Shortage of long-term finance chokes growth prospect: WB report

Shortage of long-term financing is choking the investment-backed growth of companies in developing countries and hampering the ability of credit-worthy families to borrow for education and housing needs and escape poverty, said a new World Bank (WB) report.
The report, Global Financial Development Report 2015-2016: Long-term Financing, said despite appeals by the Group of Twenty (G-20) and other key international groups, developing countries are struggling to mobilise the billions of dollars in financing they need to build badly-needed infrastructure in order to grow their national and regional economies.
The WB suggested that policy makers need to focus on institutional reforms, such as promoting macroeconomic stability, establishing a regulated and legally enforceable banking and investment system to secure the long-term financing, defined as investment funding that matures in a year or more.
While commercial banks remain the primary source, firms in developing countries saw a 15-fold increase in the amounts raised in equity, bond, and syndicated loan markets between 1991 and 2013, BSS quoted the report as saying.
It said long term housing finance is arguably the most important ingredient towards home ownership, yet the disparity across countries is stark: an average of 21 per cent of individuals in high-income countries have an outstanding home loan, compared to a mere 2.4 per cent in lower-middle and low-income countries. India is a typical case, with only 2.3 per cent of individuals having a home loan.
Firms in developing countries also face substantial disparities. Loan durations to firms in low-income countries average 23.3 months, less than half of the average for firms in high-income countries at 58.7 months.
While explaining the scope for long-term finance, the report also cautioned that long-term finance is not optimal or even necessary in all circumstances.
-SS