Bangladesh’s capital market has failed to become a viable alternative to bank financing, leaving businesses heavily dependent on loans despite growing demand for long-term investment, according to Lion City Advisory Limited Director Abdullah Al Faisal.
A prolonged drought in initial public offerings (IPOs), weak institutional investment, limited financial instruments and governance failures have exposed deep structural problems holding back the market, he said.
In an interview with TIMES of Bangladesh’s Niaz Mahmud, Faisal described the stock market as significantly undervalued but said restoring investor confidence would require broad reforms, stronger regulatory enforcement and greater institutional participation.
He identified an imbalance between demand and supply as a fundamental problem.
Many of Bangladesh’s largest and most profitable companies remain outside the stock market, leaving it unable to reflect the size and productive capacity of the real economy. Meanwhile, mutual funds, pension and provident funds, insurance companies and cash-rich corporations have yet to emerge as strong institutional investors.
“The capital market needs financial innovation, ethical accountability and investor awareness. Without these three elements, sustainable development will remain difficult,” he said.
Faisal, who previously worked with City Bank Capital Resources Limited, Asian Tiger Capital Partners and Infrastructure Development Company Limited (IDCOL), said Bangladesh also lacked diversified financial instruments, including commodity derivatives, currency-based products, real estate investment trusts (REITs), Sukuk and other structured investment products.
Retail investors account for approximately 85 per cent of market trading, he estimated, with many relying on rumours, speculation and short-term price movements rather than fundamental analysis.
The lack of strong institutional investors has contributed to excessive volatility and prevented the market from becoming a reliable source of long-term capital, he added.
Bank loans remain more attractive
Faisal said regulatory and fiscal policies often make bank borrowing more attractive than raising funds through the capital market.
He called for coordinated policymaking among the Bangladesh Securities and Exchange Commission (BSEC), Bangladesh Bank and the National Board of Revenue (NBR) to create a more balanced financing environment.
The government should widen the tax differential between listed and unlisted companies, reduce taxes on bond coupon income and introduce more supportive policies for corporate bond issuance.
Excessively subsidised or low-cost refinancing facilities in the banking sector could discourage companies from issuing bonds.
“Businesses should be able to choose between bank loans, bonds, Sukuk and equity financing based on their capital requirements rather than regulatory distortions,” he said.
IPO drought reflects deeper barriers
Taxation, valuation constraints and concerns over corporate ownership are major reasons behind the prolonged IPO drought, Faisal said.
Bangladesh’s IPO valuation framework historically relied heavily on net asset value and yield-based methods, making it difficult to properly value companies with strong growth prospects and future earnings potential.
Although the rules have become more flexible, the tax advantage of being listed remains too small to encourage many businesses to go public.
Business owners also worry about losing some ownership, having to disclose more information and meeting stricter corporate governance requirements.
Faisal said companies should instead view stock market listing as an opportunity to institutionalise their businesses, improve transparency, strengthen balance sheets and raise long-term capital.
Weak enforcement hurts investor confidence
Faisal raised concerns about inadequate action against insider trading and market manipulation, saying information about some companies’ financial performance appeared to circulate before official price-sensitive disclosures.
Such information gaps give certain investors an unfair advantage and undermine market integrity.
He urged BSEC to strengthen surveillance, investigate suspicious trading and impose meaningful penalties on offenders.
Faisal also recommended introducing regulated short selling, supported by appropriate margin requirements, securities-lending arrangements and risk controls, to improve price discovery.
Institutional investment needs strengthening
Faisal called for developing mutual funds, pension and provident funds, private equity and alternative investment funds to channel domestic savings into productive investment and help reduce market volatility.
However, weak governance and poor fund management have damaged public confidence in mutual funds. Independent fund management, transparent portfolio disclosures and stronger trustee oversight are needed to rebuild trust.
To attract foreign portfolio investors, Faisal urged the authorities to abolish the floor price mechanism and allow share prices to reflect market fundamentals, supply and demand.
He also called for consistent regulatory policies, efficient mechanisms for repatriating investment funds and stronger protection for minority shareholders.
Lion City Advisory Limited provides corporate finance and investment advisory services covering capital raising, mergers and acquisitions, valuation, corporate restructuring and capital market transactions.
Describing the firm’s philosophy as “Ethics before transactions”, Faisal said it aimed to promote research-driven investment decisions, transparent financial advisory practices and responsible capital allocation.
Bangladesh needed a credible, diversified and institutionally stronger capital market capable of mobilising long-term domestic and foreign savings to support sustainable economic growth.
