Significance of Capital Market for Economic Development

Criticalness of Capital Market for Economic Development An Explotary Study On The Significance of Capital Market for Economic Development and Its Further Growth Potential In Context of Bangladesh Unique This examination paper explores whether the job of capital market is huge for the financial improvement of Bangladesh. Writing proposes that very much created financial exchange can give an additional impulse to monetary action. Comparable ends were likewise drawn from the top to bottom meetings. This paper additionally uncovers a very much examined situation of the capital market featuring its difficulties, current shortcoming, ongoing enhancements and its imminent indications of advancement through which we can anticipate whether the capital market has further development potential or not. Therefore the current examination can likewise contribute in giving fundamental data that can likewise be utilized for additional exploration. Contractions ADB-Asian Development Bank CDBL-Central Depository of Bangladesh Limited CDS-Central Depository System CSE-Chittagong Stock Exchange DGEN-DSE general list DSE-Dhaka Stock Exchange Gross domestic product GDP Initial public offering first sale of stock SEC-Security and Exchange Commission 1.0 Introduction The monetary market adds to the financial development and advancement by giving the required account to arrangement of merchandise and enterprises. The monetary market comprises of two division-currency market and capital market. The currency showcase is fundamentally qualified for flexibly money on momentary premise to people, organizations, undertakings, government and their offices. The capital market, then again, gives money on medium to long haul premise to corporate bodies, government and their organizations (Al-Faki, 2006). Capital Market assumes a critical job in any cutting edge economy as they permit investors’ reserve to stream to the most encouraging chances, i.e., the assets are assembled and diverted proficiently from savers to the clients of assets (Al-Faki, 2006; DSE, 2006; Hubbard and Thornton, 2006; Ahmed, 1997). In Bangladesh money related intermediation depends for the most part on the financial segment which further brought about absence of value financing (Salahuddin Ahmed, 2007; Islam and Hassan 2002). Besides out of 5 million urban-based white collar class individuals just 400,000 are taking an interest in the protections showcase and among them about hundred thousand are dynamic financial specialists. An enormous segment is as yet uninformed of the nature and advantages of the capital market (Abu Ahmed, 2006; DSE Review, 2006; Islam and Hassan, 2002). Growing progressively complete and more profound capital market would upgrade a nations development potential and advancement (Andritzky, 2007). The powers of globalization, innovation, new types of rivalry have observably changed capital market around the world (Hassan, 2004). The main guide Dr. Fakhruddin Ahmed expressed that â€Å"Only a dynamic and all around managed capital market can get supportable monetary advancement the nation through creation the genuine part equipped for meeting the difficulties of the serious worldwide financial realities† ( DSE Monthly Review, June 2007). Despite late enhancements, Bangladesh’s capital market stays immature as its size is still little regarding market top (ADB, 2006; Salahuddin Ahmed, 2007; Islam and Hassan 2002). The market top speaks to simply above 9% of the GDP (Dr. Fakhruddin Ahmed recovered from DSE Review). As Bangladesh capital market is still very little contrasted with other local market and to the size of its economy (CSE, 2006) regardless of its reality for quite a while, this paper applies a structure for breaking down the criticalness of capital market for financial development and advancement of Bangladesh, distinguishing its development possibilities through investigation. 2.0 Problem Statement Bangladesh’s capital market is as yet immature, notwithstanding ongoing enhancements. The size of the country’s capital market is very little essentially because of the extreme reliance of driving corporate substances on the banks for financing. Besides the general straightforwardness of market exchange is additionally low contrasted with universal principles and by and large there has been moderate improvement of the hidden market foundation. The legislature is putting forth attempt to build up the dependability and proficiency of stock trades as venture showcase. Contrasted with the other neighboring nations the quantities of members are a lot littler in Bangladesh as financial specialist need certainty. There is a gracefully side compels in the capital market as quality offers are inadequate. For this explanation this examination is done to investigate the significance of capital market in the economy and what are the planned indication of improvement of the securities exchange. 