Under the new interest rate policy, which became effective in January 1990, all deposit rates are decontrolled. The market, except for exports, freely determines all lending rates.

In January 1996, BB announced a new policy on Capital Adequacy along the lines recommended by the Basle Committee on banking supervision. The Revised policy on capital adequacy requires scheduled banks to maintain at least 9% of off-balance sheet risk and risk in different types of assets as capital.

Bangladesh Bank introduced new accounting policies with respect to loan classification, provisioning and interest suspense in 1989 with a view to attaining international standards over a period of time. A Revised policy for loan classification and provisioning was introduced from 1st January,1999. The Revised policy calls for an independent assessment of each loan on the basis of qualitative factors and objective criteria. Each loan is branded with the worst level of classification resulting from these independent assessments.

If a Continuous Credit or a Demand Loan remains non-performing for 6 months or more it is classified Sub-standard. It is classified as Doubtful if it remains non-performing for 9 months and classified as Loss if non-performing for 12 months or more.

In the case of a Term Loan, which is repayable within a maximum period of 5 years, if any instalment is not repaid within the specified period and if the time-equivalent of such unadjusted balance is 6 months, it is classified Sub-standard. A Term loan is classified Doubtful and Loss if the time-equivalent of unadjusted balance is 12 months and 18 months respectively.

Agricultural Loan and Micro-Credit is classified Sub-standard if non-performing for 12 months, Doubtful if non-performing for 36 months and Loss if non-performing for more than 60 months.

Under the existing system scheduled banks are required to maintain provisions against unclassified and substandard loans in addition to doubtful and loss loans. They are allowed to book interest against classified loans only on cash basis.

Whether a credit is classified or not under the objective criteria, it is subjected to classification under qualitative judgement if any doubt arises regarding repayment of loan.

On March 24, 1994 Bangladesh Taka (domestic currency) was declared convertible for current transactions in terms of Article VII of the IMF Articles of Agreement. Consequent to this, current external settlements for trade in goods and services and for amortization payments on foreign borrowings can be made through banks authorized to deal in foreign exchange, without prior central bank authorization. However, because resident owned capital is not freely transferable abroad (Taka is not yet convertible on capital account), some current settlements beyond certain indicative limits are subject to bonafides checks.

Direct investments of non-residents in the industrial sector and portfolio investments of non-residents through stock exchanges are repatriable abroad, as also are capital gains and profits/dividends thereon. Investment abroad of resident-owned capital is subject to prior Bangladesh Bank approval, which is allowed only sparingly.

The exchange rate policy of Bangladesh Bank aims at maintaining the competitiveness of Bangladeshi products in the international markets, encouraging inflow of wage earners' remittances, maintaining internal price stability, and maintaining a viable external account position. Prior to the inception of floating exchange rate regime, adjustments in exchange rates were made while keeping in view the trends of Real Effective Exchange Rate (REER) index based on a trade weighted basket of currencies of major trading partners of Bangladesh and the trends of other important internal and external sector indicators. However, the interbank foreign exchange market sets the exchange rates for customer transactions and interbank transactions based on demand-supply interplay; while the exchange rates for the Bangladesh Bank's spot purchase and sales transactions of US Dollars with ADs is decided on a case to case basis. Bangladesh Bank does not undertake any forward transaction with ADs. The ADs are free to quote their own spot and forward exchange rates for interbank transactions and for transactions with non-bank customers.

The commercial banking system dominates Bangladesh's financial sector with limited role of Non-Bank Financial Institutions and the capital market. The Banking sector alone accounts for a substantial share of assets of the financial system. The banking system is dominated by the 4 Nationalized Commercial Banks, which together controlled more than 54% of deposits and operated 3396 branches (55% of the total) as of June 30, 2003.

Out of the 5 specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) ) are for extending term loans to the industrial sector.

Twenty-eight financial institutions are now operating in Bangladesh. Of these institutions, 1(one) is govt. owned, 15 (fifteen) are local (private) and the other 12(twelve) are established under joint venture with foreign participation. The total amount of loan & lease of these institutions is Tk.29,729 million as on 30 April, 2003. Bangladesh Bank has introduced a policy for loan & lease classification and provisioning for FIs from December 2000 on half-yearly basis. To enable the financial institutions to mobilize medium and long-term resources, Government of Bangladesh (GOB) signed a project loan with IDA, and a project known as ``Financial Institutions Development Project (FIDP)`` has started its operation from February 2000. Bangladesh Bank is administering the project. The project has established ``Credit, Bridge and Standby Facility (CBSF)`` to implement the financing program with a cost of US$ 57.00 million.

The Capital market, an important ingredient of the financial system, plays a significant role in the economy of the country.

The Securities and Exchange Commission exercises powers under the Securities and Exchange Commission Act 1993. It regulates institutions engaged in capital market activities. Bangladesh Bank exercises powers under the Financial Institutions Act 1993 and regulates institutions engaged in financing activities including leasing companies and venture capital companies.

The SEC has issued licenses to 27 institutions to act in the capital market. Of these, 19 institutions are Merchant Banker & Portfolio Manager while 7 are Issue Managers and 1(one) acts as Issue Manager and Underwriter.

There are two stock exchanges (the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) which deal in the secondary capital market. DSE was established as a public Limited Company in April 1954 while CSE in April 1995. As of 30 June 2000 the total number of enlisted securities with DSE and CSE were 239 and 169 respectively. Out of 239 listed securities with the DSE, 219 were listed companies, 10 mutual funds and 10 debentures.

