Working Group on Financial Intermediation

1
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

2
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

3
Work of the Group

• Financial intermediary lending (FIL)
• Examine OEDs review of Bank experience with FILs
• All FILs
• Municipal FILs
• Microfinance FILs
• Draw lessons from OEDs 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

4
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
5
Key Messages (2)

• Group also asked to address the issue of getting
  financial sector work back on the Banks 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
6
Structure of the Session

• Lessons learned from Banks past financial
  intermediary operations
• Brief summary of OEDs 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