‘’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’

’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’

ASSIGNMENT
A REPORT ON NON-BANKING FINANCIAL INSTITUTIONS
INDUSTRY ANALYSIS

Course Name: Banking and Finance

Course ID: FIN-401 Section: 03
Autumn 2023

Submitted To
Dr. Imtiaz Ahmed Nevin (Lecturer)
(School of Business and Entrepreneurship, IUB)

Prepared By
Name ID
Himel Das 2022673
Mohammad Azwad Saadat Sarwar 1910902
Golpo Datta 1931307
Muhtasim Zawaad Wasee 1910405
Irid Mamud Talukder 2021169
Assignment Submission Date: 12th December, 2023

1|Page
 Letter Transmittal

12th December, 2023

Dr. Imtiaz Ahmed Nevin
Assistant Professor
Department of Finance
Independent University, Bangladesh (IUB)

Subject: Analysis on Non-Banking Financial Institutions (NBFI) industry.

Dear Sir,

We submit herewith the attached report on “NON-BANKING FINANCIAL INSTITUTIONS

INDUSTRY ANALYSIS” The following report was prepared by the knowledge that we have
gathered from the course “Banking & Finance”.

We made every effort to maintain the highest standards for writing, information gathering, and
data analysis when processing this report. In addition, we adhered to all guidelines when creating
this research, and to make it as comprehensive as possible, we included a few references from
other sources.

We would be thankful if you place your insightful judgment on our effort. However, we will be
glad to clarify if there is any discord that may arise. We hope you find this report satisfactory.

Sincerely,

Himel Das

Mohammad Azwad Saadat Sarwar

Golpo Datta

Muhtasim Zawaad Wasee

Irid Mamud Talukder

2|Page
 Table of Contents
Letter Transmittal .......................................................................................................2

Introduction of Our NBFI Sector, Financial GSP ......................................................4

Why NBFIs are Important/ Why do we need these ...................................................5

Acts & Regulations of NBFI......................................................................................7

Functions and Activities of NBFIs in Bangladesh ...................................................10

Distinguishing NBFIs from other depository institutions in Bangladesh................12

Recent news or scenario of NBFI ............................................................................15

Analysis of NBFIs Company financial performance ...............................................19

Issues or Opportunities of our NBFI Sector ............................................................25

Conclusion ...............................................................................................................27

References ................................................................................................................29

3|Page
 Introduction of Our NBFI Sector, Financial GSP

Introduction to Bangladesh’s NBFI sector: Bangladesh's non-banking financial institution

(NBFI) industry has been vital to the growth of the nation's economy. Financial establishments
that offer banking services but do not fit the legal definition of a bank are referred to as NBFIs.
These organizations engage in a number of financial market sectors, such as investment, hire
buy, leasing, and insurance. (SUJIT SAHA, 1999)

Historical Background: The government realised in the 1980s that varied financial services
were necessary to sustain economic growth, and this realization marked the beginning of the
NBFI sector's development in Bangladesh. The emergence of several financial institutions, such
as leasing firms, merchant banks, and investment businesses, in the late 1980s and early 1990s
gave the industry a boost.

The Financial Institutions Act's passage in 1993 was one of the major turning points in the
growth of the NBFI industry. The purpose of this act was to guarantee the stability and integrity
of non-banking financial organizations by regulating and overseeing them. Guidelines for
licensing, operations, and prudential requirements for non-bank financial institutions were
supplied by the regulatory framework. (Alif, 2020)

Key Players & Services: Leasing businesses, insurance companies, investment banks, and
microfinance institutions are just a few of the several establishments that make up Bangladesh's
non-bank financial institution (NBFI) industry. IDLC Finance Limited, Delta Brac Housing
Finance Corporation, and Infrastructure Development Company Limited (IDCOL) are a few of
the industry's prominent participants.

These organizations provide a range of financial services and products, including mutual funds,
insurance, lease finance, and term deposits. The nonbank financial institutions (NBFIs) industry
has played a significant role in meeting the financial requirements of various demographic

4|Page
groups, such as small and medium-sized businesses (SMEs) and rural communities. (SUJIT
SAHA, 1999)

Challenges & Opportunities: Although the NBFI industry has made a substantial
contribution to financial inclusion and economic growth, it has also had to contend with issues
including market rivalry, risk management, and regulatory compliance. To guarantee the stability
and viability of the industry, the regulatory bodies have been attempting to resolve these issues
and fortify the regulatory structure. (Hassan, 2012)

Financial sector GSP (Generalized System of Preferences): A trade preference

programme called the Generalised System of Preferences (GSP) permits specific goods from
developing nations to be sold on rich nation's markets at lower tariff rates. Financial services are
not usually the focus of GSP programmes; instead, products are. (Jones, 2019)

Why NBFIs are Important/ Why do we need these

Non-Bank Financial Institutions (NBFIs) hold a crucial role in the financial landscape, serving
diverse functions that significantly impact the broader financial ecosystem. This discussion will
delve into the overall importance of NBFIs and their specific relevance to Bangladesh.

a) General Significance of NBFIs:

• Diversification of Financial Services: NBFIs contribute to the financial ecosystem by

providing a wide array of services like insurance, mutual funds, pension funds, and capital
market activities. These offerings, often distinct from traditional banking, enhance overall
financial diversity, offering consumers more choices and personalized solutions.

