Bangladesh’s shallow capital market

A stock market can rise without helping businesses raise a single additional taka. In the first half of this year, the Dhaka Stock Exchange’s benchmark index rose nearly 19 percent and average daily turnover increased by more than half. By October 17, the DSEX had fallen to around 5,433 points, while turnover dropped to Tk 317 crore, its lowest level in more than nine months. The deeper question is why price movements have not translated into stronger investment financing.

At end-June, market capitalisation stood at 11.42 percent of GDP, compared with 10.82 percent a year earlier. Rising share prices can lift market value without bringing new companies to market or generating fresh capital. A deeper market should be judged by new listings, fresh equity, tradable securities and liquidity. Stock-market size is not the same as the capacity to fund growth across the economy.

That is what shallow water looks like. Bangladesh has savings, but too few channels to direct long-term capital towards productive enterprises. Businesses remain heavily dependent on bank loans. Corporate bonds could finance expansion without adding to bank-credit concentration. But a functioning bond market needs credible issuers, transparent credit assessment, diverse maturities and reliable secondary trading, not merely securities listed on an exchange.

The Bangladesh Bank publishes a daily secondary-market yield curve for government treasury bonds. Trading, price discovery and market-making must deepen. A benchmark is useful, but cannot substitute for a liquid market. Without reliable reference rates and investors able to exit positions, corporate bond pricing will remain difficult and issuance costly.

Retirement savings offer another opportunity. Industry estimates suggest provident, gratuity and pension funds may exceed $15 billion, though data are limited. Much of these savings is held in bank deposits and government securities. A stronger framework for employer-sponsored funds, with prudent investment rules, independent trustees, disclosure and professional management, could diversify investment options and support long-term finance. The objective must be to protect employees’ retirement security, not direct their savings into equities simply to support share prices.

The gap is between recognising problems and implementing trusted changes. The Direct Listing of Securities Rules, 2026, gazetted on October 18, creates additional routes for companies to enter the market. Yet direct listing may broaden public ownership without raising fresh capital for the company. To reduce dependence on bank borrowing, policy must also support new equity issuance, rights offerings and corporate bond financing.

Faster approvals cannot restore confidence. Financial statements must be reliable; related-party transactions and ownership structures transparent; disclosures timely; and manipulation met with consequences. Admitting more securities without enforcing standards could increase investor risk rather than productive finance.

Responsibility extends beyond the securities regulator. The National Board of Revenue should ensure tax treatment makes listing worthwhile relative to compliance costs. The Bangladesh Bank and the Ministry of Finance should improve government-securities liquidity and market access. The Finance Division should establish a sound framework for retirement funds, while insurers and mutual funds need well-governed products to attract long-term investors.

The most useful step is accountability. A public scoreboard should identify each accepted reform, the responsible institution, its deadline, progress and measurable outcome. Updated quarterly, it would show whether equity raising, bond trading and investor protection had improved.

Shallow water does not always sink a boat; it leaves it stranded, often without warning. Bangladesh needs more than another rally. It needs deeper markets that convert savings into productive investment, give businesses alternatives to bank loans and offer investors a market they can trust. The test of reform is not what is announced, but what changes.

The writer is an economic analyst