Financial Sector

Sound financial systems underpin economic growth and development, and are crucial to the World Bank Group’s mission of alleviating poverty and boosting shared prosperity.

Also, tapping into capital markets is needed to attract additional sources to help finance global development goals, which are projected to require “trillions of dollars” in financing.

• Financial stability, both globally and within countries, generates jobs and improves productivity. It gives people confidence to invest and save money. Robust banking systems and capital markets efficiently flow funds toward their most productive uses, help governments raise investment capital, maintain financial safety nets and speed payments securely across borders.
• Good access to finance improves a country’s overall welfare because it enables people to thrive and better manage their needs, expand their opportunities and improve their living standards. When people are financially included, it’s easier to manage consumption, payments and savings, access better housing, healthcare and education, start a small business, and use insurance products to protect themselves from shocks. Finance also helps level the playing field – making significant wealth and connections less relevant.
• Capital markets are becoming essential to financing infrastructure such as roads, power plants, schools, hospitals and houses and to help manage unforeseeable risk. They are increasingly relevant for the Sustainable Development Goals as reaching many of them will require long-term financing that traditional funding sources won’t be able to cover. Attracting private sector finance and investment to help cover the huge financing gaps is necessary to help the world meet these global goals. 

The World Bank Group works to promote financial stability and to develop diversified, efficient and inclusive financial systems, at the global and country-level.

Our work supports developing countries and the global community in addressing most pressing financial sector challenges. The fallout of the 2008 financial crisis demonstrated the need for strengthened international standards for financial resilience.

At the global level, we engage in the agendas driven by the G-20, Financial Stability Board and other standard-setting bodies, and the United Nations.

We contribute to the formulation of global standards and help developing countries comply with them.

At the country-level we help clients implement sustainable financial development strategies.

We work hand-in-hand with governments to develop a sound financial infrastructure and enabling regulatory framework, establish local capital markets, promote private sector development and improve financial access and inclusion for individuals and small businesses.

Our assistance combines finance, knowledge, advisory and convening services, tailored to each country’s needs.

As part of the global work on sustainable development, we play a leading role in developing new and innovative sources of long-term finance, such as developing local capital markets, to help meet the Sustainable Development Goals.

The World Bank Group is engaged in three global mandates in the financial sector:

1.      Focus on Financial Stability and Integrity

Our global mandate on financial depth and stability emphasizes the sustained development of financial institutions and markets, and the mitigation of financial crises.

Global efforts to strengthen the international financial architecture in the aftermath of the 1999 and 2008 financial crises led to the development of international standards in banking, insurance, capital markets, market integrity, financial infrastructure, and other areas.

As a member of the Financial Stability Board, we contribute to regulatory reforms voicing developing countries’ concerns and balancing the objectives of market development and stability. 

With the IMF, we developed key joint diagnostics – the Financial Sector Assessment Program (FSAP) and Reports on the Observance of Standards and Codes (ROSC) -- to monitor compliance with these standards and assess progress in building deep and stable financial systems.  FSAPs, conducted jointly with the IMF, pursue stress tests and crisis-preparedness simulations, which help regulators to develop appropriate policy responses to vulnerabilities. Meanwhile, ROSCs benchmark countries against select global standards.

We provide technical assistance to countries to maintain efficient capital markets and bond markets guidance on such stabilizing safeguards as insurance and deposit insurance

An important part of our work with countries centers around Anti-Money-Laundering and Combating the Financing of Terrorism (AML/CFT) compliance and advice on corporate governance reforms to enhance financial stability by ensuring greater efficiency and transparency.

We also help countries facilitate more efficient and secure financial transactions by helping reform and develop payments systems, including real-time gross settlement systems (RTGS).

2.      Focus on financial access and inclusion of households and SMEs

Our focus is to expand access to finance for individuals who are locked out of the formal and regulated financial system and for small and medium size enterprises (SMEs) who need better access to financing and credit.

About 1.7 billion adults—men and women—still lack access to formal financial services. The Bank Group has set an ambitious goal of achieving universal financial access by 2020. This goal envisions that adults worldwide will have access to a transaction account or electronic instrument to store money, send and receive payments. Financial access is the first step toward broader financial inclusion, where individuals and firms can safely use of a range of appropriate financial services, including savings, payments, credit and insurance.

More than 50% of small and medium-size enterprises (SMEs) in developing countries lack access to finance and credit. SMEs have been underfunded as banks are not interested in extending credit to them due to perceived high risk and a lack of collateral. Considering that SMEs create 4 out of 5 new jobs in emerging markets, helping countries unlock additional sources of capital for local businesses is essential for job creation and growth.

3.      Focus on development of long-term finance and risk management

The G-20 and the Development Committee for the World Bank Group have asked us to play a leading role in the development of long-term finance.

