Human capital development for markets suffers a chicken-and-egg problem

Highlights: Bangladesh capital market needs qualified professionals

• Underdeveloped market discourages qualified professionals
• Lack of skilled professionals hinders market development
• Market firms used to attract talents from top business schools
• The long distressed market made it tough for firms to retain them
• Unethical practices had reduced demand for a global standard
• Love for speculation hinders demand for research-based services
• Investment demands combined knowledge, skill, prudent and ethics
• Many people comment before understanding the capital market matters
• Most institutions lack sound investment professionals and strategies
• The number of qualified professionals is increasing again 
• Different programmes are educating them

The investment industry demands proper analysis and prudent decision making, which is impossible without trained and skilled professionals.

In Bangladesh, the development of human capital for the markets has got stuck in a vicious cycle where underdeveloped infrastructure and practices hinder attracting to and retaining talents in the capital market industries.

At the same time, a lack of qualified professionals is a major cause behind the underdevelopment.

The potential capital market needs to get rid of the existing chicken-and-egg situation, said experts in a recent webinar titled "Human Capital Development in Capital Market," organised by The Business Standard and the City Bank Ltd.

The need for specific qualifications 

Professor Shibli Rubayat-Ul-Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), said a lack of qualified market professionals is a crucial reason behind the slow pace of the capital market development in Bangladesh.

"Many people comment on the market, criticise the acts of market-related entities and institutions, but it is often clear that they barely understand the matters well," he said.

Investment activities do not demand the knowledge of economics, accounting, or finance alone; it rather needs a combined knowledge, decision-making skill and prudence to understand the pulse of markets, said Shahidul Islam, the immediate past president of Chartered Financial Analyst (CFA) Society Bangladesh, also the managing director of VIPB Asset Management Company.  

Most of the institutional investment portfolios, including those of some large mutual funds, state-run market giant Investment Corporation of Bangladesh, banks, financial institutions and insurers, reflect that there lacks a sound investment strategy, risk management due to not having qualified investment professionals in teams and boards, said Md Moniruzzaman, managing director at IDLC Investments and also a vice-president of Bangladesh Merchant Bankers Association.

Bangladesh stock market is severely suffering for weakened institutional investors.

In Bangladesh, prominent economists often say that the stock market is a casino-like-place, and it has no connection with the economy.

"It happens when asset price does not reflect its intrinsic value at all," said Shahidul Islam adding, "Strengthened participation of qualified professionals can rationalise the investment industry activities and the market behaviour."

A qualified professional can significantly change the results of an investment firm, and the market needs them more and more, said the BSEC chairman, who himself was the dean of Faculty of Business Studies at University of Dhaka before he joined the securities regulator recently. 

The good beginning in 2000s and the fallout

Some top capital market institutions began to attract young talents, including MBA toppers, from top business schools of the country, also from abroad in the 2000s.

But prolonged market distress did not help retain them in the industry, said Moniruzzaman.

The capital market intermediary industries are now overcrowded, compared to the size of the capital market and its yields low income for the firms and also for the talents there, he added.

Mohammed Rahmat Pasha, managing director at UCB Capital, said his firm invests a lot to attract and retain qualified market professionals. But a lack of diversified products and low industry revenue hinder keeping them engaged for long.    

Mamun Rashid, former managing director at Citibank NA in Bangladesh, now a senior partner at PWC Bangladesh, believes unfair industry practices discouraged talented professionals over the last decade.

He informed Citigroup Global Markets, the investment banking wing of New York-based Citi Group, had been operating in Bangladesh until a few years ago.

In late 2000s, its Bangladesh operation was headed by a Yale MBA. The firm was behind the listing of Grameenphone – the biggest event in Bangladesh's capital market.

Better financial modelling, price discovery methods, information memorandum, due diligence all turned valueless when the then securities regulator began to prefer approving initial public offerings based on "pre-arrangements" instead of merits over the last decade.

Citi's world-class professionals were discouraged when they saw some less qualified market professionals got priority in the regulator's office because of "mere relationship or allegedly behind the screen deals".

In the 2010s, the value of market professionals began to depend on how quickly they can manage the regulator. It is like the appeal of some low profile attorneys with expertise in managing quicker bail at any cost, said Mamun Rashid, who is still recalled for becoming a bank chief executive officer at his young age.

However, Citigroup Global Markets had surrendered its investment banking licence in Bangladesh later, instead of selling it to any other party.

Some of the professionals within its then Bangladeshi investment team are now successfully working at international financial centres across the world.

Amid the fight between professionalism and relationship with the regulator, Rashid had applied to the BSEC for an asset management company licence a few years ago and the then BSEC leadership did not respond despite the firm got international partners who themselves were market experts in Europe and Hong Kong. 

"Disowning the blackened last decade, the capital market cannot go far," Mamun Rashid commented.

Professor Shibli Rubayat-Ul-Islam, the new BSEC chairman, acknowledged the expert and public expectation for positive changes and he discussed the necessary measures his commission has already taken and is going to take for the sake of the capital market development.

Hopes coming back

The BSEC and stock exchanges have their own training arrangements for market professionals and mass investors. The regulator has already built two separate market education institutions, namely Bangladesh Institute for Capital Market and Bangladesh Academy for Securities Market.

A large number of individuals are learning under diversified programmes there, Chittagong Stock Exchange's Managing Director Mamun-Ur-Rashid emphasised for a bigger effort there to mass financial literacy.

Due to connectivity disruption, he talked to The Business Standard over telephone later.

A lack of financial literacy is a serious cause of structural and behavioural programme in Bangladesh capital market, which is awaiting new products like debt securities initially and derivatives later.

The insurance industry is growing, and unfortunately, it suffers qualified human resources, especially in the field of actuarial science.

The government took a five-year programme to send 25 young talents to the United Kingdom to make them actuaries under attractive scholarship, informed the BSEC chairman, who is also a professor at Insurance and Banking at Dhaka University.

Ethics in investment profession is very important, and the CFA programme for market professionals and regulatory officials seriously upholds ethics in education and practices, said Shahidul Islam.

Despite being a bigger economy, Bangladesh lags behind peer countries such as Vietnam and Pakistan in terms of the number of CFA charterholders and exam takers each year, said Shahidul Islam.

However, in recent years, especially after the CFA Society Bangladesh came to the scene to inspire young local talents to pursue the specialised professional programme the situation is improving.

Bangladesh has now around 130 CFA charterholders and around 700 are taking the CFA exams each year, of them, 150 are enjoying a scholarship.

Many officials from the central bank, the securities regulator and other relevant government offices will pursue the programmes for professional excellence the easier it would be for investors and the private sector to better communicate for progress, said Shahidul Islam.

Rahmat Pasha said international investors and clients value the global professional standard within teams and Bangladesh needs to adopt the standards faster based on which the world's best firms decide things.

Moniruzzaman said local investors' preference for speculative investments hinders the demand for research-based services here and that is why only a few market firms spend for having a research team, while running a market intermediary without a research team is rare in peer countries, even in neighbouring India.

A higher number of qualified professionals will come and they will create demand for high value services, the market would grow bigger, and thus, the capital market of Bangladesh will turn the current vicious cycle into a virtuous one, hopes Shahidul Islam.

Rahmat Pasha called for a rapid improvement in corporate governance, disclosures and market practices to accommodate newly qualified professionals in the market.