5|Page
 • Enhancing Financial Inclusion: NBFIs play a pivotal role in extending financial
services to underserved and unbanked populations, contributing to financial inclusion and
reducing economic disparities.
• Economic Growth and Development: Through alternative financing options and
investment opportunities, NBFIs significantly contribute to economic growth, aiding
capital formation, supporting entrepreneurial ventures, and efficiently allocating
resources.
• Risk Management: Specializing in risk management, NBFIs offer products that help
individuals and businesses mitigate various financial risks, thereby enhancing financial
stability in uncertain economic climates.
• Innovation in Financial Products: NBFIs are recognized for their innovation in creating
financial products and services that adapt to market needs and customer demands,
catering to different segments of the population.

b) Importance of NBFIs in the Context of Bangladesh:

• Supporting Economic Development: In Bangladesh, NBFIs play a crucial role by

providing long-term financing options crucial for infrastructure projects and industrial
expansion, supporting overall economic development.
• Capital Market Development: NBFIs significantly contribute to the development of
Bangladesh's capital markets by providing an alternative source of funds for businesses,
promoting economic growth and sustaining capital markets.
• Financial Inclusion: In Bangladesh, NBFIs have been instrumental in expanding
financial services to rural and semi-urban areas, reducing the financial inclusion gap, and
promoting economic development in these regions.
• SME Financing: NBFIs offer flexible and innovative financing options beneficial for
Small and Medium Enterprises (SMEs), supporting the backbone of the Bangladeshi
economy.

6|Page
 • Boosting Investor Confidence: By offering a diverse range of investment products and
services, NBFIs play a crucial role in boosting investor confidence, attracting both
domestic and foreign investments that contribute to economic growth.
• Regulatory Framework and Supervision: The regulatory framework governing NBFIs
in Bangladesh ensures their operation contributes to financial system stability, promotes
competition and efficiency, and safeguards the interests of consumers and investors.

In conclusion, NBFIs serve as vital components in the global and Bangladeshi financial systems,
filling gaps in financial services, fostering economic development, promoting financial inclusion,
and offering innovative solutions. Their role in supporting SMEs and capital market development
underscores their significance in driving economic progress in Bangladesh.

Acts & Regulations of NBFI

Non-Bank Financial Institutions (NBFIs) in Bangladesh play a pivotal role in diversifying

financial services, addressing needs beyond traditional banking. Governed by an emphatic legal
framework, these institutions are regulated by the Bangladesh Bank, ensuring a sound and
competitive financial market. This overview delves into the key Acts and regulations shaping the
landscape of NBFIs in Bangladesh.

Acts Governing NBFIs

Financial Institutions Act, 1993:

● Empowers Bangladesh Bank for licensing and regulation.
● Establishes the fundamental legal structure for NBFI operations.

2. Companies Act of 1913:

● Lays the initial legal foundation for NBFI establishment.

7|Page
3. Bangladesh Bank Order of 1972:
● Governed NBFIs until specific legislation was enacted.

4. Financial Institution Regulation, 1994:

● Addresses regulatory gaps for NBFI operations.
● Works synergistically with the Financial Institutions Act, 1993.
● Specifies minimum paid-up capital requirements.

Regulations Impacting NBFIs

Prudential Regulations:
● Issued by Bangladesh Bank for financial soundness.
● Encompasses capital adequacy and risk management.

2. AML/CFT Regulations
● Ensures compliance with Anti-Money Laundering (AML) and Combating the Financing
of Terrorism (CFT) regulations.

3. BASEL Accord Implementation (Prudential Guidelines on CAMD)

● Implemented in NBFIs from January 1, 2012.
● Guidelines include Minimum Capital Requirement, Supervisory Review Process, and
Disclosure Requirement.

4. IPO Requirements:
● NBFIs may need to meet specific requirements for Initial Public Offerings.

5. Corporate Governance Circulars:

● Define authority, responsibility, and functions of the Board of Directors, Committees,
Management, and CEO.

8|Page
 ● Audit Committee responsibilities outlined in DFIM Circular (No-13, dated 26 October
2011).
● Specifies the number of Directors in the Board (between 9-11).
● Guides on Vision/Mission, Annual Strategic Planning, Key Performance Indicators,
Core Risk Management Guidelines.

6. Asset Classification and Provisioning:

● Requires NBFIs to maintain provisions based on an aging analysis.
● Classes include Standards, Special Mention Accounts, Sub-standards, Doubtful, and
Bad/Losses.
● Provision requirements set at 1, 5, 20, 50, and 100 percent for respective classes.

7. Loan Rescheduling Policy:

● Rescheduling under the policy of receipt of down payment.
● Down payments for 1st, 2nd, and 3rd rescheduling defined.

8. Schedule of Charges:
● Charges of services rationalized by Bangladesh Bank.
● NBFIs required to display complete schedules in branches and online.

