Key Activities of the WBG’s

Capital Markets and

Corporate Governance Line

Capital Markets Practice, FPD

Develop Domestic Securities Markets, Mainly Debt

- Provide long term, local currency instruments

- Diversify financial systems

- Reduce financing and investment risks

- Create new investment vehicles

Developing Securities Markets

IFC Product:

Development of non-governm

• Support financing for housing,

infrastructure, and private

sector investment

• Mobilize savings; provide

investments for rapidly growing

institutional investors

(pensions, insurance)

Non-Government

Bond Markets

Government

Bond Markets

2 Main Product Areas

ESMID GEMLOC

• Reduce government financing

risks

• Create pricing benchmarks,

• Finance growth

• Provide risk-free investments

2

Comprehensive but Targeted Approach

Regulatory Assistance

Strengthening the

Marketplace

Capacity Building

Transaction

Support

Enabling Environment

Programs draw on full range of WB/IFC tools:

• Global product expertise + in-country knowledge/presence

• Public and private engagements

• Targeted and implementation oriented interventions

Regionalization

3

Gemloc Program

• World Bank Group initiative to develop mainly local government

bond markets

• Combines comparative advantages of WBG and private sector

• 3 separate but synergistic pillars with 3 commercial partners:

– Investment management (PIMCO)

– Index/investability indicators (Markit + Crisil)

– Advisory services (World Bank)

• Creates market-based incentives for policy reforms

– Strengthen market operations

– Increase investability score/GEMX weight

– Attract more foreign/domestic investment

4

Broad topics Specific agenda

Macro and Micro interactions

and trade-offs

- Capital controls, international excess liquidity and

convertibility

- Financial markets taxation structure

Primary Markets - Debt management strategy and issuance policy

- Placement mechanisms and organization

Money Markets - Repo markets

- Operational liquidity management

Secondary and Derivatives

Markets

- Exchange and OTC markets

- Interactions between markets and development sequence

- Valuation schemes

Participants and Investor Base - Foreign and local investor base

- Strategies for diversification

- Prudential regulations

Custody, Clearance, and

Settlement

- Local and International Central Securities Depositories

(CSD)

- Risk management upgrades

Regulations for Debt Markets - Systemic risk and investor protection

- Enforcement capabilities

Gemloc Advisory Services: Program Scope

5

6

Leveraging country-led market development reforms through:

Country-specific work, Cross-country (peer group) dialogue, and

Applied research

Gemloc Advisory Services

34 countries currently eligible

Gemloc Eligible Countries: Advisory Services

7

Gemloc Phase 1 Gemloc Phase 2 Gemloc eligible Brazil Costa Rica Argentina

Chile Kenya Croatia

China Romania Jordan

Colombia Sri Lanka Kazakhstan

Egypt Uruguay Lebanon

Hungary Pakistan

India Tunisia

Indonesia Ukraine

Malaysia Vietnam

Mexico Venezuela

Morocco

Nigeria

Peru

Philippines

Poland

Russia

South Africa

Thailand

Turkey

19 5 10

8

ESMID

ESMID:

Efficient

Securities

Markets

Institutional

Development

Started in 2007 as a partnership between Sida and World

Bank Group

Pilot operations in Africa

Now extended to Latin America

Current Donors: Sida and SECO

Through development of well functioning securities markets, the program aims to:

• Improve financing for priority sectors e.g. infrastructure, housing, microfinance and SMEs

• Enable private sector development - create jobs and improve livelihoods

• Broaden availability of local-currency investment instruments

ESMID-Africa (Pilot)

