FINANCIAL REFORM

Financial liberalisation (FL) refers to the regulation of domestic financial markets and the liberalisation of the capital account. It is generally believed to improve financial sector development, which in turn, will enhance economic growth. The liberalisation process began with the privatisation of state owned enterprises in 1976 in the backdrop of a significant deterioration of the economic condition. Formally, the financial sector reform programme was launched in 1984 with the appointment of the national
commission on money, banking and credit (NCMBC). 4.1 Liberalisation of Interest Rate and Financial Inclusion The Bangladesh Bank (BB) introduced a flexible marketoriented interest rate policy in January 1990, abolishing the earlier system of centrally administered interest rate structure and providing for sector specific concessional refinance facilities. Banks are now free to fix their rates of interest on
their deposits of different types after withdrawal of restriction about the floor rate of interest in 1997. Banks are also free to fix their rates of interest on lending except for export sector, which has been fixed at 7 percent per annum with effect from January 10, 2004. A high spread could also mean that the
deposit rates are unusually low which discourage savings and reduce resources available to finance bank credit. Although liberalisation held in Bangladesh earlier but interest rate spread(IRS) did not decrease as well as lending rate is still now so high and business persons are not capable of taking loan with high rate of interest. This means that Bangladesh did not get the opportunity of the liberalization of rate of interest. It is more likely that the IRS in Bangladesh is indicative ofinteractions of the factors: (i) high costs of intermediation as a consequence of large non performing loan (NPL) (ii) practice of setting higher than competitive deposit interest rates resulting in high lending rates and hence IRS.
The interest rate spread has seen many ups and downs in this year and in the month of October 2013, the rate was below 5 percent. But the fact is that, in April 2013, it was also seen below 5 percent and after that it increased as earlier trend. In both the case, it is seen that advances remain relatively too
high and this is the obstacle of taking loan by the business community.