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Analysts call for alternative long-term financing options for infrastructure development

  • Published at 11:07 pm October 29th, 2018
web-Infrastructure Bangladesh: Financing the Future'
Analysts speak at a session of the 'Destination Bangladesh: Gateway to Growth and Investment' conference on Sunday. The session was titled ' Infrastructure Bangladesh: Financing the Future' COLLECTED

The keynote paper further said the capital market is yet to become a viable alternative source of financing for infrastructure projects, due to its lack of alternative financing mediums such as listed bonds, and the non-existence of a market yield curve

The economy needs alternative sources of funding to secure finances for infrastructure development, and reduce dependence on commercial banks, analysts said at a conference on Sunday.

They called upon the government to bolster the bond market and streamline capital market to meet long term investment needs, as banks typically tend to invest in short-term projects and commercial ventures. 

The conference, titled ‘'Destination Bangladesh: Gateway to Growth and Investment,” was organized  by the Dhaka Chamber of Commerce & Industry (DCCI) to celebrate its 60th founding anniversary, at Bangabandhu International Conference Centre.

At a session titled “Infrastructure Bangladesh: Financing the Future,” IDLC Finance Limited CEO and Managing Director Arif Khan presented the keynote paper.

In his paper, Arif said: “Infrastructure projects naturally require long- term funding and significant investment, unlike most commercial projects.”

“Our financial sector is mostly comprised of commercial banks, which are structurally unfit to commit sizable capital to long term infrastructure projects due to their short duration liabilities. Additionally, a single borrower limit curtails the banks’ capacity to participate in large projects,” he added.

Furthermore, he said public-private partnership initiatives had rolled on for the last couple years, but failed to see significant success. 

“The government contributes nearly 90 % of infrastructure financing in Bangladesh, while the private sector contributes only 10%. The contribution of the government in infrastructure investment is much higher compared to other countries, where the average contribution is 70%.” Arif Khan said. 

Underscoring the need for diversified sources of funding for infrastructure development, Arif said funding from the commercial banks is not suitable for infrastructure development as they mostly focus on short-term models of financing.

“We need development of the bond market to meet our enhanced funding needs,” he added.

The keynote paper further said the capital market is yet to become a viable alternative source of financing for infrastructure projects, due to its lack of alternative financing mediums such as listed bonds, and the non-existence of a market yield curve.

Association of Bankers Bangladesh (ABB) Chairman and Dhaka Bank Managing Director & CEO Syed Mahbubur Rahman said: “Commercial banks are not a solution for infrastructure investment. The banking system is not interested in providing support to the infrastructure sector, because of the long-term nature of the projects.”  

Bangladesh Bank Chief Economist Dr Faisal Ahmed said risk management is very important for any financing, echoing that banks are not suitable for long-term financing.

He said the bond market should be bolstered to meet the financing needs of infrastructure development.

Asian Development Bank (ADB) Country Director Manmohan Parkash said ADB would extend support to Bangladesh for infrastructure projects. 

Hitoshi Hirata, chief representative of the Japan International Cooperation Agency's Bangladesh Office, also attended the conference.

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