The Investment Corporation of Bangladesh was established in 1976 with the objective of encouraging and broadening the base of industrial investment. ICB underwrites issues of securities, provides substantial bridge financing programmes, and maintains investment accounts, floats and manages closed-end & open-end mutual funds & closed-end unit funds to ensure supply of securities as well as generate demand for securities. ICB also operates in the DSE and CSE as dealers.

Bangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha (BSRS), BASIC Bank Ltd., some Foreign Banks and NCBs are engaged in long term industrial financing.

The insurance Sector is regulated by the Insurance Act, 1938 with regulatory oversight provided by the controller of Insurance on authority under the ministry of commerce. General insurance is provided by 21 companies and life insurance is provided by 6 companies. The industry is dominated by the two large, state-owned companies--SBC for general insurance and JBC for life insurance--which together command most of the total assets of the insurance sector.

A rapidly growing segment of the Rural Financial Market (RMF) in Bangladesh are member-based institutions. The largest member-based institutions is the Grameen Bank, the only formal institution of its type. All others are non-Government Organizations (NGOs); BRAC, ASA and Proshika are being considered four big NGO-MFIs. Most of these institutions have an explicit social agenda to cater to the needs of the poorest sections of the non-agricultural population, with women making up a majority of their clientele. Up to June, 2002, all the reported Micro-finance Non-Government Organizations (NGO-MFIs) have disbursed Tk. 187,339.24 million, and the total loans outstanding are Tk. 29,297.05 million. Total active members were 12.70 million and net savings were Tk. 11,978.04 million. The average recovery rate was approximately 95%. There are 134 MFIs which have outstanding loans of more than Tk. 8.00 million and 19 MFIs which have outstanding loans of more than Tk. 100 million.

At present, NGO-MFIs are not regulated or supervised or monitored by any single authority in Bangladesh. Considering the need to develop an appropriate regulatory and supervisory system for these institutions Government of Bangladesh has formed a committee under the chairmanship of Governor of Bangladesh Bank to formulate a uniform guideline and the legal framework of a regulatory body for this rapidly growing financial sector. Recently the committee has submitted a report to the government with some recommendations. The committee has formulated some guidelines and reporting formats to collect direct information from these institutions. Hence it is expected that this sector will be under formal financial system gradually after implementing those guidelines and formats as a first step towards regulation.

Bangladesh is a secular democratic country. It has parliamentarian democracy. Members of Parliament (MP) are elected by popular vote from single territorial constituencies. In the last election held on 1st October 2001, Bangladesh Nationalist Party (BNP) emerged as victor with 191 parliament seats. BNP formed an alliance with its partners to get two-third majority needed to form government in the 300 seat parliament. Thus the BNP came to power with Begum Khaleda Zia as the Prime Minister. National Parliament elected Professor Iajuddin Ahmed as the President on 6 September 2002.

Bangladesh Association of Software and Information Services (BASIS) was formed in 1997 with the mission to mobilize regulatory and policy support to this industry and to assist member firms in building capacity for better addressing the needs of the domestic and overseas markets.

BASIS started with 17 charter members. Today the membership stands at 116 (January 2004). Members of BASIS account for more than 90% of the total software and IT services revenue of the country. Its members have among their clients, fortune 1000 companies in Europe, North America and Austral-asia. On a regular basis its members export software and IT services to more than 20 countries of the world.

BASIS has meticulously fostered close working relationships with the policy makers, government functionaries and the academia to ensure unhindered growth of this industry in Bangladesh. BASIS was instrumental in getting software Copyright Amendment Law enacted in the year 2000. BASIS is also working with other chambers in scrutinizing the Draft Electronic Transaction and Cyber Crime Law. BASIS actively provides assistance and support to all overseas clients of software and IT services and also to overseas investors looking for business opportunities in Bangladesh.

The Board of Investment (BOI) was established in 1989 to promote and facilitate investment in the private sector both from domestic and overseas sources with a view to contribute to the socio-economic development of Bangladesh. It is headed by the Prime Minister and is a part of the Prime Minister's Office. Its membership includes representatives (at the highest level) of the relevant ministries, industry, finance, planning, textiles, et.al. - as well as others, such as the Governor of Bangladesh Bank, heads of some business associations. The Operation Head and CEO of BOI is the Executive Chairman.

Major Functions of BOI include, Providing necessary facilities and assistance in the establishment of industries, Implementing investment related GOB policies, Preparing investment schedule, Registering private sector industrial projects; and identifying competitive investment sectors and facilitating investment by providing information and services.

The BOI also includes a Utility Service Cell that offers pre-investment counselling, facilitation of utility connections, and assistance with import clearance and warehousing licenses.

The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) was established in 1904. It is the oldest and most representative trade organisation of Bangladesh having in its membership roll most leading commercial and industrial organisations including almost all the public sector corporations and all multinational companies

The Chamber has been renders expert services in specialised areas like taxation, trade practices, customs tariff. It renders similar services regularly through representations in bodies like Consultative Committee for the Ministry of Commerce, Consultative Committee for the Ministry of Industries, National Consultative Committee on Power, Transport Consultative Committee, Chittagong Port Advisory Committee Bangladesh Bank's Co-ordination Committee, Advisory Committee for Securities and Exchange Commission, Council of Dhaka Stock Exchange, Steering Committee for Implementation of Uruguay Round Agreement, Insurance Advisory Committee, ICD (Inland Container Depot) Advisory Committee, Inter-Ministerial Committee on Labour, Railway Board, Port Trust and Labour Advisory Board. The Chamber is widely accepted to arbitrate on commercial disputes.