Jackson Barngetuny-ag CFO Ministry of Nairobi Metropolitan Development, Kenya Financial Markets and Institutions: (The Key to Private Sector Development in. PDF | any disadvantage regarding the course material, as all the salient IMPORTANT NOTE: Financial Market Participants and Institutions. PDF | On Jan 1, , Geoffrey Underhill and others published Financial Markets , Institutions, and Transaction Costs: The Endogeneity of Financial Governance.
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includes financial markets and institutions, tax and regulatory policies, and the state of the economy. The environment both determines the available financial. 1. Financial markets and institutions of the financial market. FINANCIAL MARKETS. Businesses, individuals, and governments often need to raise capital. On the. Corporate Finance Theory. Melvin. International Money and Finance. Mishkin/ Eakins. Financial Markets and Institutions. Moffett. Cases in International Finance .
However, there must be prior adequate and predictable market institution to cater for both their interest and that of the local market they participate in. By Gerald Munyoro. There should be a deliberate effort to develop capital market to include swap market, bonds market and equity market. There should be collaboration among nations to enhance free labour mobility across the global markets to reduce the high rate of unemployment. Though they also play significant roles in the private sector development, many are blocked by informal sector and collateral required by commercial banks.
Governments had better remain as the regulator and supervisor of the private sector by setting up appropriate investment and other policy incentives to attract local and foreign investments. Take the credit rating as a tool in the financial sector. Infrastructure is the backbone of sustainable economic growth and development. If all the public utilities were to be left to the government, like has been the case for a long time, the impact would be slower and clumsier with the possibility of stopping investment.
Involvement of the private sector in the area could directly spur investment progress. Worrying is the trend where the entrepreneurs have to contend with poor roads, railways, and telecommunications everyday in pursuit of profits.
The private sector should be allowed to build roads just like they have done and excelled in telecommunications.
Bannock G. As financial markets are experiencing the convergence of the banking, insurance and securities industries, commensurate legal and financial reforms should be undertaken to accommodate the changes. This can deepen and encourage private sector to participate in project financing and development.
A policy to guide the Public-Private Partnership PPP arrangement would attract more investors and at the same time facilitate creation of favourable investment environment.
The model can be used in heavy capital infrastructure like roads, telecommunication, airport, and electricity generation among others. This policy direction is likely to add investment opportunities and also acts as an enabler for business in the private sector. To be left squarely on the heavy shoulders of the government is maintaining and strengthening role of strategic planning of infrastructure sectors.
It, thus, should identify priority areas for private sector participation and the level of complementary support. Banking reform: Others were reducing government intervention in credit allocation, loosing interest rates controls, recommending standard accounting and prudential norms.
In developing economies, many people do not get access to banking services and instead are left to the insecure traditional money lenders and pyramid schemes.
It behoves governments to open up the banking sectors to allow more players in the market. However, central banks should increase the capital adequacy requirement for the commercial banks in pursuit of stable financial base. Policies should be in place to allow banks to raise finance from the public through capital markets. Capital adequacy can also be addressed by encouraging small indigenous banks to merge or go for strategic alliances with foreign banks.
Commercial banks should develop effective methods for their screening process and have procedures for taking collateral before advancing loans. Related to this should be the setting up of mechanisms for loan monitoring especially the actual projects in order to reduce high occurrence of non-performing loans.
Among other gains, this is expected to spur healthy competition within the private sector. Commercial banks should be allowed and encouraged to open up branches without restriction if they meet the criteria in order to reach more people through retail banking.
Free interest rates and micro-credits will encourage broader participation which will boost private sector expansion through market efficiency and excellence of business processes. Another imminent challenge facing the monetary authorities, particularly in the SSA, is inflation.
Inflation is a challenge to the banking industry and private business especially when sourcing for raw materials and selling finished goods and services in a liberalized market. Increasingly, the international trend is to define price stability or the achievement of low price inflation.
An independent Central Banks should act as the monetary authority in a financial system with the major objective of creating and maintaining stability. Many governments have continuously interfered with the workings of the Central Bank, erroneously putting them under the watch of the 6 jacksonbarngetuny yahoo.
For instance, Kenya classifies its central as a parastal under the Ministry of Finance. A sound banking system would be a distant dream without an independent commission to find out on, introduce, implement, and nurture international norms and standards — for regulation.
Such a body would also be apt for harmonizing regulations and supervisory procedures by encouraging more co-operations between commissions and monetary authorities to improve exchange of information. In SSA, financial services revolve around personal relations and reputation in the market. A number of informal institutions lend to members only and cannot mobilize savings from non- members.
As a result, many people in low income bracket lack access to financial services. These are due to challenges in contract enforceability and weak monitoring. Though they also play significant roles in the private sector development, many are blocked by informal sector and collateral required by commercial banks.
A specific product for this constituency of microfinance would be necessary for the market. Microfinance will empower the poor population to get out of the yoke of poverty and hopelessness to possibly become important stakeholders in the economic developments. Availability of microfinance can increase the disposable income that eventually creates market for goods and services. Micro-finance institutions MFIs would thus expand and start offering investment education to their borrowers and the potential members.