9. Corporate Social Responsibility (CSR):

● NBFIs are advised to submit CSR statements focusing on gender equality bi-annually.

10. Core Risk Management Guidelines:

● Guidelines issued covering Credit Risk Management, Internal Control and Compliance,
Asset Liability Management, and Information and Communication Technology
Management.

11. Environmental Risk Management (ERM):

● Guideline issued by Bangladesh Bank to manage environmental risks in the financial
sector.

9|Page
Regulation and Supervision:

The Bangladesh Bank regulates and supervises NBFIs to ensure their sound financial condition
and compliance with prudential guidelines. These guidelines cover various aspects, including
income recognition, asset classification and provisioning, capital adequacy, single borrower
exposure, investment portfolio valuation, and reporting requirements.

In conclusion, these Acts and regulations, coupled with ongoing policy measures, underscore
Bangladesh Bank's commitment to enhancing the financial strength and transparency of NBFIs.
They cover a spectrum from governance and risk management to environmental considerations,
reflecting a comprehensive approach to the sector's development and stability.

Functions and Activities of NBFIs in Bangladesh

Non-Bank Financial Institutions (NBFIs) play a crucial role in Bangladesh's economy by filling
gaps in financial intermediation and providing diverse financial services. Here's a summary of
their functions and activities:

Functions:
• Mobilizing savings: NBFIs attract deposits from individuals and institutions through
various schemes and instruments, including fixed deposits, savings accounts, and bonds.
• Financial intermediation: They channel mobilized funds into productive sectors of the
economy by providing loans, leases, and other financial products to businesses and
individuals.
• Diversifying financial products: NBFIs offer a wider range of financial products than
traditional banks, catering to specific needs of different sectors and individuals.
• Promoting financial inclusion: They reach out to unbanked and underserved
populations, providing access to financial services that may not be readily available from
banks.

10 | P a g e
 • Contributing to economic development: NBFIs play a vital role in stimulating
economic growth by financing small and medium-sized enterprises (SMEs), agriculture,
infrastructure development, and other critical sectors.

Activities:

• Leasing: This is the primary activity of most NBFIs in Bangladesh, providing financing
for equipment, machinery, vehicles, and other capital assets.
• Term lending: NBFIs offer medium and long-term loans for various purposes, including
business expansion, project financing, and working capital requirements.
• Housing finance: NBFIs play a significant role in the housing sector by providing
mortgages and other financing options for individuals and developers.
• Merchant banking: Some NBFIs offer merchant banking services, including corporate
advisory, mergers and acquisitions, and investment banking.
• Equity financing: NBFIs invest in companies through equity financing and venture
capital, thereby supporting new and growing businesses.
• Investment banking: NBFIs participate in capital markets by issuing and trading
securities, such as bonds and debentures.
• Money market operations: Some NBFIs participate in the money market by lending and
borrowing funds to regulate their liquidity.
• Other activities: NBFIs also engage in various other activities, including microfinance,
factoring, and insurance.

Sector-wise Distribution of NBFIs' Investment:

• Industry: 47.24%
• Real estate: 18.96%
• Margin loan: 1.15%
• Trade and commerce: 13.90%
• Merchant banking: 3.09%
• Agriculture: 2.46%
• Others: 13.20%

11 | P a g e
Overall, NBFIs play a vital role in Bangladesh's financial system by bridging the gap between
banks and the unbanked population. They contribute to economic development by providing
diverse financial products, mobilizing savings, and channeling funds into productive sectors of
the economy.

Distinguishing NBFIs from other depository institutions in

Bangladesh

Non-Bank Financial Institutions (NBFIs) are a diverse group of financial institutions that offer
financial services beyond those typically provided by traditional banks. In Bangladesh, NBFIs
are regulated by the Bangladesh Bank under the Financial Institutions Act of 1993.

Non-Bank Financial Institutions (NBFIs):

Definition: Financial institutions that do not accept demand deposits from the public but may
accept time deposits (with a maturity of at least 3 months).

Examples: Leasing companies, finance companies, investment companies, microfinance

institutions, and money changers.

Depository Institutions:

Definition: Financial institutions that accept deposits from the public and use those deposits to
make loans and other investments.

Examples: Commercial banks, specialized banks (e.g., agricultural banks, industrial banks),
and savings and loan associations.

Here's a Breakdown of the key Similarities between NBFIs and other depository institutions in
Bangladesh:

12 | P a g e
Accept deposits: Both NBFIs and other depository institutions (such as banks) accept deposits
from the public.

Offer financial services: Both provide various financial services like loan disbursement,
investment opportunities, and money transfer.

Regulated by Bangladesh Bank: Both are subject to the regulatory framework established
by Bangladesh Bank.

