Strategic Focus Areas  |   Pillar 4

Developing Financial Markets

Objective
Enhancing financial markets’ development and competitiveness while increasing private sector participation.

Overview
Many countries seek assistance in strengthening and diversifying their financial systems to facilitate greater long-term finance through capital markets and bolster domestic institutional investors. This approach helps deepen the overall financial sector, stimulate competition and innovation, and shift long-term local currency funding from banks to institutional investors. Under this pillar, F4D supports countries in mobilizing long-term finance by attracting private capital, with a focus on various aspects of capital markets (such as bond markets, sukuk, private equity, venture capital, and equity), derivatives, structured finance, securities market infrastructure, institutional investors (including pensions, insurance, and investment funds), and fostering competition within the financial system.

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Priority areas section

Priority Areas

Capital Markets Development and Deepening: F4D focuses on providing guidance and strengthening institutions to create the prerequisites necessary for capital markets to develop. Our projects assist countries in enhancing specific market segments, starting with equity markets, money markets, and corporate bond markets. These segments play a vital role in economic growth and financing for banks, corporations, and SMEs. The team also supports the establishment or modernization of securities market infrastructure, which is crucial for ensuring market efficiency, equitable access, low transaction costs, and asset integrity.

Pension, Insurance, and Investment Funds: F4D focuses support on strategic reforms to ensure sufficient supply of institutional investors’ assets for secure long-term investment for quality insurance products. Another line of work supports the establishment of pension consortium groups to coinvest in infrastructure projects. We provide legal, regulatory, and capacity-building support to insurance sector regulators to develop local markets or prepare more advanced economies for adopting international regulatory standards.

Enhancing Competition in the Financial System: F4D’s work aims to foster more competitive financial systems in EMDEs by creating a level playing field among different lenders, including state-owned banks, private banks, non-bank lenders, and between the banking sector and capital markets. F4D promotes competition policies and institutional arrangements, and measures to lower entry barriers. Efforts extend to defining open and interoperable market architectures including trading and post-trading platforms and payment systems that serve all market stakeholders, prevent concentration, and limit monopolies. Additionally, F4D assists countries in developing digital finance policy and regulatory frameworks to support competitive financing markets, such as “open finance/banking” models.

Office Conference

The work within this Pillar primarily supports client governments in developing more competitive financial markets and increasing private sector leverage. This involves conducting diagnostics and providing technical assistance to governments for implementing reforms focused on:

  • Deepening and strengthening capital markets and securities markets;

  • Strengthening financial markets;

  • Developing and implementing pension systems and reform strategies;

  • Enhancing the capacity of insurance sector regulators and building insurance markets; and

  • Supporting the development of financial products to facilitate long-term financing for sectors like housing and infrastructure.

In Zambia, the market capitalization of listed domestic companies is low at 12 percent, according to the Securities and Exchange Commission, and the variety of products is very limited. The government recognizes the need to expand the breadth and depth of the market to transform Zambia's capital market as an attractive destination for international long-term investment and a primary source of long-term capital. The new Capital Market Masterplan, approved in 2022, aims to implement reforms to unlock long-term domestic finance for development. Teams are providing technical assistance to the securities regulator to implement the plan.

IN FOCUS: Regional Integration to Build Stronger Capital Markets in Central Africa

The development of regional capital markets has been a priority for CEMAC (Central African Economic and Monetary Community) since 2018. Historically, the development of capital markets in CEMAC has been hindered by rivalries between the regional stock exchange, BVMAC (Bourse des Valeurs Mobilières de l'Afrique Centrale), and the Cameroon Stock Exchange. However, under the leadership of the BEAC (Banque des États de l'Afrique Centrale), the two stock exchanges merged in 2019.

The World Bank has been supporting the BEAC throughout this reform process through two projects. These projects financed technical assistance for the development of new regional capital markets regulations, conducted analytical studies on private equity and venture capital and real estate investment trusts, and supported investments in the acquisition of a centralized securities depository and capacity-building initiatives. The authorities remain committed to this agenda and aim to consolidate their efforts with second-generation reforms to develop dynamic and sustainable capital markets.

The F4D grant supports regional authorities to develop inclusive and sustainable capital markets that effectively contribute to expanding long-term finance in the region. This work aligns with the updated Regional Integration Strategy (FY21-23), which focuses on supporting the continent's recovery from crises and promoting economic transformation through regional integration. The strategy emphasizes trade and market integration and identifies the development of long-term financial markets for infrastructure, housing, and SMEs as a priority.

The team plans to support the Commission de Surveillance du Marché Financier de l'Afrique Centrale in drafting instructions to facilitate the implementation of the regional capital markets law as well as supporting the development of market instruments such as venture capital and private equity as well as real estate investment trusts.