The World Bank (WB) has suggested establishing a regulatory authority for private provident funds to oversee the operations of those.
According to the Bank's sectoral review, more than 600 provident funds are active, which cover several million workers in Bangladesh.
Such provident funds manage an estimated $2.0 billion and the WB suggested investing a portion of it in the capital market.
The Washington-based multilateral lender made the suggestions in a note on the capital market development project submitted to the government recently.
According to the note, these provident funds have no formal registration requirements apart from the enlistment with the National Board of Revenue, NBR, for the tax purpose.
"…there is no central registry of the number or size of these funds, and there is no on-going oversight of their operations," said the memo.
It said the supervisory oversight responsibility of provident funds needs to be assigned to an appropriate ministry or the financial sector authority.
The legal and regulatory framework for the provident fund sector remains fragmented.
"The fragmented nature of the legal and regulatory framework covering provident funds needs to be harmonised," the Bank said, suggesting the formation of a central oversight authority.
Presently, there are some authorities who have the responsibility to oversee provident funds on their parts.
The state-run Department of Inspection for Factories and Establishments, or DIFE, being empowered by the labour law, asks several questions on provident funds as part of its inspection check list of the companies.
Besides, the central bank receives reports on bank-sponsored provident funds twice a year.
The absence of a sole supervisory responsibility is not in line with international good practice and it raises consumer protection issues, according to the note.
Finance ministry officials said the government is exploring ways to bring more funds from every possible source to make the stock market more vibrant.
The government wants a portion of the provident fund to be invested in the share market to address liquidity shortage in the volatile bourses.
The World Bank officials have spoken to the provident fund managers who stressed "guarantee" before those can be invested in any capital market instruments.
Currently, the provident fund managers invest only in some highly secured instruments such as government securities, national savings certificates, and deposit schemes in banks.