• 3 year, $5.5 million comprehensive program funded by SIDA,

with advisory-investment linkages

• Special focus on long-term funding for critical sectors,

including housing and infrastructure

• Transaction support component acts as catalyst and validates

success in enabling environment work

• Sub-regional program for East Africa (Kenya, Rwanda,

Tanzania, Uganda), to foster a regional market that can be

accessed by smaller IDA countries

• And a country program for Nigeria given its size and its

developmental needs

A comprehensive and integrated approach

to developing local bond markets

9

ESMID Overview

C O U N T R Y O P E R A T I O N S

East Africa

Kenya

Rwanda

Tanzania

Uganda

Regional Approach

Implementation

Country Approach

Implementation

Latin America

Peru

Colombia

Regional Approach

Implementation

West Africa

Nigeria

• Training materials/toolkits

• Publications • Conferences

• Workshops

K N O W L E D G E M A N A G E M E N T

ESMID Activities

A comprehensive and integrated approach to developing local bond markets

Advice on Legal and

Regulatory Framework

• Improve approval process

• Reduce costs

• Framework for new

products

Capacity Building

• Certification/Licensing

• Training

• Develop regional provider

Strengthening Market

Infrastructure

• Market Structure

• Clearing & Settlement

• Transparency &

Information Dissemination

Regionalization

• Broadening & deepening

markets

• Minimum common

standards

• Consolidated infrastructure

• Cross border issues

Transactions

Support

• Active support to

issuers and

intermediaries for

replicable

transactions

• Introduce new &

innovative products

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East Africa Milestones

Bond Markets

• New laws and regulations

implemented to make it easier to

issue and trade bonds

• Framework for regional bond

issues

• Framework for new financing

products

Regionalization

• Regionalization strategy & road

map adopted

• Training Institute established –

1,850 trained

• Implementation of regional CSD

infrastructure - underway

Transaction Support

• PPIAF – collaboration

for infrastructure deals

by Kenya Airports

Authority, Kigali City &

Nairobi Water

• Supported first equity

linked bond issue in

Kenya - SME ($22 Mn)

• Supported first

Microfinance issue in

Tanzania (US$10 Mn)

• IFC local currency issue

in Kenya approved

• Shelter Afrique -

cooperation agreement

for regional issue

12

0

100

200

300

400

500

600

700

800

900

1,000

2004 2005 2006 2007 2008 2009 2010 2011

Rwanda

Tanzania

Uganda

Kenya

ESMID

Starts

Broad range of sectors have tapped the bond market

Markets have recorded significant increase since 2007 from a very low

base - US$ 950 million raised

Nigeria Milestones

Primary Markets

• Primary issuance framework reformed - to

make it easier to issue bonds

• Issuance costs reduced – including statutory

costs

• New tax rules for corporate bonds

Pension Funds Investment

Guidelines

• New investment guidelines implemented to

allow pension funds’ diversification (2010)

• Investment in infrastructure and private

equity (support to SME finance) permitted US$ 1.5 billion raised by nongovernment issues

since program launch – from a very low base

13

0

200

400

600

800

1000

1200

2005 2006 2007 2008 2009 2010 2011

Nigeria Bond Market: Sub-National Vs Corporate Bonds

US$ Millions

SUB-NATIONAL BONDS CORPORATE BONDS

ESMID

Starts

– Significant long-term local currency financing needs for priority sectors in Africa – including SMEs, housing and infrastructure.

– Small, albeit growing bond markets in Africa.

– ESMID’s comprehensive but target approach to bond market development – linked to transactions.

– ESMID’s significant success building bond markets in East Africa and Nigeria.

– ESMID’s innovative approach to regionalization.

Africa Expansion – Rationale

Regional and country program swill build

on work in East Africa & Nigeria

EAC (Phase 2)

UEMOA SADC

Country specific programs with project scope based on

level of market development

Market Development

Less Developed

More Developed

Component Needs

Broader-Based

Targeted

Country Specific Project Scope

Entry Point

Diagnostics

Implementation

Project Scope

15

Weak corporate governance frameworks and practices contribute to global

financial crisis, wealth destruction, and job losses

16

Source: OECD, IMF, own research

Bank CG and regulatory

weaknesses contribute to 2008

crisis. 33,000 jobs lost & $11 bn

of value destroyed due to

Enron scandal

1997 Chispas scandal in Chile

becomes a landmark case in

minority shareholder rights

2008 and current financial crisis in Europe emanates

from banks’ exposure to toxic assets and is rooted in

poor internal CG structures and weak board oversight

In China, Minsheng

Banking Corp. fabricates

its GMS and financials.

India launches www.

watchoutinvestors.com

listing companies that

abuse SH rights.

