Capital market fails to fuel Bangladesh’s industrialization

The capital market is globally recognized as a key source of long-term financing for industrialization, manufacturing, and business expansion, while banks traditionally provide short-term credit.
Through this process, new industries emerge, while existing enterprises expand and grow.
However, Bangladesh’s capital market has yet to evolve into a strong pillar of the economy. Instead, years of irregularities, policy failures, and a lack of investor confidence have left it fragile and underperforming.

Capital Market Missing from the Growth Story
Experts stress that a strong capital market is vital for sustainable economic growth, just as the banking sector is crucial to the economy, so too is the capital market. Both must operate efficiently and in tandem to ensure economic stability and expansion.
In Bangladesh, the reality is far from ideal.
Despite being expected to supply long-term capital for industrialization, the capital market plays a minimal role in the broader economy.
Analysts point to a “bank-dependent corporate culture” where both short- and long-term financing rely almost entirely on banks — even large government projects are financed by bank loans.
As a result, the capital market remains weak, while the banking sector struggles under the weight of massive non-performing loans.
An economist said that excessive dependence on banks has created a structural mismatch in the economy.
“We must shift away from this bank-centric model and strengthen the capital market as an alternative source of financing,” he added.

IPO Drought Stifles Market Activity
A vibrant capital market requires a steady stream of new listings through Initial Public Offerings (IPOs).
Yet, Bangladesh’s IPO market has been virtually frozen for more than a year.
The last IPO under the book-building method was approved for Techno Drugs on March 25, 2024, while the last fixed-price IPO was granted to NRB Bank on December 24, 2023.
According to Dhaka Stock Exchange (DSE) data, the market saw 52 IPOs over the past five fiscal years, raising a total of Tk 7,980 crore—an average of Tk 1,596 crore annually.
The 2021–22 fiscal year was the most active, with 15 companies raising Tk 4,848 crore. Since then, the flow of new listings has steadily dried up, culminating in the unprecedented IPO drought of the past year.

Policy Failures and a Trust Deficit
Irregularities and manipulation, often with political backing, have long plagued Bangladesh’s capital market.
Regulators have also failed to curb these practices, eroding public trust.
This lack of confidence, coupled with weak policy incentives, has deterred potential companies from listing.
“Entrepreneurs are hesitant,” said Majeda Khatun, president of the Bangladesh Merchant Bankers Association.
They feel the tax benefits are minimal and IPO rules need updating. The uncertainty surrounding elections and the broader economy further contributes to their cautious approach, she added.
Former Dhaka University economics professor and current ICB chairman Abu Ahmed noted that listing incentives are no longer attractive enough.
“Ten to fifteen years ago, listed firms enjoyed a 10% corporate tax reduction. It’s now only 7.5%, which doesn’t motivate companies,” he added.
Ironically, many of these firms are listed in India and Pakistan, but not in Bangladesh. The government should impose higher taxes on unlisted firms to encourage participation, he added.

Impact on the Economy
The capital market’s inability to channel sufficient funds into the industrial and manufacturing sectors is slowing the country’s economic momentum. Most businesses rely on bank loans instead of equity financing, placing undue pressure on banks and stifling the capital market’s role. This imbalance hampers industrial growth, job creation, and long-term economic sustainability.
Data show that Bangladesh lags behind other Asian economies in terms of market capitalization, listed companies, and foreign investment, despite the Asian Development Bank ranking the country’s GDP as the ninth-largest in Asia.
Experts warn that without investment in new industries, Bangladesh will be unable to achieve the necessary diversification for sustainable growth, particularly as it prepares for the post-LDC graduation era.
Prof. Abu Ahmed asserted that the capital market’s economic contribution would have significantly increased if more robust domestic and multinational companies had listed earlier.
“The banking sector’s current burden of non-performing loans would have been much lower. Globally, business houses raise long-term funds from stock markets, not from banks,” he added.
However, the scenario is opposite in Bangladesh, and that’s why banks are now under stress.
Industrialist Nazmul Haque echoed a similar sentiment, saying that financing industrial expansion through the capital market would create new jobs, boost government revenue, and accelerate overall economic growth.
To make the capital market a true driver of industrialization, experts urge the government to move beyond bank-centric financing and establish a stable, transparent, and investment-friendly regulatory framework.
They also urged that the government should urgently introduce meaningful tax incentives, simplify IPO procedures, and ensure accurate company valuations.
A strong and credible capital market, they argue, could become one of the country’s most powerful engines for industrial growth, job creation, and sustainable development.