ADB extends $3-M loan for insurance, capital markets

The Asian Development Bank (ADB) has extended a $3-million loan to Bangladesh to help reinforce investor confidence in Bangladesh’s financial markets through better governance in the capital market and the insurance sector.

Investor confidence in the capital market has not fully recovered since the stock market crash in 1996, largely due to weak governance and market gaps. Lack of market interest has, in turn, marginalized the role of the capital market in mobilizing long-term funds for economic development.

The insurance sector, on the other hand, is underdeveloped. It is characterized by a very limited range of products and services, poorly trained insurance staff, and few investment opportunities. In addition, its legal framework is weak, leading to the industry’s poor public image and reputation.

"With better governance and greater investor participation, activities in the capital market and the insurance sector should be revived, and will play a more significant role in mobilizing long-term funds for infrastructure and industry, and for spurring economic growth," Soo-Nam Oh, an ADB senior financial/capital markets specialist, said.

The project will strengthen the regulation and supervision of the capital market, boost the capacity of regulators, and provide recommendations to increase demand for and supply of securities by addressing market gaps.

The project will also support government-led reforms being pursued in the insurance sector, including a revamp of the insurance legislation and the establishment of a new regulatory authority, based on international best practices.

ADB’s loan will meet 75 percent of the project’s total estimated cost of $4 million. The loan comes from ADB’s concessional Asian Development Fund (ADF) and carries a 32-year term, including a grace period of eight years. Interest is set at one percent per annum during the grace period and 1.5 percent per annum thereafter.

The National Government will shoulder the balance of $1 million. The Finance Division of the Ministry of Finance is the executing agency for the project, which is due to terminate in December 2007.