Many people have practicable business ideas but lack the muscle to approach financiers, for fear of failing to service the loans. Capital markets: There should be a deliberate effort to develop capital market to include swap market, bonds market and equity market.
Capital markets are a tool to mobilize and influence application of financial resources in favour of private sector development activities. Accordingly, private sector requires predictable and transparent financial system to thrive. Well functioning, secure, efficient payment systems are an intrinsic component of the operation and development of financial markets. Capital markets authorities should take the role of supervision and regulation leaving the operations and management for the stock exchanges.
To ensure harmony that creates synergy of purpose, a dynamic financial system needs to focus on developing the market supervisory and regulatory authorities.
The institutions will coordinate and enforce transactions and expectations of investors. Capital Market Authorities should be instituted by law, run by independently appointed and mandated professionals, and endowed with independence to effectively supervise and regulate markets and participants.
A vibrant private sector will require efficient settlement and clearance of transactions. Central Securities Depository CDS is a financial infrastructure linking the capital markets and to the central banks to enable secure and efficient payments within the capital markets.
CDS facilitates sound and efficient modern payment systems, and incorporating new information and communications technologies ICT , which are the technological determinants and enablers of e- banking, e-finance and more generally, of e-services.
ICT has completely changed the way business is run across the globe because it is a key pillar that supports markets for easy coordination and management. Going by this, using the latest technologies in finance would pass greater benefits to the private sectors for development. ICT has affected the transfer of finance and financial services to different markets to support private sector development. The implementation of the dematerialization has tremendously boosted the private sector through faster and safer investments procedures.
Stock exchange is one of the key markets, especially for equity, investors are keen on predictable entry and exit options for fair competition, dictated by the laws of demand and supply. Such a market should be demutualized as a matter of priority to increase the level of transparency and accountability. Financial systems should allow multiple stock exchanges to facilitate healthy competition of free market economics, which will champion the interest of the investors.
A robust stock market generates positive vibes in the private sector. The performance of private sector also comes on the spot when market fundamentals are adhered to. The trading activities will reflect confidence investors have in the traded corporations.
Equity market should embrace 8 jacksonbarngetuny yahoo. Exchanges should be operated like private entities to ensure, among other things, international competitiveness and the introduction of new technology and financial products.
For an open economy to remain competitive it is necessary to develop a strong swap market to build and maintain stable and fixed income markets. This will also help to mitigate the risks associated with lack of market depth for local currencies and reduce legal hurdles.
This will encourage the use of cross currency swap to complement offshore borrowing. The result of which is the availability of sufficient finance for the private sector without increasing the public debt obligation. This instrument will only require credit rating without a sovereign guarantee, which ultimately promotes macro-economic stability.
Particularly, the system should encourage the use of corporate bonds to create more investment opportunities. The more private sector use more financial instruments, the more dynamic and versatile the markets become. This also reduces the overall cost of doing business enhancing an accelerated private sector growth.
Venture capital is another instrument that can be traded in the capital market to ensure that any viable business ideas are transformed into practicable business models.
Research shows that many potential business projects in developing countries are not implemented because of the lack of venture capital due to weak markets and underdeveloped financial institutions. Trade and Investment Trade has been identified by some experts from developing world as the new way out of the dwindling economic reform package urging for fair trade practices and not just a mere grant and financial aid.
The private sector lacks the muscle to have a go at the international trade, as the door to bigger markets. The issues refer to four working groups set up during the WTO Ministerial Conference of in Singapore, namely investment protection, competition policy, transparency in government procurement and trade facilitation. This has been one of the thorny debates between the North and South, with many research findings indicating that investment would help build sustainable economies of the developing countries as opposed to aid and grant.
Concerned countries should act fast to accelerate market reforms favourable to local and foreign investors. There should be in place simple and complete dispute settlement mechanisms and procedure.
Though disagreements existed at the Ministerial Conference in Cancun, Mexico, largely between developed and developing economies, the contentious issues are modalities and procedures. In July , WTO Members formally agreed to launch negotiations aimed aim to enhance technical assistance and capacity building in this area and to improve effective cooperation between customs and other appropriate authorities on compliance.
This is likely to encourage opening up of more markets and more investment opportunities in the private sector.
Though the international business community still expresses concern for greater transparency, efficiency, and procedural uniformity of cross-border trade, markets and institutional reforms have attracted huge foreign investment in China, India, and Brazil among others.
There is also a synergy that can be created when appropriate focus is directed at import and export especially on cultural items and goods from micro and small businesses. International trade procedures, insurance and financial requirements, electronic facilities, and evaluation are some of the areas of markets and institution that call for urgent attention. The simplification of documentation requirements; official procedures; automation and use of information technology; transparency and consistency; and modernization of border-crossing administration, would bring to the fore private sector extended market base.
Foreign Direct Investment FDI comes with the benefits of technological advancement to the host country and in return the investors get the local market.
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