3.0 Purpose of the Study The motivation behind the investigation is to investigate an all around checked situation of Bangladesh capital market, its criticalness and its possibilities. Albeit some examination has been led identifying with this subject yet there is minimal exact proof about how basic financial exchange is to monetary advancement of a nation. A sound capital market prompts better monetary base and impact its future development thus it can help acknowledge Bangladesh’s development potential. The capital market of Bangladesh is on the verge to assume its due job as a vehicle for financing venture and in this way making an outstanding commitment to monetary development, business creation and neediness lightening. The capital market assumes a significant job in stimulating the pace of financial turn of events however the current condition of the capital market is immature and not in a situation to guarantee monetary advancement of the nation. Henceforth this examination will attempt to feature the importance of capital market for the country and investigate what are the likely indications of progress. 4.0 Research Timeline 2007 SeptemberWriting Research Proposal 2007 SeptemberDeveloping Literature Review 2007 OctoberCollecting Data 2007 October-NovemberData Analysis and Interpretation of the Findings 2007 NovemberPreparing Draft and Finalizing the Research Paper 2007 DecemberSubmission of Research Paper 5.0 Limitations of the examination During leading the examination I went over specific constraints and among them the principal one is time compel. In spite of the fact that I got the chance to work in an association that is capital market based however it was hard to track down extra time that could be utilized for the report. Besides the talked with individual couldn't give all vital data because of absence of time. The exploration course of events additionally uncovers that time compel was really an obstruction as there was bounty to discover about this examination theme. As the examination is led just because, I didn't get a lot of help from past exploration paper and further exploration is recommended. An enormous segment of the report depends on auxiliary information gathered through sites thus the profundity of dependability fluctuates as by the idea of site. 6.0 Review of the Literature 6.1 Financial Intermediation As indicated by Joseph Yam (2004) money related intermediation is diverting reserve funds into ventures. Aziz and Duenwald (2002) alluded that budgetary intermediation influences development through the accompanying channels †(I) it can build the minimal profitability of capital by gathering data to assess elective venture ventures and by chance sharing (ii) it can raise the extent of reserve funds directed to speculation through monetary turn of events. As indicated by Conning and Kevane (2002) â€Å"intermediation infers an intermediary†. Gorton and Winton (2002) included that â€Å"it is the root organization in the sparing venture process†. They alluded that monetary delegates are firms that acquire from the individuals who have abundance cash, that is, the savers and loan the cash to organizations that need assets for speculation. 6.2 Performance Indicators As per R. N. Agarwal (2000) the most ordinarily utilized standard to quantify the size of a country’s securities exchange is advertise capitalization proportion, that is, the proportion of market estimation of stocks which are as of now recorded on a bourse to Gross Domestic Product (GDP). A little proportion of capitalization to GDP uncovers the little size of a financial exchange. On the other hand, the size can be estimated by the quantity of recorded organizations on a securities exchange. The tallness of development of an economy’s money related framework is fundamental for monetary turn of events. Bekeart et al., (2007), Hubard and Thornton (2006), Rosul (2002) all researched the essentialness and connection of securities exchange advancement with the monetary development and their decision recommends that capital market improvement is decidedly corresponded with long haul financial development and the capital market assumes a significant job in the monetary advancement of any nation. The size of the value capital market optimistically affects monetary development of the nation, that is, a lot higher market top and turnover impacts the economy (Institute for Advanced Studies, IHS, 2006). It is seen that the proportion of market top to GDP in neighboring nations like India, Pakistan and Sri Lanka is generally a lot higher, that is, over 60% of their GDP (DSE, Kh. Asadul Islam, 2007; Dr. Fakhruddin Ahmed,2007). In Bangladesh the market top is little extent of the nations GDP (Islam Hassan, 2002) and this is because of critical reliance on the financial area (DSE Review, Fakhruddin Ahmed, June 2007). Market capitalization as a portion of GDP was around 2.5%-3.3% during 2001-2003 contrasted and 1.4-10.1% during 1993-1996 and 2-4% during 1997-2000. Anyway in the year 2004 market top arrived at 6.8% mirroring the ascent in the DSE list from 968 to 1,971 toward the finish of 2003 and 2004 separately (ADB, May 2005). The pattern of market top as level of GDP and other capital market pointers of DSE and CSE are appeared through the assistance of factual information spoke to in the dis