History of insurance and finance in Bangladesh

 

The history of insurance in Bangladesh dates back to the British colonial period when the first insurance company, the British India General Insurance Company, was established in Calcutta in 1850. However, insurance as an industry in Bangladesh began to take shape only after the country gained independence from Pakistan in 1971.

 

In 1973, the government of Bangladesh nationalized the insurance industry and established two state-owned insurance companies, the Jibon Bima Corporation (JBC) for life insurance and the Sadharan Bima Corporation (SBC) for general insurance. The nationalization of the insurance industry was aimed at promoting greater access to insurance and protecting the interests of policyholders.

 

Banking and Insurance

In the 1980s and 1990s, the government initiated a series of reforms to liberalize the insurance sector and promote private sector participation. The reforms included the establishment of a regulatory authority, the Insurance Development and Regulatory Authority (IDRA), in 2010, to oversee and regulate the insurance industry in Bangladesh.

 

Today, the insurance sector in Bangladesh comprises a mix of state-owned and private insurance companies, providing a wide range of life and non-life insurance products to customers. The sector has witnessed significant growth over the years, with the penetration of insurance increasing from less than 1% of GDP in the 1990s to over 1.5% of GDP in recent years.

 

Despite the growth, however, the insurance sector in Bangladesh still faces several challenges, including low levels of insurance penetration and awareness, inadequate risk management practices, and underdeveloped distribution channels. The government and regulatory authorities continue to work towards promoting the development of a robust and sustainable insurance industry in Bangladesh.

 

As of 2022, there are currently 62 insurance companies operating in Bangladesh, according to the Insurance Development and Regulatory Authority (IDRA) of Bangladesh. Out of the 62 companies, 32 are life insurance companies, and 30 are non-life insurance companies. The companies include both state-owned and private insurance companies, providing a range of life and non-life insurance products to customers in Bangladesh. The insurance sector in Bangladesh has witnessed significant growth over the years, and the increasing number of insurance companies is a reflection of the growing demand for insurance services in the country.

 

Islamic insurance, also known as Takaful, is a relatively new concept in Bangladesh, with its roots in the Islamic principles of cooperation, mutual support, and risk-sharing. The first Islamic insurance company in Bangladesh, Islami Commercial Insurance Company Limited, was established in 1985.

 

However, it was not until the early 2000s that the concept of Takaful gained wider acceptance in Bangladesh, with the establishment of several new Islamic insurance companies. In 2004, the government of Bangladesh enacted the Takaful Rules, which set out the regulatory framework for the operation of Takaful companies in the country.

 

Since then, the Takaful industry in Bangladesh has witnessed significant growth, with several new companies entering the market and offering a range of Takaful products and services to customers. As of 2022, there are currently 11 Takaful companies operating in Bangladesh, providing both general and life Takaful products.

 

The growth of the Takaful industry in Bangladesh can be attributed to several factors, including the increasing demand for Shariah-compliant financial products and services, the growing awareness of Islamic finance principles among consumers, and the supportive regulatory environment provided by the government and regulatory authorities.

 

Despite the growth, however, the Takaful industry in Bangladesh still faces several challenges, including the need for greater consumer education and awareness, the limited availability of Shariah-compliant investment opportunities, and the lack of standardization and harmonization in Takaful practices and regulations. The government and regulatory authorities continue to work towards promoting the development of a robust and sustainable Takaful industry in Bangladesh.

 

The history of finance in Bangladesh can be traced back to the pre-independence period when the country was part of British India. The banking sector in Bangladesh began to take shape in the early 20th century, with the establishment of several banks, including branches of British-owned banks, to cater to the needs of the growing trade and commerce in the region.

 

After gaining independence from Pakistan in 1971, Bangladesh inherited a weak and underdeveloped financial sector. The government of Bangladesh took several steps to strengthen the sector, including nationalizing the banking industry in 1972 and establishing a central bank, the Bangladesh Bank, in 1972, to oversee and regulate the sector.

