Financial Sector Reform and Financial Intermediation in Bangladesh

Financial sector of a country plays crucial role in the process of economic development by efficiently mobilizing financial resources among the most productive uses.Realizing this importance of financial sector, almost all developing countries in the world started reforming their financial sector since 1990 to make it more competitive and efficient. Like other developing countries Bangladesh also started reforming its financial sector since early 1980s by privatizing two nationalized commercial banks. Formal Financial Sector Reform (FSR) was started by launching the Financial Sector Reform Project (FSRP) in 1990. This study makes an evaluation of FSR with respect to its impact on volume and effectiveness of financial development or intermediation. Estimation results show that financial intermediation deteriorated during the post reform period, i.e. during 1990-2002. This deterioration of financial intermediation may be attributed to the stringent supervision on the banking sector in one hand and lack of effective legal support to recover bad debts on the other hand.