How can capital markets channel private investment—including trillions held by institutional investors—into strategic sectors of the real economy that create more and better jobs?
This session examined building blocks for robust capital markets and highlighted the experiences of Morocco, Indonesia, and others backed by the World Bank Group’s Joint Capital Markets Program (JCAP). These building blocks—strong legal and institutional frameworks, transparent and consistent regulations, scalable markets, liquidity, and replicable business models—are essential to attracting and sustaining investor interest. Through JCAP and other initiatives, the World Bank Group provides partner countries with a range of support—spanning policy reform, knowledge sharing, financial support and transactions—to contribute to capital market development.
Recap from panelists:
Deep and liquid domestic capital markets unlock long-term financing and reduce reliance on external debt, contributing to macroeconomic resilience. They help finance strategic sectors such as infrastructure, manufacturing, agribusiness, healthcare and enable SMEs to grow and create more and better jobs.
Strengthening legal and institutional frameworks, growing institutional investor bases, deepening local currency bond and money markets to reduce foreign exchange risks, and capacity building through cross-country knowledge exchanges all contribute to capital market development.
Morocco’s New Development Model, launched in 2021, requires private investment to meet its goals for human capital development, inclusive economic transformation and sustainability, inclusion and social protection, and governance, resilience, and local development. The Moroccan government set a national vision for how to develop capital markets, including participation from retail investors. While navigating an uncertain global financial environment, they improved the financial and regulatory ecosystems by licensing professionals, keeping information and regulations open and transparent in order maintain confidence in markets, and aligned domestic regulations with international standards. Expanding financial literacy and adopting new technologies remain a challenge.
Financing large scale infrastructure projects is a major national priority for Indonesia. The Government is encouraging PT Sarana Multi Infrastruktur (SMI)—with its US$3.5 billion outstanding in capital market products, including conventional, green, thematic, and sharia-compliant bonds—to transform into a development finance institution (DFI) which can support regional development.
Volatility in global markets raises the appeal of domestic capital markets as alternatives. As the dollar weakens, local markets in EMDES could become even more attractive for global capital, as long as they are committed to developing their domestic capital markets
Participation in indexes can really pay off. For example, India attracted $25 billion more in capital when it joined the JP Morgan emerging markets bond index. Institutional investors, such as JP Morgan, consider the following criteria when looking to invest in a particular market.
Onshore access: Investors must be able to process transactions, either through global platforms such as Euroclear or through access to a local custodian with minimal restrictions.
Quick win: Standardizing definitions for impact and sustainable investments between emerging markets and private sector in advanced economies would harmonize and facilitate reporting and disclosures.
Bond liquidity: If international investors are going to invest in a local market, they will need to have the liquidity to support two-way pricing to facilitate market entry and exit.
FX liquidity: capital controls or equivalent limits on transacting local currency are a deterrent for global investors.
Transparency: Transparency in the local market in the issuance schedule and the rules of Government bond auctions is very important for building international trust and market credibility.
From IFC’s perspective, policy reforms are key drivers of domestic capital market growth. Key building blocks of domestic capital markets include functioning money markets, government bond markets and pension funds. Stable and transparent capital markets for investors and businesses lays the groundwork for the capital markets to channel financing to the real sector.