“Global Financial Development Report 2015/2016,” published by the World Bank, September 2015, 211 pages, available at http://www.worldbank.org/en/publication/gfdr/report
This report presents how long-term finance may lead to growth and prosperity in developing economies, based on research and analysis of the global financial services market and in addition recommends policies that the authors believe would increase it. According to the report, the use of long-term finance, which is defined having a time horizon exceeding one year, is more restricted in developing countries, especially for smaller firms and poorer households. The availability of equity is limited for firms of all sizes. In addition, the 2008 financial downturn reduced leverage by 0.3 percent for large firms and 1.56 percent for small and medium-sized firms .
In order to encourage longer investment maturities, the authors argue that policy makers need to focus on institutional reforms, such as promoting macroeconomic stability, establishing a regulated and legally enforceable banking and investment system that protects creditors and borrowers, and improving the framework for capital markets and institutional investors .
Whilst institution building is a long-term process, the authors additionally suggest various strategies that can offer quicker results. For small firms, they advise the use of leasing to gain access to long-term finance. Larger firms should make more use of foreign investment, since evidence suggests that domestic investors hold less long-term domestic debt than foreign investors, even though the authors concede that this will make these firms more vulnerable to external shocks. Finally, to increase long-term finance among households, stakeholders may seek to improve the flow of information that can help increase individuals’ awareness of issues such as consumer protection .
By Kevin van den Brink, Research Associate
About the World Bank Group
The World Bank Group (WBG) is a US-based development bank that consists of five institutions, all of which are owned by its member countries. The Group’s mission is to improve living standards for people in the developing world. WBG encompasses the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); the International Centre for Settlement of Investment Disputes (ICSID) and the World Bank, which consists of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). As of June 2015, WBG has a total net loan portfolio of USD 157 billion and an equity-to-loans ratio of 25.1%.
Sources and additional resources
 The World Bank: “Global Financial Development Report 2015/2016,” http://www.worldbank.org/en/publication/gfdr/report
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