Here's a Table of the key differences between NBFIs and other depository institutions in
Bangladesh:
Feature NBFIs Other Depository
Institutions (Banks)
License and regulation: Licensed and regulated under Licensed and regulated under
the Financial Institutions Act the Bank Companies Act
1993 (FIA '93). 1991.
Types of institutions: Diverse range of institutions Primarily commercial banks
including finance companies, and specialized banks.
leasing companies, investment
companies, microfinance
institutions, etc.
Deposit mobilization: Can accept various types of Can accept all types of
deposits, but may have deposits, including demand
limitations on taking demand deposits.
deposits.
Loan portfolio: Focus on specific sectors like Diversified loan portfolio
trade finance, microfinance, covering various sectors and
equipment leasing, etc. segments.
Reserve requirements: Subject to lower reserve Subject to higher reserve
requirements compared to requirements to ensure
banks. liquidity and stability.
Capital adequacy ratio: Lower capital adequacy ratio Higher capital adequacy ratio
requirement compared to requirement to maintain
banks. financial stability.
Risk profile: Generally considered to have a Generally considered to have a
higher risk profile than banks lower risk profile due to their
due to their specialized nature diversified portfolio and
and focus on specific sectors. stricter regulations.
Interest rate: May offer higher interest rates May offer lower interest rates
on deposits and loans on deposits and loans
compared to banks. compared to NBFIs.

13 | P a g e
Financial products • Offer a wide range of financial
and • May offer a more limited
services: products and services, range of financial products and
including checking accounts, services than traditional banks.
savings accounts, loans, Generally focus on a specific
mortgages, and credit cards. niche market or financial
product.

Deposit insurance: • • (Yes) Depositors are protected

(No) Depositors are not
protected by the Deposit by the Deposit Insurance
Insurance Scheme of Scheme of Bangladesh Bank.
Bangladesh Bank.
Regulations: • • Are
Are subject to less stringent subject to stricter
regulations than banks. regulations and supervision
than NBFIs.

Additional Points:

NBFIs often play a complementary role to banks by providing financial services to specific
sectors or segments that may be underserved by banks.

NBFIs have limited access to deposits compared to banks and rely more heavily on other sources
of funding, such as borrowing from banks or issuing bonds and debentures.

The distinction between NBFIs and banks is becoming increasingly blurred, as some NBFIs
expand their range of services and compete directly with banks.

Recent regulations, like the Finance Companies Act 2023, aim to strengthen the regulatory
framework for NBFIs and enhance financial stability in the sector.

In Conclusion, NBFIs play a complementary role to banks in the financial system by providing
financial services to specific sectors and niche markets. They may also offer higher returns to
investors than banks, but also carry a higher degree of risk. While both NBFIs and other
depository institutions accept deposits and offer financial services, they differ in terms of their
legal framework, focus, risk profile, and regulatory requirements. Last of all, it is important for
investors to understand the differences between NBFIs and other depository institutions before
making any investment decisions.

14 | P a g e
 Recent news or scenario of NBFI

Positive developments:
Interest rate hike: Bangladesh Bank recently hiked the interest rate on deposits and loans for
NBFIs to help ease inflationary pressures and improve their financial position. (Source: The
Daily Star, 09-11-2023)

Strong performance of some NBFIs: Despite the general challenges, some NBFIs like DBH Finance
PLC and National Housing Finance and Investment have demonstrated strong financial health with low
NPL ratios and high profitability. (Source: The Business Standard, 27-08-2023)

Stress testing and monitoring: Bangladesh Bank is actively stress-testing and monitoring
NBFIs to identify and address potential risks before they escalate. (Source: Bangladesh Bank
Stability Report 2022)

Increased lending to small and medium enterprises (SMEs): NBFIs have been playing a
crucial role in providing financing to SMEs, which are the backbone of the Bangladesh
economy. According to the Bangladesh Bank, NBFIs' outstanding loans to SMEs stood at BDT
1.2 trillion as of June 2023, representing a significant increase from previous years.( Dhaka
Tribune: "NBFIs play crucial role in boosting SMEs" (October 25, 2023)

Technological advancements: Many NBFIs are embracing technology to improve their

efficiency and reach. This includes the use of mobile banking, online loan applications, and
artificial intelligence for credit assessment. (The Financial Express: "NBFIs embrace technology
to improve efficiency" (November 10, 2023)

Strong regulatory environment: The Bangladesh Bank has implemented a number of reforms
in recent years to strengthen the NBFI sector, including stricter capital adequacy requirements
and improved corporate governance standards. This has contributed to increased stability and
confidence in the sector.

Growing investment: There has been an increase in foreign investment in the NBFI sector in
recent years. This is due to Bangladesh's strong economic growth and the potential for the NBFI

15 | P a g e
sector to play a bigger role in the economy.( Bangladesh Bank: "Financial Stability Report 2023"
(September 30, 2023)

Focus on financial inclusion: NBFIs are increasingly focusing on providing financial services
to unbanked and underbanked populations. This includes offering microfinance products and
services to low-income individuals and small businesses. (World Bank: "The Role of NBFIs in
Financial Inclusion in Bangladesh" (October 2023)

Research:

Increased profitability: NBFIs have experienced significant growth in their profitability in

recent years. This is due to a number of factors, including the economic growth of
Bangladesh, the increasing demand for NBFI products and services, and improved corporate
governance and risk management practices.( The research paper "Financial Performance of
NBFIs in Bangladesh: A Trend Analysis" by the Institute of Financial Research and Development
(IFRD)

