20 September 2015, Washington – World Bank report has attributed the choking of investment-backed growth of companies in developing countries to the shortage of long-term financing since the 2008 crisis.
The new report tagged “Global Financial Development Report 2015-2016, released on Tuesday in Dar es Salaam, added that it also hampered the ability of credit-worthy families to borrow for education and housing needs and escape poverty.
It noted that the shortage of long-term financing also meant that in spite of appeals by the Group of Twenty (G-20) and other key international groups, developing countries were struggling to mobilise funds in financing badly-needed infrastructure in order to grow their national and regional economies.
According to the new report, the long-term Financing’, extending the maturity structure of finance is considered to be at the core of sustainable financial development.
It said in 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.
The report says 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.
Jim Kim, World Bank Group President, said it would be a challenge to achieve a sustainable rates of economic growth if countries fail to invest in social infrastructure, schools, roads, power generation and electricity distribution and communications.
Kim cautioned that private sector construction of plants and investment in machinery and equipment were also important.
He warned that without long-term financing, households face great hurdles to raising income over their lives.
“By investing in housing or education and may not benefit from higher long-term returns on their savings.
“While commercial banks remain the primary source of financing for firms and households around the world, capital markets have grown rapidly, especially in emerging market economies like China and India” he said.
Kaushik Basu, World Bank Senior Vice President and Chief Economist, noted the report structured out the path that countries could follow to make available the kind of long-term finance, which could support sustainable and equitable growth.
He said the report highlighted examples as well as innovative approaches that some countries have taken to win access to long-term financing.
“Too little credit information makes it difficult for lenders to assess risk reliably and pushes them toward shorter lending maturities.
“Bulgaria and Nicaragua sharply increased average loan maturities after private credit bureaus were established,” he said.