Private sector finance and investment is the largest potential source of additional funding.

We’re focusing on improving a society’s financial resilience—including governments, businesses and households—against various disasters as well as developing financial solutions to help meet the Sustainable Development Goals, particularly for infrastructure, housing, agriculture, disaster risk,  climate change and humanitarian finance.

• The Bank Group, jointly with the IMF, conducted 117 Financial Sector Assessment Program reviews between fiscal year 2008 and March 2015, helping client counties identify vulnerabilities in their financial systems and develop appropriate policy responses. In fiscal 2015, ten Financial Sector Assessment Program reviews were conducted. 
• The Bank Group conducted 29 crisis-simulation exercises between 2009 and FY2015, helping financial-sector authorities evaluate the adequacy of their crisis-response mechanisms.
• The Bank Group has been pivotal in several standard-setting initiatives led by the G-10 Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO). Over the past decade, the World Bank Group has supported the global adoption of international standards that, when met, have strengthened resilience to financial shocks.
• The Bank Group helped establish real-time gross settlement systems (RTGS) in more than 50 countries.
• The Bank Group’s technical work on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) helped 65 client countries adopt reforms that have strengthened their AML/CFT regimes. Most of those reforms involved AML/CFT legislation, with more than 50 countries establishing or revising their AML/CFT legal framework to tackle the illicit flow of money.
• In the last two years, we've assisted 46 countries in undertaking AML/CFT national risk assessments and helped design a strategy to address potential vulnerabilities. In 2015 we finalized 20 assessments and another 26 were ongoing.
• Financial Intelligence Units, which contribute to the initiation of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) investigations, were established in 24 countries.
• Islamic finance can also expand the number of adults with financial access and enhance overall financial sector development. In fiscal 2015, we helped Egypt and Turkey to design Sharia-compliant frameworks to expand financing for small and medium-size enterprises.
• The Bank Group works with countries to find innovative ways to unlock sources of capital for local businesses. For example, Liberia, with the help of IFC, started a collateral registry in 2014 to securitize movable assets, enabling farmers and entrepreneurs to use such assets as collateral to borrow money. In less than a year since its launch—most of which was during the Ebola crisis—$227 million in loans was registered.  A similar reform in China in 2007, which unlocked more than $3.5 trillion in financing, was augmented by support to the PBOC to launch an Accounts Receivable Financing Platform has attracted more than 25,000 users and facilitated $6.7 billion in loans secured by receivables. 
• The World Bank Group (WBG) with private and public sector partners set an ambitious target to achieve Universal Financial Access (UFA) by 2020, whose goal is to enable adults worldwide to have access to a transaction account or electronic instrument to store money, send and receive payments. The World Bank Group – the World Bank and IFC -- has committed to enabling 1 billion people to gain access to a transaction account through targeted interventions. Also, 14 partners have pledged commitments towards achieving UFA2020.
• In fiscal 2015, we leveraged $3.4 billion in risk financing solutions to vulnerable countries and expanded disaster risk financing to additional countries and regions, such as Central America and 10 countries in Africa. With the Bank's support, Panama in 2014 became the first country to implement a comprehensive framework for disaster risk financing and insurance. We’re also creating new mechanisms to speed up assistance and disburse financing in case a disaster strikes.  When Tropical Cyclone Pam devastated Vanuatu in March 2015, the Bank Group disbursed a $1.9 million insurance payout within 10 days to provide rapid access to cash to help the country recover. The payout was part of a sovereign cat risk insurance program covering five Pacific Island countries.

Our work on financial sector in emerging markets also includes several partnerships which help extend our reach:

The Consultative Group to Assist the Poor (CGAP) is a global partnership of 34 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable approaches at scale. CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to the financial services the poor need to improve their lives.

The Financial Sector Reform and Strengthening Initiative (FIRST) is a multi-donor grant facility that provides short- to medium-term technical assistance to promote sounder, more efficient and inclusive financial systems.  

Global Index Insurance Facility (GIIF) is a multi-donor trust fund supporting the development and growth of local markets for weather and disaster index insurance in developing countries.

The Stolen Asset Recovery Initiative (StAR) is a partnership between the World Bank Group and the United Nations Office on Drugs and Crime (UNODC) that supports international efforts to end safe havens for corrupt funds. StAR works with developing countries and financial centers to prevent the laundering of the proceeds of corruption and to facilitate more systematic and timely return of stolen assets.

We also work closely with the IMF on the two key joint diagnostics – the Financial Sector Assessment Program (FSAP) and Reports on the Observance of Standards and Codes (ROSC) –  to monitor compliance with standards and assess progress in building deep and stable financial systems.