Context
A well-developed financial sector that enables long-term financing for strategic sectors of an economy –corporates, SMEs, infrastructure, housing, and agriculture – is crucial for inclusive economic growth. However, developing economies often experience significant gaps in public and private funding for these key sectors. Mobilizing private sector finance and investment through financial markets is necessary to help the world meet these development funding gaps. Our work focuses on the central question of how to finance development needs through building and creating financial markets and doing so while leveraging private capital and fostering sustainable/climate financing as cross cutting themes.
Strategy
We support mobilizing financial markets to finance the Sustainable Development Goals (SDGs). This involves mobilizing savings from investors such as banks, pension funds, insurance companies, retail investors and foreign investors to strategic sectors through financial markets, including in particular the capital markets. Those strategic sectors are (i) infrastructure, (ii) housing, (iii) corporate and SMEs, including agriculture, and financing adaptation and mitigation efforts to tackle climate change. The approach involves work on three main pillars:
1) Developing/strengthening the enabling environment for long-term finance, via support for the preparation of relevant policies, laws and regulations, for capital markets, capital markets instruments and institutional investors, as well as for the development of key components of the ecosystem, including the government bond markets.
2) Institutional strengthening via capacity building to a wide range of public stakeholders, such as staff from ministries of finance, financial supervisors, and infrastructure, housing and SME agencies, to enhance their understanding of capital markets and long-term financing, and for supervisors to build supervisory capabilities.
3) Developing new financing solutions to mobilize private capital focusing on outcome-oriented instruments such as green bonds and sustainability linked bonds, and other de-risking/blended finance instruments (credit guarantees, equity, first loss) to align the risk-return appetite of investors and catalyze private finance.
This work is done through:
Analytical and advisory services
- Country advisory and analytics: via knowledge and technical assistance to government authorities to mobilize long term finance for strategic sectors; work coordinated with other groups of the Bank.
- Joint Capital Markets Programs (JCAP) with IFC, to develop capital markets as a key mechanism to mobilize financing to strategic sectors; both policy advice and transactions to provide a catalytic effect.
- Participating in Financial Sector Assessment Programs (FSAP), and InfraSAPs, with a focus on assessments of the quality of regulation and supervision of capital markets, insurance and pension funds; and on capital markets development; institutional investors; and mobilization of finance to strategic sectors.
Support to lending operations:
- Supporting lending operations through technical and knowledge inputs on innovative design that can build financial markets or support innovative financial instruments that can better crowd in private capital. Also support to the enabling environment via development policy loans.
- Leading the Bank wide corporate review of financial intermediary loans to enhance focus on development outcomes, leveraging of private capital, financial market development and financial sustainability.
Convening and Knowledge Services to build capacity in financial markets, including through participation in standard-setting bodies and other bodies with regulatory/supervisory roles - eg. IOSCO, IAIS, IOPS, ISSB, FSB, G20.
