Capital markets are supposed to do something banks cannot do alone: turn savings into long-term equity for industry, infrastructure, technology and jobs.
In Bangladesh, that role has become remarkably small.
The economy and national budget have expanded considerably over the years, yet the stock market has failed to grow with them in breadth or depth. Market capitalisation has remained low relative to gross domestic product, at roughly 9-14 per cent, compared with about 131 per cent in India, 106 per cent in Malaysia, 98 per cent in Thailand and 55 per cent in Vietnam.
That gap tells a larger story. Bangladesh’s stock market remains peripheral to mainstream corporate finance.
Companies continue to depend heavily on bank loans instead of raising equity from investors. That leaves businesses more exposed to interest costs and puts more pressure on a banking system already burdened by bad loans.
Yet when companies might logically be expected to seek equity instead, the IPO market has nearly stopped functioning.
Bangladesh Securities and Exchange Commission data show that Techno Drugs received the last IPO approval in March 2024. More than two years later, the drought has become less a temporary market condition than a warning about the system itself.
The obvious question is why.
Bangladesh has profitable companies, expanding industrial groups and multinational businesses. Many could raise long-term money through the market. But established companies have shown little enthusiasm for listing.
For many entrepreneurs and capital-market professionals, the calculation is straightforward: going public can mean years of uncertainty, overlapping scrutiny and costs that are difficult to predict.
Too many doors to knock on
The first problem is process.
A company seeking an IPO must navigate the Bangladesh Securities and Exchange Commission, the stock exchanges and other agencies. Market participants have long complained that different institutions can ask for overlapping documents, explanations and revisions.
Regulatory scrutiny is necessary. Public companies take money from ordinary investors, so their accounts, governance and disclosures should withstand examination.
But scrutiny is not the same as duplication.
When the same information must repeatedly travel through different offices and minor queries prolong the process, regulation stops being merely protective and starts imposing an economic cost.
That cost can be considerable.
Imagine a manufacturer seeking equity to add a production line, buy machinery or reduce expensive bank debt. Its investment decision is based on current demand, financing costs and expected returns.
If an IPO takes years rather than months, those assumptions can become obsolete before the money arrives.
Machinery prices change. Interest rates change. Exchange rates move. Competitors expand. Consumer demand shifts.
At that point, the listing process itself has become a business risk.
A well-run company has alternatives. It can borrow, bring in a private investor, retain earnings or postpone expansion. If those options appear more predictable than the stock market, management has little reason to volunteer for an uncertain IPO process.
Good governance can become a disadvantage!
There is a more troubling allegation.
Entrepreneurs, issue managers and market professionals have for years spoken privately about unofficial payments, often described as “speed money”, allegedly demanded at various stages of regulatory and listing processes.
Such allegations require evidence and due process. They should not be treated as established fact merely because they are frequently repeated.
But perceptions matter in capital markets.
The Anti-Corruption Commission’s recent action at BSEC over allegations of corruption and bribery, and BSEC’s own moves to examine past irregularities, have only reinforced questions about governance.
For a poorly governed company, opaque processes may be navigable.
For a multinational or a large domestic group with strict internal compliance rules, they can be prohibitive.
Companies following International Financial Reporting Standards, foreign anti-bribery rules, audit requirements and internal compliance procedures cannot simply classify an unofficial payment as another transaction cost.
They are more likely to leave.
That creates a damaging form of adverse selection: the tougher and less predictable the listing process becomes, the more likely it is to discourage companies with the strongest governance standards.
A market then risks attracting the issuers most willing to navigate opacity rather than those investors most want to own.
The wrong incentive
This is the opposite of what an IPO system should achieve.
A healthy market should make listing attractive to established businesses with credible earnings, transparent accounts and long-term investment plans.
Their presence improves more than market capitalisation.
Quality issuers give pension funds, insurers, mutual funds, foreign investors and individual savers businesses they can hold for years. They broaden sector representation, improve research and valuation, and reduce dependence on speculative trading in a relatively small pool of shares.
Without such companies, the market becomes circular. Investors trade the same securities among themselves, turnover rises and falls, indices move, but little new productive capital reaches businesses.
The stock exchange then functions primarily as a secondary trading venue rather than a capital-raising institution.
That is the deeper cost of Bangladesh’s IPO drought.
It is not simply that investors are missing new shares. Companies are missing an alternative to debt.
Bangladesh has traditionally relied on banks to finance everything from working capital to long-term industrial expansion.
That model has limits.
Bank deposits are largely short-term liabilities. Factories, power projects, technology investment and corporate expansion require long-duration capital.
Equity is designed to absorb that risk.
When companies finance too much long-term investment with bank loans, downturns can quickly turn corporate stress into banking stress. A business facing weak demand still has to pay interest and principal. An equity investor, by contrast, shares both the upside and the downside.
A deeper stock market would therefore not compete with the banking system. It would make the financial system more balanced.
Bangladesh’s chronic dependence on banks partly reflects the failure to build that alternative.
Even if regulatory delays disappeared tomorrow, reputable companies would still ask another question: At what price should we list?
Owners have little incentive to sell part of a profitable business if they believe the market will undervalue it.
Weak institutional participation makes this harder.
Individual investors dominate Bangladesh’s stock market, while pension funds, insurance funds, professional asset managers and other long-term institutions play a much smaller role than in mature markets.
That can weaken price discovery.
Large companies considering an IPO want confidence that professional investors can understand their businesses, assess future cash flows and establish a credible market valuation.
If pricing is driven mainly by short-term sentiment, a company may decide that remaining private is economically more rational.
This is why improving the IPO pipeline and increasing institutional participation are two sides of the same reform.
Regulation should protect, not exhaust
None of this argues for weaker regulation.
Bangladesh’s history of market manipulation, questionable accounts and governance failures makes strong scrutiny essential.
The answer is better regulation.
Companies should know what documents are required, who will review them, how long each stage should take and why an application has been delayed.
The regulator and exchanges should eliminate duplication and create clear deadlines for decisions.
Queries should focus on material risks to investors, not clerical issues that can be settled quickly.
Applications should be trackable digitally so a company can see where its file is and why it is waiting.
And allegations of unofficial payments need credible investigation and consequences.
Predictability is itself a form of investor protection. If good companies understand the rules and believe they will be applied fairly, more of them will consider entering the market.
Bangladesh does not need IPOs simply to increase the number of listed companies.
It needs companies worth listing.
That means profitable manufacturers, exporters, consumer brands, financial businesses, technology companies and multinational enterprises capable of giving investors exposure to the real economy.
Government policy can help.
The authorities can make listing more attractive through predictable taxation, faster approvals and stronger price-discovery mechanisms. Direct listing and other routes can also be considered where appropriate.
But incentives will achieve little if the underlying process remains cumbersome or distrusted.
The test of reform should be simple: Would a well-governed company with no need or willingness to make unofficial payments regard the stock market as an attractive place to raise money?
If the answer is no, Bangladesh does not really have an IPO shortage.
It has an incentive problem.
A successful capital market cannot be built by persuading good companies to tolerate a bad process. The process itself has to become good enough that they want to join.
The writer is a capital market investor and vice president at the Bangladesh-American Chamber of Commerce USA Inc.
Views expressed are solely those of the author.
