Over the past three decades, Bangladesh's capital market has passed through several phases of development, marked by market automation, institutional expansion, regulatory reforms, technological transformation and the gradual emergence of professional fund management. These changes reflect both the evolution of the market and the broader development of the country's financial sector.
Unlocking Bangladesh's economic potential will require a capital market that is more diversified, technologically integrated and institutionally mature, and better able to mobilise long-term capital for sustainable economic growth.
Capital markets as a foundation for industrialisation
Bangladesh's capital market remains predominantly equity-based, with limited participation from bonds, mutual funds, exchange-traded funds, index products, derivatives and other diversified financial instruments.
In an equity-dominated market, investors generally benefit when share prices rise. When markets decline, however, they have relatively few alternatives for protecting portfolios or managing risk.
The lack of a sufficiently diverse range of investment products also limits institutional and international participation. Market disruptions, particularly those experienced in 1996 and 2010, continue to affect investor confidence. Memories of excessive leverage, speculation and financial losses have made many local and foreign investors cautious.
Bangladesh therefore needs a broader investment ecosystem that includes bonds, professionally managed funds, exchange-traded products, index funds, securities lending and borrowing, derivatives and other appropriate instruments.
Product diversification can reduce excessive dependence on equities, improve risk management, encourage institutional investment and contribute to a more resilient market.
The country also needs to encourage more large domestic companies and multinational corporations to list on the stock exchanges.
At present, a relatively small number of listed companies can exert considerable influence on market indices. As a result, index movements do not always accurately reflect the performance of the broader economy.
Integration before intelligent automation
Stock exchanges, clearing and settlement systems, banks, custodians, regulators, brokers, merchant banks and asset managers must eventually operate within a secure and interconnected technological framework.
AI cannot deliver its full potential in a fragmented environment. Before pursuing extensive AI adoption, Bangladesh needs to strengthen its national clearing arrangements, regulatory technology, cybersecurity, banking connectivity, data governance and institutional integration.
Building an AI-enabled financial system is like constructing a high-rise building. Before the upper floors can be completed, the soil must be tested, foundations laid and the structure made sound. AI adoption requires the same discipline.
Reliable data is the lifeblood of AI
One of Bangladesh's most significant constraints to AI adoption is the limited availability and quality of reliable data.
AI-generated information can appear polished and authoritative while still being inaccurate, outdated or based on an inappropriate methodology.
Every AI-generated figure should therefore be verified against official market information, audited financial statements, regulatory disclosures and clearly defined methodologies. Financial professionals must also understand whether a figure refers to equity-market capitalisation, total exchange capitalisation, a particular market segment or another measurement basis.
Bangladesh needs comprehensive data centres, structured repositories, standardised reporting practices and accessible corporate, sectoral, market and macroeconomic information. Better data infrastructure would improve AI-supported analysis and help international investors assess the country with greater confidence.
AI should enhance human judgement, not replace it
AI can process large volumes of information, identify patterns, compare companies, monitor portfolios, support forecasting and perform repetitive analytical tasks much faster than traditional manual methods.
However, AI remains a tool. It does not eliminate the need for human knowledge, ethical judgement, professional accountability or contextual understanding.
Sound investment analysis requires an understanding of company fundamentals, cash generation, management quality, discounted cash-flow analysis, valuation, growth prospects, industry dynamics and risk. AI can assist with these areas, but it cannot assume responsibility for an investment recommendation.
The most effective framework is therefore likely to be a hybrid model.
AI can provide speed, scale, consistency and analytical support, while qualified professionals provide judgement, interpretation, accountability and an understanding of each investor's circumstances.
Human advisers will remain particularly important when decisions involve individual financial objectives, behavioural considerations, ethical questions, complex risks or the need for explanation and reassurance.
Trust requires more than honesty
A transparent financial recommendation should explain the data used, the assumptions made, the associated risks and limitations, potential conflicts of interest, and the circumstances under which the conclusion could change.
AI-supported recommendations should also disclose whether AI was used, how its output was validated and who is accountable for the final decision.
Clients should never be left with the impression that an algorithm has removed uncertainty from investing.
Trust cannot be automated. It must be earned through responsible conduct, clear communication, professional competence, transparency and accountability.
Building skills and an adaptive culture
Bangladesh remains at an early stage of AI adoption. Only a limited number of professionals currently possess the combination of financial knowledge, data literacy, analytical expertise and practical experience required to work effectively with AI-enabled systems.
Financial professionals increasingly need competencies in data processing, advanced spreadsheet analysis, Python, statistics, machine learning, cybersecurity and AI governance. Technical knowledge alone, however, is not enough.
Adaptability is becoming a core professional competence. Individuals and institutions must be willing to learn continuously, revise established practices and apply new technologies responsibly.
For AI to deliver sustainable value, adoption must be underpinned by three essential elements: capable people, effective processes and a supportive organisational culture. Without these foundations, even sophisticated technology may fail to deliver meaningful results and could produce unreliable or adverse outcomes.
AI literacy, data analysis, critical thinking and responsible technology use should be introduced progressively throughout the education system.
Universities and professional institutions can establish specialised programmes that combine finance, economics, communication, technology, ethics and data science.
The objective should be to develop professionals capable of questioning, validating, managing and governing intelligent systems.
Regulators must be guardians and enablers
AI can strengthen market surveillance, detect unusual trading patterns, improve compliance monitoring and identify potential risks, contributing to greater transparency and investor confidence.
To support responsible AI adoption, clear standards are needed for model governance, accountability, data protection, cybersecurity, transparency, conflict-of-interest management, human oversight and investor protection.
A coordinated national approach
Bangladesh needs both bottom-up and top-down approaches to AI adoption.
The bottom-up approach should focus on education, professional training, public awareness, digital literacy and the development of future talent.
The top-down approach should involve the government, regulators, educational institutions, financial organisations and industry leaders in developing standards, infrastructure, incentives and governance frameworks.
The private sector can serve as the engine of growth, while technology and innovation can provide the fuel.
Restrictions affecting international payments and foreign-currency transactions can make legitimate subscriptions to international technology, research and data services difficult for Bangladeshi professionals and institutions.
Appropriate and controlled regulatory arrangements should therefore be considered to facilitate access to essential international technology, research and data services.
The next three to five years will be critical in building the foundations for responsible AI adoption. With sustained and coordinated effort, significant transformation could become visible over the coming decade.
Kh Asadul Islam is the Managing Director and CEO of Alliance Capital Asset Management Ltd
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
Originally published in The Business Standard: https://www.tbsnews.net/thoughts/preparing-bangladeshs-capital-market-ai-1561156