Will our money find its beloved investors?

Some days ago, I met a company secretary who was planning to knock the capital market for the finance required for its targeted growth. The cost of doing business for the company has risen around 50 percent due to the recent spike in the bank interest rate projected to fly to 15 percent soon.

Meanwhile, the capital market is waiting with yields at 8-10 percent. So, the company walked to a path once shunned due to fear of strict regulations hanging with a public limited entity.

However, this is not the case everywhere.

Banks appear as kind angels to depositors who are coming back in big numbers liberating their money from the imprisonment of house mattresses, insurance companies, non-bank financial institutions and the capital market. So, the hike in interest rate is likely to increase the finance-applicants in the capital market while decreasing its finance-suppliers.

The bank market is going to witness the opposite picture. It is not unlikely that banks themselves will turn to the capital market for low-cost funds causing a further flying of deposit money to costly savings certificates -- another imbalance in the economy.

While the switching of corporate entities to the capital market will be welcomed by economists, the shrinkage of investors will make them worry. The market, which witnessed a decline in turnover to Tk 500 crore in November from Tk 1,400 crore last year, is very likely to notice a further fall.

Market-based interest and exchange rate alone can't assure us of a bullish capital market since the bull itself is made of broken bones. Low-performing stocks whose bank accounts are frozen for allegations of corruption clinch the "top gainer" title.

To restrain the freefall of the market, the free flow of money has been compromised. Still, fresh companies are mulling to buy tickets here. Are they going to supply much-required nutrition for the market or injure it through fresh speculation?

Why are the players of our financial market so hurry to jump from one place to another? A deep look into the matter indicates that the players are misplaced. In fact, a bank is not an ideal place for shareholder investors. It is the abode of savers who are expected to crowd here to rent a breathing place for the rainy season. The capital market should have offered a permanent living for investors.

The orientation of our companies is also not on the right track. Most companies crowd banks to feed their long-term projects while a bank has been historically born to serve the short-term plate of working capital. As a consequence, we have a lot of imbalanced banks, which might fail to meet the demand of depositors amid the slow return of long-term projects.

Then isn't there any road to offer us an exit from the current labyrinth created by the recent rise of interest rates?

A vibrant bond market can save both shareholder investors and companies by meeting their expectations. Though bond offers us freedom from intermediaries, the associated fixed income and transaction fees demotivate investors whose orientation develops based on speculation.

It is understood that our government wants to rein in inflation by the pill of interest rate. However, an imbalanced financial market is likely to lead to the path of recession, which is a worse evil than inflation.

If our market offers the right place for the right players, we will have healthy entrepreneur companies, shareholder investors, savers, and banks – all leading to a healthy financial landscape where an ideal marriage between a company and an investor would occur after setting free our money from the genie of speculation.

The author is a banker