Why stock market failed to fund businesses when they needed it most
In a striking anomaly, not a single IPO has been brought to market by any of the country’s 66 licensed merchant banks in nearly two years since March 2024.
Companies turn to the stock market to raise long-term capital and ease balance-sheet pressure, particularly when bank borrowing becomes costly. Yet even as lending rates in Bangladesh climbed to 14–15% from single digits over the past two years, the equity market has remained effectively closed to new issuers.
In a striking anomaly, not a single initial public offering (IPO) has been brought to market by any of the country's 66 licensed merchant banks in nearly two years since March 2024. Over the same period, India hosted more than 370 IPOs in just one year.
The freeze goes beyond a cyclical market downturn. Since the 2024 political transition and the appointment of a new securities commission, capital-raising through public offerings has stalled entirely, leaving the primary market dormant for more than one and a half years and steadily eroding confidence among issuers and investors.
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Widespread regulatory non-compliance
Regulatory data suggest that the paralysis is also self-inflicted. According to the Bangladesh Securities and Exchange Commission (BSEC), 42 out of 66 merchant banks have failed to submit even a single effective IPO proposal within the legally mandated timeframe, in clear violation of the Public Issue Rules in force since 2010. The remaining institutions did submit proposals, but those applications were rejected.
The rules are explicit: every merchant bank must place at least one documented public issue proposal before the regulator within any two consecutive calendar years. The scale of non-compliance points to a deeper structural failure, raising questions about why so many licences were issued without ensuring market contribution.
Market participants acknowledge that political uncertainty and increasingly stringent listing criteria have discouraged companies from going public. However, economists and regulators argue that many merchant banks have long retreated from their core mandate, opting instead for proprietary investments, private placements and short-term financing — activities that generate quick returns but add little to market depth.
The result is an overcrowded but largely inactive intermediary landscape, sharply at odds with regional peers where merchant banking licences are closely tied to deal origination and capital mobilisation.
Analysts warn that without decisive regulatory action — through consolidation, licence cancellation or tougher enforcement — Bangladesh risks entrenching a prolonged IPO drought that undermines capital formation and long-term growth.
Regulator response
BSEC spokesperson Abul Kalam told The Business Standard that ongoing reforms to the Public Issue Rules do not prevent merchant banks from submitting new proposals.
"The Commission is regularly monitoring the activities of merchant banks. Legal action will be taken against those who fail to comply with the rules," he said.
He added that the "Merchant Banker and Portfolio Manager Rules" are currently being updated and are expected to address many of the systemic weaknesses once implemented.
Professor Abu Ahmed, chairman of the Investment Corporation of Bangladesh (ICB) and a noted economist, said that while the current economic downturn makes entrepreneurs wary of achieving fair pricing, merchant banks must take responsibility for identifying and encouraging quality companies instead of remaining inactive.
What merchant banks are meant to do
The main activities of merchant banks include issue management, underwriting, portfolio management services, corporate advisory services, and fund-raising and loan syndication.
However, with the prolonged IPO freeze and capital market downturn, corporate advisory services have been severely affected. Consequently, the business of most institutions in this sector has practically collapsed.
42 firms fail regulatory compliance, why?
The list of institutions that have failed to submit a single effective IPO proposal includes several prominent names, such as AB Investment, BRAC EPL Investment, EBL Investments, MTB Capital, NBL Capital and Equity Management, Shanta Equity, UniCap Investments, and many others across bank-sponsored and private entities.
Merchant bankers argue that the environment, rather than their lack of effort, is to blame.
They contend that the massive political shift following the fall of the Sheikh Hasina government has left entrepreneurs in a state of paralysis. Since the new Commission took charge, no major public offerings have been approved.
Industry insiders estimate that around Tk1,000 crore worth of capital-raising applications were either cancelled or withdrawn amid ongoing amendments to the Public Issue Rules. According to merchant banks, rejected or withdrawn applications damage the reputation of both issuers and issue managers, discouraging future attempts.
Faced with regulatory uncertainty and evolving criteria, many banks have opted not to submit new proposals at all.
Impacts on merchant banks
A merchant bank official, speaking anonymously, said, "Except for the top 10 firms, most merchant banks are in a poor state. Many have resorted to layoffs, and in several cases, paying regular salaries has become difficult. In some places, one month's salary is paid only every three months."
He added, "At one firm, only an officer and a peon remain, and the officer hasn't received a salary for several months. According to him, the political transition has brought many merchant banks' operations to a complete halt, leaving them unable to manage an IPO."
Meghna Capital Management Limited is an affiliate of Meghna Group of Industries (MGI). The company was licensed as a full-fledged merchant banker by the BSEC on 22 May 2018. However, it currently has no active operations in IPO management.
Structural weakness and the "easy profit" trap
Experts, however, suggest that arguing on political instability is only a partial picture. Many merchant banks have drifted away from their core responsibility — identifying and grooming quality companies for the market. Instead of the rigorous work of IPO management, documentation, and corporate restructuring, many firms have pivoted toward "easy profit" activities.
These include managing their own investment portfolios, trading placement shares, and engaging in short-term high-interest financing. A significant number of these institutions exist merely to "hold the license," contributing nothing to the primary market's growth.
Furthermore, there is a chronic shortage of skilled human resources in corporate finance, valuation, and legal compliance within these banks, making it difficult for them to provide high-quality advisory services to potential issuers.
Regional contrast
Bangladesh's experience contrasts sharply with that of neighbouring countries. In India, the Securities and Exchange Board of India (SEBI) maintains strict oversight of merchant bankers. Firms that fail to originate deals within a specified timeframe face licence suspension or cancellation.
In 2025, India had around 102 registered merchant banks, of which only 25–30 were actively involved in IPO origination. Even so, they facilitated roughly 373 IPOs and SME listings in a single year.
Similar accountability frameworks exist in Pakistan, Malaysia and Thailand, where investment banking licences are directly tied to capital market performance.
'Licenses should be cancelled'
ICB Chairman Abu Ahmed attributed this crisis to flawed policies and political favouritism in the past.
"In the past, far more merchant banking licenses were issued than necessary, and in many cases, political affiliation was prioritised over professional competence. This has harmed the sector. The time has come to weed out the inactive institutions. Those who haven't brought a single IPO to the market in years should have their licenses cancelled immediately," he stated.
A CEO of a merchant bank echoed this sentiment, saying, "If merchant banks limit themselves to their own portfolios and placements, the equity crisis will persist. We have too many 'paper' merchant banks. We should consider merging weak and inactive firms to increase competitiveness."
Private sector forced to go for high-cost bank loans
With fundraising from the stock market coming to a halt, private sector entrepreneurs are unable to implement their business plans, and in many cases, are forced to postpone them. Under these pressures, many have become reliant on bank loans to fund company expansion and sustain ongoing operations.
What is the way out?
HA Mamun, vice president of UCB Investment, proposed a three-step solution to revive the primary market: Ensure only active and capable players remain in the market; Increase the pace and predictability of the listing approval process to regain issuer confidence; Treat the issuance of corporate bonds and preference shares as equivalent to listing mandates to keep merchant banks active.
Rubayet-E-Ferdous, CEO of Shanta Equity, remains cautiously optimistic. While acknowledging that the absence of an IPO pipeline has forced banks to look for alternative revenue streams like corporate advisory and debt instruments, he believes that once the new rules are enacted and market conditions stabilise, IPO activity will see a revival.
