Well-functioning capital markets help ensure the financial system’s efficiency, stability, and risk management, preventing costly crises and helping channel savings toward capital that is essential for economic development and poverty reduction. Capital markets provide competition to bank finance, encouraging banks to increase their efficiency, and allowing households and firms to better manage risks associated with long-term investments. The World Bank Group and other IFIs have been well positioned to help countries develop enabling environments to strengthen domestic capital markets and institutions.

In terms of strategic underpinning, elements of capital market development have long been acknowledged in the Bank Group agenda. The 2007 World Bank strategy clearly recognizes key elements, although interlinkages are less explicit. Since 2011, emerging IFC strategy toward capital market development reflects a recognition of the interlinkages, and proposes unified supply and demand approaches.

The purpose of this evaluation is to assess Bank Group support to client countries for development of their capital markets across the full spectrum of associated activities.

Evaluation Questions and Methodology

The overarching evaluation question is: Has the Bank Group been relevant, effective and efficient in supporting the development of its client countries’ domestic capital markets to deepen their financial systems, realize real sector development, and to support the achievement of its twin goals of poverty alleviation and shared prosperity?

Given the heterogeneity of interventions, the evaluation constructs metrics to assess effectiveness in each of the main areas of focus:

  • capital market instruments or issuers;
  • capital market infrastructure; and
  • capital market investors (insurance and pension funds).
  • The report also reviews the extent to which support for the use of capital market instruments is reflected in select areas of its own portfolio of real sector financing: infrastructure and the environment.


Integrate capital market development within the Bank Group across different areas of support.

Based on the preceding observations, to strengthen the loose-knit Bark Group strategy toward capital market development, sometimes fragmented country-level interventions, and missed opportunities for integration, IEG recommends that the Bank Group:

  1. prepare an underlying strategic framework for capital market development that spans all relevant elements of market development, from issuers to investors and including market infrastructure, for the Bank Group as a whole, and recognizes interlinkages and sets priorities;
  2. prepare guidelines for the Bank Group insurance and pensions programs that review, at the design stage, issues related to accumulation and asset management—for their own benefit as much as for the benefit of capital market development;
  3. identify a set of countries where programs for IFC’s local currency Treasury bond issuance can be paralleled with support from the Capital Markets department to measures for deepening and strengthening the selected countries’ local currency bond markets; and
  4. encourage consideration of enhancements, through the guarantees program, of infrastructure bond issuance in PPP approaches.

Enhance the use of the FSAP instrument to underpin the design of capital markets interventions.

Given the availability of high-quality diagnostics that could be better used to strengthen the diagnostic underpinnings of capital market development, following any FSAP, the Global Practice, if possible together with the relevant country department, should:

  1. incorporate FSAP recommendations in the preparation of Systematic Country Diagnostics and consider these findings, as appropriate, in Country Partnership Frameworks;
  2. establish Bankwide criteria to assess prioritization of FIRSTor FSAP follow-up work and identify funding for FSAP follow-ups from sources additional to FIRST; and
  3. when successive FSAPs are undertaken, make use of them to track long-term project outcomes.

Strengthen knowledge management within the capital markets area and develop a frontier global knowledge program.

  1. Implement and monitor service standards for maintenance of document repositories, data collection, and program monitoring and evaluation, including databases for capital market monitoring;
  2. Ensure the write-up and crosscountry dissemination of findings on priority topics, identified by the Global Practice Groups (for example, on GEMLOC peer group dialogues, or on frequently recurring themes such as demutualization);
  3. Deepen the knowledge base both at a country and at a global level, to ensure that Bank Group knowledge is at the cutting edge and provides intellectual leadership.

Review funding sources available for capital market development and their impact upon program design.

  1. Provide stable sources of funding for core global and country capital markets programs that balance internal and external sources and allow the Bank Group to respond to its priorities.
  2. Apply transparent and uniform criteria for country and program selection for new and continuing trust fund programs.

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