CG leads to small equity

markets in Latin America

Launch of Novo Mercado in

Brazil allows companies with

good governance to

differentiate themselves and

leads to explosion of new

listings.

CG weaknesses in banks and SOEs thought to lie at heart

of why many investors shy away from investing in AFR

Failure of single SOE in

Senegal results in loss of 2

percent of GDP

Accounting fraud at

Satyam overstates the

company's revenues and

profits, and reported a

cash holding of ~$1.04

billion that did not exist,

shattering confidence in

India’s capital markets

Corporate governance reforms benefit multiple stakeholders

17

Who benefits How? The results

Investors

Companies

Regulators &

supervisors

Markets

Economies

• Protection from abuse

• Increased shareholder value

• improved access to finance (both equity and debt)

• Higher valuations

• Better decision-making

• A first line of prudential defense

• Increased financial stability

• Higher market

capitalization and liquidity

Good corporate governance systems encourage global and

local equity (and debt) investors. Increasing portfolio

investment in emerging economies and driving change.

Investors more likely to provide capital at a lower rate

Sustainable wealth creation within the private sector can only

be brought about through good management,

entrepreneurship, innovation, and better allocation of

resources.

Better corporate governance adds value by improving the

performance of companies through more efficient

management, better asset allocation, and improvements in

productivity.

Investors less likely to flee well-governed countries / companies

in times of crisis.

Companies with good corporate governance practices will have

better risk-management systems than those without.

Corporate governance is a key component of the governance

and anti-corruption agenda

Markets can grow by improving their corporate governance

standards and enforcement mechanisms.

More “champion” companies that can compete and grow internationally

Higher economic growth

• More sustained economic

growth

• Increased financial stability

• Increased competitiveness

Provide advisory support to help countries and companies

- Improve legal and regulatory frameworks

- Raise performance & access to external financing

- Lower cost of capital

- Advance financial stability

Enhancing Corporate Governance

Financial Sector Listed Sector

3 Main Product Areas

BGR ROSC

• Update the legal framework to

international standards

• Build legal protections for

investors

• Build capacity for companies

and regulator

• Enhance corporate

transparency

18

State Owned Sector

SOE REVIEW

• Update the legal framework to

international standards

• Refocus supervisory processes

• Enhance safety and soundness

of the financial sector

• Support risk management

improvements

• Increase performance of

SOEs

• Strengthen delivery of services

in infrastructure & banking

• Reduce fiscal burden/risk

• Improve the prospects for

privatization

Advisory Work

19

CG ROSC SOE Governance Reviews

Counterparts • SECs

• Stock Exchanges

• Institute of Directors

• Auditing & Brokerage

industry

• Banking Regulators

• Banking associations

• Auditing industry

• BIS

• FSB

• Ministries of Finance

• SOE ownership entities

• Individual SOEs

Outputs • 80 carried out or

underway since 2000 in

62 countries

• 10 + reviews completed • Work completed or

underway in about 20

countries

Results • Country action plans on

legal / regulatory reform

• CG Codes drafting /

updates

• Creation of new

Institutes of Directors

• CG Country Codes, law

and regulation revisions

• Bank supervision

strengthening

• Strengthening of

individual banks’

awareness and processes

• New/Revised ownership

policies drafted

• Improved board

appointment and

performance monitoring

• New dialogues on CG

Current

Engagements

• Brazil, Russia, Colombia,

El Salvador, Malaysia,

Thailand, Kuwait

• Brazil, Peru, Kosovo,

Angola

• Serbia, Turkey, Romania,

Vietnam, Kirgizstan,

Mozambique

ROSC BGR SOE REVIEW

New Products And KM

• New Toolkits underway:

– SOE Corporate Governance Toolkit

– Corporate Governance Assessment Tools for MFIs

– Regulatory Governance Toolkit

• KM:

– Bank Governance and the Financial Crisis Working Paper

– FSB Third Thematic Review on Risk Governance

– Lessons Learned from the CG ROSCs

– CG Cross-Comparison Index Note

– CG for Islamic Finance

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Partnership Programs

For Capital Markets and Corporate Governance

Thank you very much!

Tel: +1 202-473-0006

Email: CapitalMarketsPractice@worldbank.org

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