝒂𝒏𝒅 + 𝑻𝒊𝒎𝒆 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔)] × 𝟏𝟎𝟎.
REPO VS REVERSE REPO

Category Repo Rate Reverse Repo Rate
The rate at which the Central Bank lends The rate at which the Central Bank
Meaning money to other commercial banks of the borrows money from the other
country. commercial banks of the country.
Higher than reverse repo rate (currently Lower than repo rate (currently 4.25% in
Rate comparison
6% in Bangladesh). Bangladesh).
Increased Repo Rates lead to increased
Increase in Reverse Repo Rate leads to
costs for the commercial bank,
Impact on Banks more lending activity for commercial
which leads to making banking products
banks due to higher profitability.
more expensive.
Due to excess liquidity in the market,
Due to readily available funds from
Central Bank may start borrowing funds
Central Bank at a particular Repo Rate,
Impact on from commercial banks at the reverse
commercial banks do not face a liquidity
Liquidity repo rate.
crunch.
Thus this rate controls an excess flow of
Thus it controls liquidity crunch.
funds.
Increase in repo rate leads to increased
cost of borrowing for commercial banks
Increase in reverse repo rate leads to
which is passed on to customers.
Impact on increased lending activities by banks and
This leads to slowing down of borrowing
Inflation decreased money flow in the markets,
activity in the market,
due to which inflation gets controlled.
due to which economy as a whole slows
down, thus controlling inflation.
MRA (MICROCREDIT REGULATORY
AUTHORITY)
Microcredit Regulatory Authority (MRA) is the central body to monitor and supervise microfinance
operations of non-governmental organizations of the Republic of Bangladesh. It was created by the
Government of People's Republic of Bangladesh under the Microcredit Regulatory Authority Act (Act no.
32 of 2006). License from the Authority is mandatory to operate microfinance operation in Bangladesh as
an NGO. The authority is empowered and responsible to implement the said act and to bring the microcredit
sector of the country under full-fledged regulatory framework.
INSURANCE DEVELOPMENT AND

REGULATORY AUTHORITY (IDRA)
The Insurance Development and Regulatory Authority (IDRA) was established by the Insurance
Development and Regulatory Authority Act of 2010 and became operational in January 2011. IDRA is in
charge of regulating and supervising all the insurance companies. The authority's main task has been to
frame rules which determine how the insurance law will work in practice. The main objective to provide
technical expertise and capacity building to the IDRA officials, individually and collectively, in achieving
the following fundamental insurance regulatory and supervisory objectives: 1) protect the policy holders
interest, promote competitive markets and facilitate the fair and equitable treatment of insurance consumers;
2) promote the reliability, solvency and financial solidity of insurance institutions; and 3) support and
improve the legal framework ( the Insurance Law and Regulations) and establish effective supervision using
the risk based and market conduct supervision approach.

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Monetary and Financial System

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MD SAIDUL ALAM RAJAN

Monetary and Financial System (MAFS)

MODULE-A: MONEY AND MONETARY SYSTEM

MODULE-B: PAYMENT SYSTEM

MODULE-C: FINANCIAL SYSTEM

Question5. How is the financial infrastructure of Bangladesh designed to support the

Question6. What is the role of the superstructure in the financial system of

MODULE-D: FINANCIAL INSTITUTIONS:

Question4. What regulatory measures has the Bangladeshi government taken to

MODULE-E: FINANCIAL MARKETS

Question3. How do banking, security, and insurance markets operate in Bangladesh,

Question5. What is micro-finance, and how has it evolved in Bangladesh in recent

Question7. How does Bangladesh participate in the international financial market,

Question8. How does the regulatory environment in Bangladesh support the

MODULE-F: ISLAMIC FINANCIAL SYSTEM

Question 1. What is the role of Islamic economics, finance, and banking in

Question 5. What are some examples of Islamic financial instruments used in

 Musharakah: Musharakah is a partnership arrangement between two or more parties. In this

MODULE-G: REGULATORY FRAMEWORK

MAJOR ROLE OF BB:

MAJOR ROLE OF BSEC:

MAJOR ROLE OF IDRA:

MAJOR ROLE OF MRA

MAJOR CHALLENGES FACED BY THE BB, BSEC, IDRA AND MRA

Question 7. How regulatory authorities in Bangladesh, including bb, BSEC, IDRA

HIGH POWER MONEY

NOMINAL INTEREST RATE VS REAL

MONEY MARKET INSTRUMENTS

Types of Money Market Instruments:

PERPETUAL BOND/ CONSOL BOND

ZERO COUPON BOND/ DICOUNT

OPEN MARKET OPERATION

LENDER OF LAST RESORT

𝑪𝑹𝑹 = 𝑹𝒆𝒔𝒆𝒓𝒗𝒆 𝑹𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕 / 𝑫𝒆𝒑𝒐𝒔𝒊𝒕𝒔

SLR (STATUTORY LIQUIDITY RATIO)

𝑺𝑳𝑹 = [𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 / (𝑵𝒆𝒕 𝑫𝒆𝒎𝒂𝒏𝒅 + 𝑻𝒊𝒎𝒆 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔)] × 𝟏𝟎𝟎.

REPO VS REVERSE REPO

INSURANCE DEVELOPMENT AND

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