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 .
Real vs. Nominal Interest Rates Basic Terms: An asset is anything of durable value, that is, anything that acts as a means to store value over time. Real assets are assets in physical form e. Financial assets are claims against real assets, either directly e. Securities are financial assets exchanged in auction and over-the-counter markets see below whose distribution is subject to legal requirements and restrictions e.
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Academy of Management Review, 23 2 , — Statistics show that the country has actually seen real income fall in the last half a century Penn World Tables in contrast to majority other countries in the region where real income has typically doubled since Poor legal and institutional frameworks leaving property rights in uncertainty has eroded investment confidence in the private sector.
Institutions governing transactions and financial markets often fail to provide business and citizens — especially small-scale enterprises and poor households — with means to save, insure and obtain credit. In a region where financial transactions rely heavily on the informal system, both local and foreign investors are keen to see efficient and effective legal redress structures operational. It would require attitude change and approach to educate the population about the benefits.
This seems to have created a financially illiterate population with less disposable income to invest or spend to spur growth and development of the private sector.
Africa, especially the Sub-Saharan Africa SSA regions, is still bearing the brunt of the least developed region even after half a century of political freedom because of slow pace to reform and develop its financial markets and institutions to induce and encourage investment in the private sector. Lack of proper ways and means to promote financial literacy has been a big impediment to business development and financial securities across the world, particularly the developing nations.
Parliament, as the law making body, should play a proactive role by making sure that there are adequate legislations protecting property rights. Corporate governance, integrity, transparency and accountability are very pertinent while building strong financial markets. Without which, there is imminent threat to growth and development.
The institutions remain largely fragmented with substantial gaps in financing economic activities by private agent. It also suggested that continuous poor performance of financial system can be partly explained by the high degree of financial fragmentation Aryeetey et. The private sector investors need clear governance and legal structures to give confidence about fall back mechanism, which could be done by, building new institutions and modernizing the existing ones to seal off any leakage in the financial system to support and sustain private sector growth.
For institutional development to penetrate the continent, Africa should be cautiously weaned on taking along its cultural diversity to generate affinity and acceptance.
In the research findings UNU-WIDER , in SSA economies, formal institutions co-exist alongside informal traditional institutions as a result of modern institutional structures being superimposed on the traditional society, often without necessary adaptations. The financial markets and institutions in most developing worlds still suffer from imperfect, costly and incomplete information seen in a plethora of informal bodies hardly worth classifying as effective and complete.
What is lacking? Let us vaguely call it investment education. Without requisite education, the private sector ends up with a heap of dead businesses, when they fail to compete or lose focus. In his book, Economics for a Developing World, Michael Todaro underscores the importance of human resource. Just as a warning, this should not be tied to the wan method of rote learning, but designed to equip the interested leaner with knowledge that would make existing business expand and other potential entrepreneurs, roll up sleeves and work.
This education should excite the learner on a particular segment of business, not the characteristic copious notes for passing theory. This scenario means the private sector is under siege, is shrinking, and slowly repelling because it does not have success stories. Investing in human capital is another way to take private sector development a notch higher.
There should be collaboration among nations to enhance free labour mobility across the global markets to reduce the high rate of unemployment.
There should be a clear policy focus on public and private sector investments targeting education and on-the-job training to increase efficiency in the private sector and at the same time create more opportunities.
More and better educated labour-force is a prerequisite for rapid economic growth and social equity necessary for a progressive private sector.
In an enlightened society, capital mobilization, domestic saving and repatriation of capital are made more realistic to provide more finance for investments. Quality education will guarantee a high quality labour that can leverage on deepening capital resources and technological innovation to solve business and economic problem.
This will create a culture of knowledge sharing within and between organization, which will in turn encourage innovation and competition necessary for private sector growth. Above all it must be able to equip learners with skills for continuous learning and creating new knowledge through entire lifetime.
According to Robert B. In knowledge economy, new knowledge is not only the input but also an output of the economy. The creation and sharing of new knowledge feed into the economy to generate a knowledge—driven, virtuous cycle of sustained growth.
In a place like China where there has not been any serious political governance reforms since the start of communism in , it has, however, carried out vigorous market reforms since It cites how it embraced some international standards and practices. As a result, China has become a beneficiary of rapid economic expansion with a sustained growth rate of double-digit figures for more than a decade.
However, authorities must be wary rampant increase in counterfeit and sub-standards goods. For instance, there have been various complaints from consumers and standards watchdogs on sub- standards and counterfeit products from some developing nations. This can serious undermine the efforts by genuine and innovative private investors and overall economic growth and development. The research concluded that there is evidence that the development of financial markets, institutions, and instruments have robustly contributed to economic growth in China.
Private sector development and presence of working markets to sustain expansion is unique to and spectacular in China, notwithstanding its political democracy. Meaningful reform agenda should not consign financial and economic reforms to the back burner. Fiscal and financial System reform For faster private sector development, governments should accelerate privatization of the State Owned Enterprises SOE.
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. By providing a large array of financial products, with varying risk and pricing structures as well as maturity, a well-developed financial system offers products to participants that provide borrowers and lenders with a close match for their needs.
Individuals, businesses, and governments in need of funds can easily discover which financial institutions or which financial markets may provide funding and what the cost will be for the borrower. This allows investors to compare the cost of financing to their expected return on investment, thus making the investment choice that best suits their needs. In this way, financial markets direct the allocation of credit throughout the economy—and facilitate the production of goods and services.
A recent example: Integrating existing EU financial markets The European Union , with its single banking market and single currency, the Euro, has created Europe-wide financial markets and institutions. These markets use the Euro to facilitate saving, investment, borrowing, and lending. Euro-denominated stock, bond, and derivative markets serve all of the EU countries that use the Euro—replacing smaller, less-liquid, offerings and products that previously were available mostly on a country-by-country basis.
In addition, the Euro likely increases the attractiveness of Euro-based financial markets and instruments to the rest of the world.
Within the EU, the Euro eliminates the cross-border exchange rate risks that are part of transactions between countries with different currencies. What happens without well-developed financial markets? In many developing nations, limited financial markets, instruments, and financial institutions, as well as poorly defined legal systems, may make it more costly to raise capital and may lower the return on savings or investments.