Increased lending to agriculture: NBFIs have significantly increased their lending to the
agricultural sector in recent years. This is due to several factors, including government
initiatives, the growing demand for agricultural financing, and the development of new NBFI
products and services tailored for the agricultural sector.( The research paper "Role of NBFIs in
Agricultural Financing in Bangladesh" by the Bangladesh Institute of Development Studies
(BIDS)

Improved corporate governance: NBFIs have made significant improvements in their

corporate governance practices in recent years. This is due to a number of factors, including the
implementation of new regulations by the Bangladesh Bank, the increasing awareness of
corporate governance best practices, and the pressure from investors and stakeholders.( The
research paper "Corporate Governance of NBFIs in Bangladesh: An Empirical Analysis" by the
Centre for Policy Dialogue (CPD)

Enhanced risk management: NBFIs have taken steps to improve their risk management
practices in recent years. This is due to a number of factors, including the implementation of new

16 | P a g e
regulations by the Bangladesh Bank, the increasing awareness of risk management best
practices, and the pressure from investors and stakeholders.

Challenges:

Increased number of weak NBFIs: The Bangladesh Bank's stress test report 2022 revealed that
the number of weak NBFIs increased from 12 in 2021 to 14 in 2022. This indicates a growing
concern about the financial health of some NBFIs. (Source: The Daily Star, 30-09-2023)

High non-performing loans (NPLs): The average NPL ratio of publicly traded NBFIs
skyrocketed to nearly 24% by the end of 2022, with some extreme cases like International
Leasing having an NPL ratio of 89%. This significantly impacts their profitability and stability.
(Source: The Business Standard, 27-08-2023)

Liquidity crisis: NBFIs are facing a liquidity crisis due to factors like high NPLs, increased
regulatory measures, and heightened competition with banks. This makes it difficult for them to
meet their financial obligations. (Source: Dhaka Tribune, 06-11-2023)

New legislation: The recently approved "Finance Companies Act, 2023" has sparked concerns
among NBFIs regarding increased compliance burdens and potential impact on their operations.
(Source: Dhaka Tribune, 06-11-2023)

Delayed financial statements: Ten listed NBFIs have not published their financial statements
for 2022, violating securities rules and raising concerns about transparency and accountability.
(Source: The Daily Star, 12-09-2023)

High-interest rates: NBFIs typically charge higher interest rates than banks. This can make it
difficult for borrowers, particularly SMEs and individuals in rural areas, to access affordable
financing. (The research paper "Impact of Interest Rates on NBFI Lending in Bangladesh" by the
Bangladesh Institute of Development Studies (BIDS)

Competition from other financial institutions: NBFIs face competition from

banks, microfinance institutions, and other financial institutions. This can make it difficult for
them to grow their market share and achieve profitability. (The research paper "Competition in
the Financial Sector of Bangladesh: A Comparative Analysis" by the Centre for Policy Dialogue
(CPD)

17 | P a g e
Regulatory compliance: NBFIs face a complex regulatory framework. This can be costly and
time-consuming for smaller institutions and can hinder their ability to innovate and compete
effectively. (The research paper "Regulatory Compliance and the Performance of NBFIs in
Bangladesh" by the Bangladesh Institute of Bank Management (BIBM)

Future Research

Increased specialization: NBFIs will increasingly specialize in specific sectors or products. This
will allow them to develop deeper expertise and offer more customized solutions to their clients.
(The research paper "Future of NBFIs in Bangladesh: A Scenario-Based Analysis" by the
Institute of Financial Research and Development (IFRD)

Greater use of technology: NBFIs are increasingly using technology to improve their
efficiency, reach new markets, and develop new products and services. This trend is expected to
continue in the coming years. (The research paper "Technology Adoption and Innovation in
NBFIs in Bangladesh" by the Bangladesh Bank)

Increased focus on sustainability: NBFIs are increasingly focusing on sustainability. This is due
to a number of factors, including the growing awareness of environmental and social risks, the
increasing demand for sustainable investments, and the regulatory requirements. (The research
paper "Sustainability and the Financial Sector in Bangladesh"(BIDS)

In Conclusions, The NBFIs sector in Bangladesh is facing significant challenges, but it also
presents opportunities for strong institution with sound financial practices and innovative
approaches. However, these research papers provide valuable insights into the trends and
developments that are shaping the NBFI sector in Bangladesh.

18 | P a g e
 Analysis of NBFIs Company financial performance

We are analysis 4 NBFI Company. Here is GSP Finance, IPDC, Hajj Finance & IDLC Finance
Company.

GSP Finance:

As we can see from the graph, return on assets (ROA) peaked in 2018 at about 45% and fell to
less than 5% in 2020, during the COVID-19 pandemic. The return on equity (ROE) stays below
5% from 2018 to 21. The profit margin peaked in 2018 at over 30% and fell to less than 20% in
2019, the very next year. Similar to ROA, the net interest margin peaked in 2019 and was also
impacted by COVID-19. In 2021, the working capital ratio was around 15%, while in 2019, it
was less than 10%. The cash ratio remained unchanged between 2018 and 21, coming in under
10%.

