Improving Capital and Financial Markets Efficiency presented by Fran

1
Improving Capital and Financial Markets
Efficiencypresented by François-Jude
PépinDeputy Chief of Party and corporate finance
lawyerUSAID Egypt Financial Services project
OECD National Investment Reform Workshop
17 May 2006 GAFI, Cairo
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GOE and USAID capital and financial market
programs

• Goal
• strengthen the environment for trade and
  investment by modernizing the financial sector
  through a reform of commercial financial
  institutions and the introduction of new
  financial products in the market
• CMD project
• strengthened institutional capacity and
  regulatory environment, improved market
  automation for operational stability
• TAPR II project
• financial reform and capital market capacity
  building
• EFS project
• new financial instruments

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Egypt Financial Services project (EFS) of MOI
/ USAID

• Assist public and private sectors to create a
  dynamic private sector lending industry by
  improving market efficiency, in order to expand
  home ownership and business opportunities for the
  benefit of the Egyptian society.
• primary and secondary mortgage finance markets
• new financial instruments factoring, leasing,
  expanding availability of fixed income
  instruments, securitization

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EFS financial sector issues and objectives

• Issues
• resources of financial system concentrated in
  banks
• no system to collateralize banks loans with
  moveable property
• marginal contribution of non-bank finance
  institutions to channel capital
• capital market not a provider of long-term
  finance
• narrow range of efficient financial instruments
• Objectives
• secondary mortgage market supports long-term fund
  MBS and real estate bonds
• non-bank and low-cost sources of finance to
  businesses with
• new financial instruments for borrowers and
  lenders long and short-term debt securities,
  leasing, factoring, and new institutional
  investors
• secured lending, foreclosure

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Remarkable successes of Egypt capital market
infrastructure

• CASE trading volumes, rules
• MCDR settlement volumes, T2, no defaults,
  registry, dematerialization
• smooth uninterrupted operations, investor
  confidence
• legal foundation CML, depository, bond dealers,
  securitization
• CMA leadership, SRO agenda, restructuring
• MOF/CBE auction of GOE securities for real
  market rate, dematerialized
• T-Bills in CBE registry and bonds in MCDR,
  Primary Dealer system

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GOE - USAID targeted interventions to adopt
international best practices to develop capital
market

• Capitalize on Egypts solid and reputable capital
  market infrastructure
• Ministry of Investment
• Capital Market Authority capital markets
  options to productively channel investments (new
  investment securities)
• Mortgage Finance Authority secondary mortgage
  market ELF
• GAFI leasing, factoring
• MOJ and judiciary secured lending collateral
  registry and foreclosure
• Ministry of Finance GOE bonds, bills corporate
  bonds benchmark

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EFS New financial instruments strategy

• Increased transparency and improved investor
  confidence
• Broader range of financial instruments
• Facilitate both domestic savings and
  international investments into productive
  enterprise
• Mobilization of longer term investment of funds
  of insurance and pension funds

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Investment Program Objectives for the financial
sector

• Investment reform in key policy areas
• challenge of becoming leading market in MENA
  was impetus for reform of CASE, MCDR, laws next
  challenge?
• nascent, manipulative, speculative, mature market
  overcome the speculative stage (lacking
  informed investment decisions, not based on
  rising prices and volumes / proper disclosure,
  not insider market / professional advisors and
  mutual funds in short supply
• improve competitive attitude of players in
  financial sector (bank Primary Dealers function,
  banks credit bureau services)
• concerted GOE effort to improve all relevant
  sectors to free up constraints on roles of
  private sector (laws, enforcement, judiciary)

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• support market forces and financial
  intermediaries instead of requiring
  bank/insurance company participation in non-bank
  sectors (margin trading, factoring)
• implement IOSCO, BIS, G-30 best practices
  (bankruptcy and capital markets, BASEL II real
  estate loans portfolio)
• GOE/ donor or counterpart/contractor jointly
  track progress to avoid shelved-report-frustratio
  n
• regulation driven by need to protect and
  international best standards (disclosure
  rotten eggs and junk bonds), not merit
  approach

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Investment Program Objectives looking at the
capital market

• Attractiveness as destination for investment
• promote market infrastructure laws, CASE and
  MCDR and investment culture, domestically and
  abroad
• diversify investment securities for domestic and
  foreign investors, constant supply,
  shorter/longer maturities
• periodically (5-7 year) drive reform, with
  private sector, to maintain financial sector
  infrastructure (laws, institutions) relevant and
  competitive
• private sector to more fully play its role
  association to strengthen and promote industry
  and reputation

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• pursue public awareness an important support
  component investors on rights and risks,
  financial press, government bodies, judiciary
• improve market behavior through
  education/training and laws/published sanctions
• Exchange experience of reform and economic
  diversification on
• development of capital and financial markets,
  outside the banking sector
• implementing international standards and on
  benefits
• sharing regulatory burden with SROs