 

In the 1980s and 1990s, the government initiated a series of reforms to liberalize the financial sector and promote private sector participation. The reforms included the establishment of a securities and exchange commission, the Bangladesh Securities and Exchange Commission (BSEC), in 1993, to regulate and develop the capital markets in the country.

 

Since then, the financial sector in Bangladesh has witnessed significant growth and transformation, with the introduction of new financial products and services and the expansion of the sector to reach underserved segments of the population. The sector now comprises a range of institutions, including commercial banks, development banks, non-bank financial institutions, insurance companies, and capital market intermediaries.

 

Despite the growth, however, the financial sector in Bangladesh still faces several challenges, including the need for greater financial inclusion and literacy, the presence of non-performing loans, and the lack of depth and liquidity in the capital markets. The government and regulatory authorities continue to work towards promoting the development of a robust and sustainable financial sector in Bangladesh.

Islamic finance, based on the principles of Shariah law, is a relatively new concept in Bangladesh. The country has a predominantly Muslim population, and there has been a growing demand for Shariah-compliant financial products and services among consumers.

 

The first Islamic bank in Bangladesh, Islami Bank Bangladesh Limited, was established in 1983. Since then, several other Islamic banks have been established, including Al-Arafah Islami Bank, Shahjalal Islami Bank, and EXIM Bank. In addition to Islamic banks, there are also several Islamic non-bank financial institutions, such as Islamic leasing companies, Islamic investment companies, and Islamic microfinance institutions, operating in Bangladesh.

 

The government of Bangladesh has taken several steps to promote the growth of Islamic finance in the country. In 2009, the government passed the Islamic Banking Act, which provides a regulatory framework for the operation of Islamic banks in Bangladesh. In addition, the central bank, the Bangladesh Bank, has issued guidelines for the establishment and operation of Islamic banking windows by conventional banks.

 

The growth of Islamic finance in Bangladesh has been driven by several factors, including the increasing demand for Shariah-compliant financial products and services, the supportive regulatory environment provided by the government and regulatory authorities, and the growing awareness of Islamic finance principles among consumers.

 

Despite the growth, however, the Islamic finance industry in Bangladesh still faces several challenges, including the need for greater standardization and harmonization in Shariah-compliant financial products and services, the limited availability of Shariah-compliant investment opportunities, and the need for greater consumer education and awareness. The government and regulatory authorities continue to work towards promoting the development of a robust and sustainable Islamic finance industry in Bangladesh.

The capital market in Bangladesh has undergone significant growth and transformation over the past few decades. The market comprises the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), which are the two primary stock exchanges in the country, and several other market intermediaries, including brokerage firms, merchant banks, and asset management companies.

 

The DSE, established in 1954, is the largest stock exchange in Bangladesh, while the CSE, established in 1995, is the second-largest exchange. The two exchanges together list over 700 companies, including banks, insurance companies, manufacturing companies, and service providers.

 

The Bangladesh Securities and Exchange Commission (BSEC) is the regulatory authority responsible for overseeing and regulating the capital markets in Bangladesh. The BSEC has taken several initiatives to develop and modernize the capital market, including the introduction of automated trading systems, the establishment of a central depository system, and the introduction of margin trading facilities.

 

Despite the growth and modernization, the capital market in Bangladesh still faces several challenges, including the lack of depth and liquidity, the low participation of retail investors, and the limited availability of investment opportunities. The government and regulatory authorities continue to work towards promoting the development of a robust and sustainable capital market in Bangladesh, including the promotion of financial literacy and the introduction of new products and services.

 

The money market in Bangladesh refers to the market where short-term funds are traded among financial institutions, including banks, non-bank financial institutions, and government institutions. The market comprises the interbank call money market, the treasury bill market, and the repurchase agreement (repo) market.