IDLC:

2018 2019 2020 2021

Return on Assets (ROA)
3.69% 3.72% 3.63% 3.25%
Return on Equity (ROE)
35.60% 38.26% 27.68% 27.70%
Profit Margin 14.54% 11.77% 18.59% 15.53%
Net Interest Margin 3.69% 3.72% 3.63% 3.25%

19 | P a g e
Working Capital Ratio 19.21% 17.56% 20.29% 34.04%
Equity Ratio 10.37% 9.73% 13.11% 11.75%
Cash Ratio 14.52% 12.50% 18.34% 31.93%

Return on Assets (ROA)

The gradual decline in ROA from 3.69% in 2018 to 3.25% in 2021 may indicate a decreasing
efficiency in converting assets into earnings. This could be a concern, suggesting a need for
enhanced asset utilization strategies.

Return on Equity (ROE)

With ROE consistently above 27%, IDLC demonstrates a robust ability to generate profits
relative to shareholders' equity. This is generally considered favorable, indicating effective use of
investor funds.

Profit Margin
Although there was a decline in 2019, the subsequent increase in profit margin to 15.53% in
2021 is positive. However, it would be worthwhile to investigate the factors behind the initial
drop.

Net Interest Margin

The consistent net interest margin of around 3.63% to 3.72% suggests stability in earning interest
income, which is generally favorable for financial institutions.

20 | P a g e
Working Capital Ratio
The steady increase in the working capital ratio from 19.21% in 2018 to 34.04% in 2021 is
generally positive. It indicates an improvement in short-term liquidity and the ability to meet
immediate obligations.

Equity Ratio
The rising equity ratio from 10.37% in 2018 to 11.75% in 2021 reflects a more conservative
capital structure, which is often considered favorable for financial stability.

Cash Ratio
The consistent increase in the cash ratio from 14.52% in 2018 to 31.93% in 2021 is positive. It
signifies an increasing ability to cover short-term liabilities with readily available cash.

In conclusion, IDLC Bangladesh exhibits strength in ROE, stable net interest margin, and
improving short-term liquidity. However, the declining ROA and the initial dip in profit margin
should be closely monitored and investigated for potential areas of improvement. Overall, the
financial health seems favorable, but ongoing scrutiny and strategic adjustments may be
necessary to address certain trends.

Hajj Finance:

HAJJ FINANCE
2018 2019 2020 2021
Return on Assets (ROA) 3.29% 3.26% 2.89% 3.70%
Return on Equity (ROE) 22.17% 22.06% 18.79% 24.27%
Profit Margin 17.34% 14.60% 8.73% 42.52%
Net Interest Margin 3.29% 3.26% 2.89% 3.70%
Working Capital Ratio 0.17 0.17 0.18 0.19
Equity Ratio 14.85% 14.78% 15.38% 15.26%
Cash Ratio 0.12 0.10 0.10 0.11

21 | P a g e
 Hajj Finance
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Return on Return on Profit Margin Net Interest Working Capital Equity Ratio Cash Ratio
Assets (ROA) Equity (ROE) Margin Ratio

2018 2019 2020 2021

Hajj Finance Company Ltd.'s financial analysis suggests a consistent and robust financial
standing.

• Over the examined period, the company has shown a steady and gradual enhancement in
its Return on Assets (ROA), increasing from 3.29% in 2018 to 3.70% in 2021, signifying
efficient asset utilization for profit generation.
• Similarly, Return on Equity (ROE) has displayed a similar upward trend, rising from
22.17% in 2018 to 24.27% in 2021, illustrating effective deployment of shareholders'
equity for greater returns.
• Of particular note, the Profit Margin experienced a remarkable upswing, soaring from
17.34% in 2018 to 42.52% in 2021, although a thorough investigation is prudent to
evaluate its sustainability.
• The Net Interest Margin has generally remained steady.
• The Working Capital Ratio has shown gradual improvement, advancing from 0.17 in
2018 to 0.19 in 2021, indicating enhanced short-term liquidity.
• The Equity Ratio has slightly increased, indicating a consistent capital structure.
• The Cash Ratio is maintained at a reasonable level, affirming the company's capacity to
meet short-term obligations.

In summary, the company exhibits financial stability and adept resource management.
However, the significant spike in profit margin in 2021 necessitates further scrutiny, and it's

22 | P a g e
 advisable to consider industry benchmarks and external economic factors for a more
comprehensive assessment.

IPDC:
The table shows the following financial ratios for IPDC Finance Limited from 2018 to 2021:

Ratio 2018 2019 2020 2021

Return on Assets (ROA) 0.89% 0.93% 1.04% 1.04%
Return on Equity (ROE) 11.99% 11.64% 13.87% 13.24%
Profit Margin 24.01% 24.93% 25.58% 27.75%
Net Interest Margin 33.43% 29.22% 42.53% 39.13%
Working Capital Ratio 1.89 2.10 1.88 1.85
Equity Ratio 7.43% 7.98% 7.48% 7.84%
Cash Ratio 0.01 0.01 0.01 0.01

Return on Assets (ROA) measures how efficiently a company uses its assets to generate profits.
IPDC Finance's ROA has remained relatively stable over the past four years, ranging from
0.89% to 1.04%. This suggests that the company has been efficient in managing its assets and
generating profits.

