Bangladesh’s economy is currently grappling with a complex debt crisis, largely driven by the accumulation of non-performing loans (NPLs) in the banking sector. As of September 2025, approximately 35 per cent of the country’s total outstanding loans were classified as non-performing, placing considerable strain on financial stability. Persistent irregularities and corruption in bank loan approval processes have further exacerbated the situation, undermining public trust and institutional efficiency.
The root of the problem lies in Bangladesh’s overreliance on a bank-centric financing system. Globally, long-term financing predominantly flows through government and corporate bond markets as well as equity markets. In developed economies such as the United States, Japan, and European countries, a robust bond market is considered a cornerstone of economic stability. Likewise, emerging economies like India, Malaysia, and Indonesia have over the past two decades developed strong local bond markets, which have played a pivotal role in infrastructure development and industrial expansion.
In contrast, Bangladesh’s bond market remains underdeveloped, with a total size of approximately USD 30 billion as of September 2025, substantially lower than regional peers. Several structural limitations have hindered its growth:
| Limitation | Explanation | Impact |
|---|---|---|
| Complex and costly processes | Approval, credit rating, trustee, and listing procedures are time-consuming and expensive | Reduces the attractiveness for new issuers |
| Lack of investor confidence | Historical cases of default and delayed payments | Sends negative signals to the market, increasing scepticism |
| Weak institutional investor base | Pension funds, insurance, and mutual fund infrastructure remain underdeveloped | Limits availability of long-term financing |
| High interest rates on government savings certificates | Investors prefer higher-yield alternatives | Constrains investment in bonds |
To transition from a bank-dominated system to a diversified financing structure, Bangladesh must simplify regulatory procedures, reduce associated costs, and enforce strict oversight. Reforming pension and insurance sectors would broaden the base of institutional investors, while aligning savings certificate rates with market conditions could incentivise bond investment.
Moreover, innovative instruments such as sukuk bonds, green bonds, and social bonds present significant opportunities. By aligning bond offerings with global sustainable development and climate agendas, Bangladesh could attract both domestic and international investors. A dedicated green bond market, for instance, would channel capital into environmentally sustainable projects while enhancing the country’s investment profile.
If the government and central bank implement these measures effectively, Bangladesh could cultivate a resilient bond market, alleviating pressure on banks and unlocking new avenues for long-term, stable investment. The potential shift towards diversified financing could mark a critical turning point in the nation’s economic trajectory.