Financial Institutions

Domestic capital is the driving force behind any country's development, and effective domestic financial institutions are one of its most important facilitators, as these are the key channels between savings, and investment, a determinant of a country's economic growth. At the same time, foreign investment has a critical role to play, for it also brings foreign technical knowledge, competitive pricing, and higher standards of disclosure and performance. On developing the financial sector, the study looks at how to build financial infrastructure, and identifies the following areas, many developing economies are addressing: promotion and regulation of private sector financial institutions; regulation, and structures of investment funds, pension funds, and other institutional investors; funds mobilization; policy formation regarding sectoral development; and, creation of market systems. It is highlighted that progress must be made at both the institutional level, and at the regulatory level, summarizing the need for strong management, and governance, sound banking practices, to create a level playing field with adequate local counterparts. This requires strengthened local intermediation that provides venture capital funds, and lending activities. The International Finance Corporation's (IFC) efforts in attracting international capital is concentrated on policy advice and technical assistance, portfolio investment funds, and private equity funds among others. Future directions will be in creating local currency vehicles for savings, and investing; on helping authorities and private institutions adapt to globalization; on meeting the needs of a growing middle class, and business environment; and, on assisting in deepening bond markets.