Sep 15,2015 (LBO) – A shortage of long-term financing since the 2008 crisis is choking the investment-backed growth of companies in developing countries and hampering the ability of credit-worthy families to borrow for education and housing needs and escape poverty, a new World Bank report warned.
“It would be a challenge to achieve high and sustainable rates of economic growth if countries fail to invest in schools, roads, power generation, electricity distribution, railways and other modes of transport, and communications,” Jim Yong Kim, president of World Bank group said in a statement.
“Private sector construction of plants and investment in machinery and equipment are also important,”
“Without long-term financing, households face great hurdles to raising income over their lives – for example by investing in housing or education – and may not benefit from higher long-term returns on their savings.”
Long-term finance comprises all types of financing (including loans, bonds, leasing, and public and private equity) with a maturity exceeding one year.
At the global level, this shortage of long-term financing also means that despite appeals by the Group of Twenty (G-20) and other key international groups, developing countries are struggling to mobilize the billions of dollars in financing they need to build badly-needed infrastructure in order to grow their national and regional economies.
According to the new report: ‘Global Financial Development Report 2015-2016: Long-term Financing,’ extending the maturity structure of finance is considered to be at the core of sustainable financial development.
Securing long-term financing, defined as investment funding that matures in a year or more, depends on the same fundamentals essential to tackling the current volatility in global capital markets: 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 setting a framework for capital markets and institutional investors.
“Typically, direct interventions have not been successful where underlying problems remained,” Kim said.
“As a result, governments and international bodies must focus on reforms that help overcome market failures and institutional weaknesses,”
“They must also improve risk and information sharing, and promote financial literacy and consumer protection.”