Shadow banking refers to the activities of financial intermediaries that operate outside the traditional banking system and are not subject to the same level of regulatory oversight. In the context of Bangladesh, shadow banking has been experiencing significant growth, driven in part by the new normal created by the COVID-19 pandemic [1].
Here are some key points about shadow banking in Bangladesh:
- Types of Shadow Banking: In Bangladesh, shadow banking encompasses various activities and institutions that operate outside the traditional banking sector. These include mobile financial services like bKash, Nagad, and Upay, which are controlled by separate managements outside of banks. Agent banking, where non-banking individuals or vendors facilitate transactions, is another example of shadow banking in the country. The postal department and cooperatives also engage in forms of financing activities recognized as shadow banking [1].
- Regulatory Environment: Unlike traditional banks and regulated financial institutions, shadow banking activities in Bangladesh are less or not regulated. However, it is important to note that these activities are not illegal or unethical. The growth of shadow banking in Bangladesh is in line with the global trend, driven by the COVID-19 pandemic and the rapid expansion of financial technology (fintech) [1].
- Concerns and Recommendations: While shadow banking provides alternative savings instruments and credit to underserved sectors in Bangladesh, there is a need for tighter monitoring to avert any potential chaos in the financial market. The Bangladesh Institute of Bank Management (BIBM) suggests measures to strengthen financial stability efforts, including mapping payment, deposit, and credit services, adopting suitable definitions, and bringing mobile financial service providers under uniform but soft regulatory control. The study also advocates for monitoring agent banking activities and linkage arrangements, as well as setting up monitoring and customer protection arrangements for banks and financial institutions engaged in shadow banking activities [1].
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