23 | P a g e
Return on Equity (ROE) measures how profitable a company is relative to the equity invested
by its shareholders. IPDC Finance's ROE has improved from 11.99% in 2018 to 13.24% in 2021.
This suggests that the company has been able to generate higher returns for its shareholders over
time.

Profit Margin measures the percentage of sales revenue that a company retains as profit after
paying all expenses. IPDC Finance's profit margin has improved from 24.01% in 2018 to 27.75%
in 2021. This suggests that the company has become more efficient in controlling its costs and
generating profits.

Net Interest Margin measures the difference between the interest income earned by a financial
institution and the interest expense paid on its deposits. IPDC Finance's net interest margin has
fluctuated over the past four years, ranging from 29.22% to 42.53%. However, it has remained
consistently above 30%, which is considered to be healthy.

Working Capital Ratio measures a company's ability to meet its short-term obligations. IPDC
Finance's working capital ratio has remained stable over the past four years, ranging from 1.85 to
2.10. This suggests that the company has a healthy working capital position and is able to meet
its short-term obligations comfortably.

Equity Ratio measures the percentage of a company's assets that is funded by equity. IPDC
Finance's equity ratio has remained stable over the past four years, ranging from 7.43% to
7.98%. This suggests that the company has a relatively healthy capital structure and is not overly
leveraged.

Cash Ratio measures a company's ability to meet its immediate cash obligations. IPDC
Finance's cash ratio has been very low at 0.01 for the past four years. This suggests that the
company has a tight liquidity position and needs to manage its cash flows carefully.

Overall, IPDC Finance's financial ratios suggest that it is a well-managed company with a
healthy financial condition. The company has been able to generate consistent profits and
improve its profitability over time. It also has a healthy working capital position and a relatively
healthy capital structure. However, the company's cash ratio is very low, which suggests that it
needs to manage its cash flows carefully.

24 | P a g e
 Issues or Opportunities of our NBFI Sector
Global Perspective
Non-bank financial institutions (NBFIs) play an essential role in the financial ecosystem,
providing a range of services from financing and investing to wealth management. While they
offer significant opportunities for financial inclusion, innovation, and economic growth, they
also face various challenges that hinder their effectiveness.

I. Global Opportunities:

• Financial Inclusion: NBFIs can reach underserved populations, promoting financial

literacy and empowering individuals through access to financial services.
• Innovation: Their agility and adaptability allow them to develop innovative solutions
tailored to specific needs and foster the growth of financial technology.
• SME Financing: NBFIs play a crucial role in supporting small and medium-sized
enterprises, which are vital for job creation and economic growth.
• Technological Advancements: By leveraging technology, NBFIs can improve efficiency,
reduce costs, expand their reach, and offer more accessible financial solutions.
• Emerging Markets: NBFIs can significantly contribute to developing financial markets in
emerging economies, promoting economic growth and stability.

II. Global Challenges:

• Regulatory Constraints: Stringent regulations regarding deposit limitations, uneven

competition with banks, and restrictions on shareholding can hinder access to capital,
liquidity management, and competitiveness.
• Financial Difficulties: High levels of non-performing loans, inflexible policies towards
defaulters, and excessive penalties create financial strain and limit growth potential.
• Operational Complexities: Inconsistent regulations and limited flexibility can hinder their
ability to adapt to changing market conditions and cater to diverse needs.

25 | P a g e
 Bangladesh Perspective

The recent Finance Companies Act 2023 raises concerns for the NBFI sector in Bangladesh.
While aimed at addressing irregularities and promoting stability, its stringent regulations pose
challenges for well-managed institutions.

I. Bangladesh’s Challenges:
• Deposit Limitations: Restrictions on individual and joint deposits limit liquidity
management and hinder growth potential.
• Competition with Banks: The Act puts NBFIs at a disadvantage, potentially impacting
their relevance and contribution to the economy.
• Loan Recovery Challenges: The sluggish loan recovery rate threatens NBFI financial
stability, particularly with limited deposit collection.
• Shareholding Restrictions: The 15% shareholding cap may limit investment and hinder
access to capital.
• Contradictions with BSEC Regulations: Inconsistencies create confusion and operational
challenges.
• Vulnerable NBFIs: Six NBFIs are currently in a vulnerable state, facing liquidity
crunches and high default loan rates.
• Corruption: Several NBFIs are struggling due to mismanagement and financial
irregularities.

II. Bangladesh’s Opportunities:

Despite the challenges, NBFIs can still contribute significantly to Bangladesh's financial
development.

• Expanding Financial Inclusion: NBFIs can continue playing a crucial role in expanding
financial inclusion, particularly in rural and underserved areas.
• Supporting SMEs and Microfinance: NBFIs can contribute to economic development by
supporting the growth of SMEs and microfinance initiatives.

