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Working Group on Financial Intermediation. Finance Forum FY05: The Future of Financial Sector Operations The World Bank September 23, 2004 P.S. Srinivas Senior Financial Economist & Sector Coordinator Finance & Private Sector Development The World Bank, Jakarta, Indonesia. Overview.

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working group on financial intermediation

Working Group on Financial Intermediation

Finance Forum FY05: The Future of Financial Sector Operations

The World Bank

September 23, 2004

P.S. Srinivas

Senior Financial Economist & Sector Coordinator

Finance & Private Sector Development

The World Bank, Jakarta, Indonesia

overview
Overview
  • Main question
    • How can the Bank assist in best mobilizing financial resources for long-term funding needs of clients?
  • Approaches
    • Traditional Bank approach
      • Financial intermediary lending through banks or DFIs
      • Foreign currency resources
    • Emerging long-term funding needs of clients
      • Infrastructure finance, housing, sub-national finance
      • Financial intermediaries that could meet emerging needs – capital markets, pension funds, insurance firms
      • Domestic resources
work of the group
Work of the Group
  • Financial intermediary lending (FIL)
    • Examine OED’s review of Bank experience with FILs
      • All FILs
      • Municipal FILs
      • Microfinance FILs
    • Draw lessons from OED’s findings
    • How to do FILs better?
  • Improving the environment for financial intermediation
    • Legal and regulatory issues
  • Emerging long-term financing needs of clients
    • Infrastructure finance
    • Housing finance
  • Financial intermediaries that can meet long-term needs
    • Capital markets
    • Pension funds
    • Insurance firms
  • Draft policy note prepared for discussion at Forum
    • Comments welcome
key messages 1
Key Messages (1)
  • Past experience with FILs has not been very good
  • But it is possible to do FILs “right”
    • Better outcomes in FILs associated with
      • Emphasis on proper design and implementation
      • Macro stability and favorable investment climate
      • Sound legal and regulatory regimes
    • There have been success stories in FILs (eg: Zambia case)
  • Shortcomings in laws and legal institutions a major constraint to sound financial intermediation
    • Focusing work on fixing “environmental” issues can have pay off
  • There are clearly emerging needs of clients for long-term domestic resources
    • Infrastructure finance, housing, sub-national finance are examples
    • Bank needs to focus work going forward on financial intermediaries that can meet these needs
    • Examples of intermediaries - capital markets, pension funds, insurance firms
  • Bank needs to take a broader view of financial intermediation

Presentations will deal with these issues

key messages 2
Key Messages (2)
  • Group also asked to address the issue of getting financial sector work back on the Bank’s overall agenda
    • Special challenge in many middle income countries
  • Lessons from Indonesia case
    • FSD work needs to be tied in to work with other country and sectoral priorities
    • FSD work should be seen as a relevant partner across sectors and not just on a stand-alone basis

Presentations will not get into this, refer page 41-43 in policy note

structure of the session
Structure of the Session
  • Lessons learned from Bank’s past financial intermediary operations
    • Brief summary of OED’s review - Laurie Effron
  • Case study of a successful financial intermediation operation
    • The Zambia Multi-purpose Credit Facility - Ahmet Soylemezoglu
  • Legal and regulatory issues for improved financial intermediation
    • Heywood Fleisig, CEAL, Washington
  • Emerging financial intermediation needs
    • Infrastructure finance - Michel Noel
  • Financial intermediaries that can meet emerging needs
    • Insurance and contractual savings - Rodney Lester
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