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Since 1976, the Investment Corporation of Bangladesh (ICB) has been a catalyst in fostering rapid economic growth. Now the local economy is growing at full tilt, with the ICB reaping the financial rewards. Bangladesh’s economy grew by above six percent on average over the last four years and is set to continue growing by six percent this year.
This is due to decades of hard work and investments by a number of institutions; chief among them is the ICB, which has been tasked with “encouraging private enterprise and investment” with “investment-driven institutional support to meet the equity gap of first generation industrial entrepreneurs,” according to its Managing Director, Mohammad Fayekuzzaman.
Socialist and nationalist cohesion
Fostering development is still a main challenge in Bangladesh, and for some time the government strategy has been to privatise the numerous companies that were nationalised after independence.
“Bangladesh had a socialist economy after its independence in 1971, and around that time it nationalised all industries. However, the country has since revisited its economic policy as it undergoes reforms to stimulate at the creation of experienced entrepreneurs, managers, administrators, engineers, and technicians due to lack of private initiatives,” explains Fayekuzzaman.
“ICB emerged as a state-led corporation that played a fundamental role alongside the government and regulatory authorities to transform the economy of Bangladesh and develop a new industrial capacity.”
Today ICB continues to perform this vital role, but it has also evolved into one of the most prominent financial institutions in the country. It aims to provide responsible and environment-friendly services and to develop as a company “that competitors and society keep an interest in, acknowledge, admire and emulate as a successful and ideal model in the sector,” says Fayekuzzaman.
“ICB is the pioneer organisation for initiating mutual funds, unit funds, building efficient portfolios and providing other financial solutions in Bangladesh. ICB’s contribution to the development of the local capital market by creating demand and supply of securities has been remarkable.”
Bangladesh has a lot of potential for rapid economic growth. Over the past 20 years the country’s GDP has expanded on average five percent a year (see Fig. 1) and is now considered one of the most attractive destinations for investment in the region. It has already surpassed other South East Asian countries in a number of fundamental economic and development indicators.
The Bangladesh Chamber of Commerce and Industry has recently announced that it expects that by 2030 Bangladesh should be among the 30 largest economies in the world – it’s currently the 58th largest – and that this should be a goal for the country. ICB is perfectly positioned to develop its business during this unprecedented growth spurt.
“ICB is one of the fastest growing institutions in the country. As it operates in the economic and financial sectors, it can successfully reap benefits of the economic growth of the country,” explains Fayekuzzaman.
“It can also contribute greatly to the economic development of the country. Investors and the other stakeholders have a lot of confidence in ICB. They trust the corporation because it is backed by the government and has a track record in delivering a high quality of service and governance. Therefore, there is huge potential for foreign investment in many areas of the Bangladesh economy through ICB,” he says.
Institutions such as ICB are vital in developing markets similar to Bangladesh. ICB today not only fosters growth and development, but also delivers substantial returns to its main stakeholders. According to Fayekuzzaman, the corporation has experienced strong growth across all areas of business since undergoing reforms in 2002. “The net profit of BDT 107m in 2002 increased to BDT 3.76bn in 2013, registering a 35 times growth in just 10 years.”
During that time, ICB single-handedly orchestrated the launch of the Bangladesh Fund, a BDT 50bn open ended mutual fund – the biggest ever in the history of Bangladesh – in 2010. “ICB took this initiative because it was of national interest, despite a lot of risks,” says Fayekuzzaman.
In order to continue performing soundly, ICB has recently undergone a series of reforms initiated by the local government and the Asian Development Bank. As a result, ICB Capital Management, ICB Securities Trading Company and ICB Asset Management Company have been created and incorporated as subsidiaries of ICB to carry out merchant banking, stock brokerage functions and mutual fund operations respectively.
“The subsidiary companies are operated by independent boards and management pursuant to their own memorandum and articles of association,” explains Fayekuzzaman.
“The three subsidiaries of ICB have already outperformed expectations and emerged with a very promising outlook and wonderful working environments. The restructuring of ICB is one of the most successful reforms in the financial sector of Bangladesh to date.”
A well-hedged operation
Over the years, ICB has expanded its business lines and revenue streams in order to ensure that it remains flexible and efficient. As a leading institutional investor, today ICB is mostly involved in trading securities.
“ICB has built up a strong and diversified portfolio of listed and non-listed securities,” says Fayekuzzaman. “These portfolios are managed by expert teams so that they are balanced and adequately hedged to absorb any share market bumps.”
In addition to this professional management of all investments, the corporation has also introduced the mark to market system of accounting for valuing investments in marketable securities. It has been a tremendous success according to Fayekuzzaman.
“It is a point of satisfaction that there was no equity price risk on ICB’s investment in securities as of 30 June, 2012, as the market price of the securities were higher than that of the cost price despite prolonged share market crash that started in 2010.”
ICB is extremely strict about its operations, in the sense that it seeks to maximise returns without compromising its approach towards risks
ICB is extremely strict about its operations, in the sense that it seeks to maximise returns without compromising its approach towards risks. The corporation has intentionally diversified its product range in order to naturally hedge against potential downturns in particular sectors.
“The corporation’s presence in the relatively volatile equity segment is balanced by its presence in the moderately stable project financing business. ICB’s main project finance platforms are the extension of bridge loans, debenture loan, share buy-back agreement, trustee and custodian services, leasing and consumer credit,” says Fayekuzzaman.
“Similarly, its presence in the mutual funds industry, issue management and other brokerage services is expected to be contra-cyclical to its presence in the equity business.”
The corporation operates across a variety of areas within the financial services space, therefore each operation is conducted under separate subsidiary companies and is regulated by a different authority.
“ICB operates primarily under the Banking Division of the Ministry of Finance,” explains Fayekuzzaman. “Our subsidiaries are registered and regulated by Bangladesh Securities and Exchange Commission for merchant banking, stock broking, depository participants, portfolio management and mutual fund businesses. We are also registered with the Bangladesh Bank.”
The corporation’s presence in a variety of financial segments requires constant vigilance on the compliance side with the evolving requirements of its various regulators. Any violation or transgression could invite censure, affecting the corporation’s reputation and so, a zero tolerance policy is maintained in governance and compliance issues.
The company has also developed a number of social development projects aimed at fostering entrepreneurism alongside the Bangladeshi government. It currently manages the government’s flagship Equity and Entrepreneurism Fund (EEF), an extremely popular scheme aimed at providing financing for “promising young, educated, skilled and low-income rural people to develop businesses in agro-based, fisheries, food-processing and software projects for poverty reduction at mass level,” according to Fayekuzzaman.
“So far, under the EEF scheme more than 1000 projects have been sanctioned, which are providing significant contributions to GDP and have generated about 35,000 permanent and seasonal jobs.”
ICB invests over BDT 500m a year in this initiative alone, though it is by no means its only CSR project. “We allocate a huge amount for CSR activities every year in education, health and sanitation, disaster management and other noble welfare initiatives to benefit employees, customers and the community at large.”
Fayekuzzaman is keen to restate the important role that ICB has to play within the financial services industry in Bangladesh.
“Our vision is to continue to be the leading, responsible and environment friendly financial institution operating in such a way that our fellow competitors and the society watch, acknowledge, admire and emulate us as a successful and ideal model in the sector,” he says. “Our principal mission is for ICB to be recognised as a responsible institution, a financial architect, an innovative solution provider and a performance leader.”