26 | P a g e
 • Infrastructure Development: NBFIs can participate in financing vital infrastructure
projects, improving infrastructure and connectivity.
• Leveraging Technology: Utilizing technology can streamline operations, improve
efficiency, and offer innovative solutions, boosting financial inclusion and accessibility.

While NBFIs face challenges, they present significant opportunities for financial development
both globally and in Bangladesh. Addressing these challenges requires collaboration between
governments, regulatory bodies, and NBFI stakeholders. By fostering a supportive environment,
promoting innovation, and addressing specific concerns like those in Bangladesh, NBFIs can
continue to contribute significantly to financial development and economic prosperity.

Conclusion

In conclusion, our in-depth analysis of the Non-Banking Financial Institution (NBFI) sector from
2018 to 2022 reveals key insights and suggests actionable recommendations.

During this assessment, we meticulously reviewed the NBFI sector's financial performance by
examining annual reports, website data, and pertinent news. Our findings highlight significant
trends and challenges:

1. Financial Performance: The NBFI sector has shown consistent growth in assets,
revenue, and profitability over the past five years. However, it faces intensified
competition, evolving regulations, and economic uncertainties.

2. Risk Management: While the NBFI sector has made strides in risk management,
concerns remain, especially concerning loan portfolio credit quality. It's imperative to
strengthen risk assessment and mitigation strategies.

3. Technological Advancements: Embracing technology is crucial, with digitalization and

online services gaining prominence. Investment in cutting-edge tech is vital for
competitiveness.

4. Regulatory Environment: Ongoing regulatory changes necessitate a proactive approach

to compliance and risk mitigation.

27 | P a g e
 5. Customer Trust and Engagement: Building and sustaining customer trust is paramount.
Prioritize enhancing engagement, transparency, and satisfaction.

Our recommendations for the NBFI sector include:

1. Service Diversification: Explore diversifying product offerings to reduce reliance on a

single revenue source, such as expanding into wealth management or insurance.

2. Data Analytics and AI: Leverage advanced analytics and AI for informed decision-
making, enhanced risk assessment, and improved customer experiences.

3. Enhanced Risk Management: Strengthen risk management, particularly in credit risk

assessment and monitoring, to ensure sector stability.

4. Compliance and Ethics: Maintain strong commitment to regulatory compliance and

ethical business practices to secure long-term success and trust.

5. Collaboration: Seek partnerships and collaborations with fintech startups or traditional

banks to foster growth and innovation.

In summary, the NBFI sector holds significant growth potential but faces challenges demanding
careful planning. By embracing technology, focusing on risk management, and prioritizing
customer-centricity, NBFI firms can seize opportunities and address weaknesses to thrive in a
dynamic financial landscape. Stakeholders must remain adaptable and committed to long-term
success.

28 | P a g e
 References

1. Alif, T. (2020). Constraints and challenges of financial Institutions of Bangladesh: A

possible way out. OMEINO, 1-30.
2. Sujit Saha, M. K. (1999). Progress and prospects of Non-Banking Financial
Institutions of Bangladesh. Bank Parikrama, 1-18.
3. Hassan, M. (2012). Issues and Challenges of Non-Banking Financial Institutions of
Bangladesh. Asian Business Review, 1-4.
4. Institute of Chartered Accountants of Bangladesh (ICAB). Challenges Faced by
Banks and Non-Bank Financial Institutions in Bangladesh. Retrieved December 9,
2023, from https://www.icab.org.bd/publication/news/4/6/Challenges-Faced-by-
Banks-and-Non-Bank-Financial-Institutions-in-Bangladesh
5. The Daily Star. ASM Mohiuddin Monem again becomes Cumilla's top taxpayer.
Retrieved December 9, 2023, from https://www.thedailystar.net/business/news/asm-
mohiuddin-monem-again-becomes-cumillas-top-taxpayer-3490031
6. Rahaman, M. M., & Chowdhury, M. A. F. (2016). Impact of Financial Performance
on Stock Price of Non-Bank Financial Institutions (NBFI) in Bangladesh: Dynamic
Panel Approach. In Managerial Strategies and Solutions for Business Success in Asia
(Chapter 11). IGI Global. DOI: 10.4018/978-1-5225-1886-0.ch011.
7. Pirtea, M., Iovu, L. R., & Milos, M. C. (2008). Importance of Non-banking Financial
Institutions and of the Capital Markets in the Economy. The Case of Romania.
Source: RePEc. License: CC BY-NC-SA.
8. Carmichael, J., &Pomerleano, M. (2002). The Development and Regulation of Non-
bank Financial Institutions. World Bank, Washington, DC.
9. Čihák, M., &Podpiera, R. (2008). Integrated Financial Supervision: Which Model?
North American Journal of Economics and Finance, 19, 135–52.
10. https://www.researchgate.net/publication/23743729_Development_of_Non_Bank_Fi
nancial_Institutions_to_Strengthen_the_Financial_System_of_Bangladesh
11. https://thefinancialexpress.com.bd

29 | P a g e