 

The interbank call money market is the largest segment of the money market in Bangladesh, where banks borrow and lend funds for short-term periods, usually ranging from overnight to a week. The interest rate in this market is determined by the demand and supply of funds and is closely monitored by the central bank, the Bangladesh Bank.

 

The treasury bill market is another important segment of the money market in Bangladesh, where short-term government securities, known as treasury bills, are traded. These securities have a maturity period of less than one year and are issued at a discount to the face value.

 

The repo market is a market where financial institutions can borrow or lend funds by selling or buying securities, such as government securities or treasury bills, with an agreement to repurchase or resell them at a later date.

 

The money market in Bangladesh plays an important role in the overall financial system by providing a platform for financial institutions to manage their short-term liquidity needs and by providing a benchmark for short-term interest rates. The central bank, the Bangladesh Bank, plays a crucial role in regulating and monitoring the money market to maintain stability and ensure the efficient functioning of the financial system.

 

 

Islamic insurance, also known as Takaful, has been growing steadily in Bangladesh in recent years. According to a report by the Bangladesh Insurance Association, the Takaful industry in the country had a market share of 6.84% in 2020, up from 6.23% in 2019.

 

The report also showed that the total gross written premiums (GWP) for Takaful companies in Bangladesh increased by 21.68% in 2020, compared to a 7.35% increase in the conventional insurance industry. This indicates that the Takaful industry is growing at a faster rate than the conventional insurance industry.

 

In terms of market share, the largest Takaful company in Bangladesh is Islami Insurance Bangladesh Ltd, which had a market share of 58.04% in 2020. Other Takaful companies operating in Bangladesh include Takaful Islami Insurance Ltd, Pragati Takaful Insurance Ltd, and Aman Takaful Insurance Ltd.

 

The growth of the Takaful industry in Bangladesh has been driven by the demand from the Muslim community, which comprises about 90% of the country's population. The availability of Takaful products that are in line with Islamic principles has provided a viable alternative to conventional insurance for this segment of the population.

 

Overall, the Takaful industry in Bangladesh is still in its early stages of development, but it has significant growth potential. With the increasing demand for Islamic financial products and services in the country, it is expected that the Takaful industry will continue to grow and expand its market share in the years to come.

Overall, the money market in Bangladesh is relatively small and underdeveloped compared to other countries in the region. The government and regulatory authorities are working towards developing a more robust and dynamic money market by introducing new financial instruments and promoting greater participation from financial institutions.

Islamic insurance, also known as Takaful, has been growing steadily in Bangladesh in recent years. According to a report by the Bangladesh Insurance Association, the Takaful industry in the country had a market share of 6.84% in 2020, up from 6.23% in 2019.

 

The report also showed that the total gross written premiums (GWP) for Takaful companies in Bangladesh increased by 21.68% in 2020, compared to a 7.35% increase in the conventional insurance industry. This indicates that the Takaful industry is growing at a faster rate than the conventional insurance industry.

 

In terms of market share, the largest Takaful company in Bangladesh is Islami Insurance Bangladesh Ltd, which had a market share of 58.04% in 2020. Other Takaful companies operating in Bangladesh include Takaful Islami Insurance Ltd, Pragati Takaful Insurance Ltd, and Aman Takaful Insurance Ltd.

 

The growth of the Takaful industry in Bangladesh has been driven by the demand from the Muslim community, which comprises about 90% of the country's population. The availability of Takaful products that are in line with Islamic principles has provided a viable alternative to conventional insurance for this segment of the population.

 

Overall, the Takaful industry in Bangladesh is still in its early stages of development, but it has significant growth potential. With the increasing demand for Islamic financial products and services in the country, it is expected that the Takaful industry will continue to grow and expand its market share in the years to come.

 

Author

 Maryam Saeed Dogar

 For more article, kindly read blogs by visiting at https://ihf12.blogspot.com/.

 For more videos, kindly visit our two YouTube channels

 https://www.youtube.com/@imspakistan7268

 https://www.youtube.com/@islamicfinance2538