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Finance Sector Issues in Asia and the Pacific

Asia has emerged as a dynamic center of global growth with high savings and strong exports. It attracts a high volume of private capital and investment, and has massive potential for domestic markets. Since the Asian financial crisis in 1997-1998, the financial sector of the region has developed significantly. Banks in particular have strengthened their balance sheets, making them more resilient to external shocks. The region’s middle-income economies have also made progress in developing the core of their domestic capital markets and nonbanking sectors.

Despite these achievements, the development of the region’s financial sector still lags substantially behind that of developed economies. Manufacturing also plays a much more dominant role in Asian economies than the financial sector. This section highlights finance sector challenges and trends faced by countries in Asia and the Pacific.

  • Finance Sector Reform

    As the financial sector expands and takes on new risks, it is essential to ensure the sector’s continued stability and integrity. This involves helping countries enhance their abilities to manage and develop the financial sector, as well as instituting policy and regulatory reforms.

  • Financial Markets and Institutions

    It is necessary to develop Asian capital markets, including subnational debt markets, and an institutional investor base that generates long-term finances and risk capital. At the same time, low-income and conflict-affected economies need to strengthen public confidence in their financial systems in pursuing the development of financial markets.

  • Banking and Non-bank Financial Institutions

    The enhancement of risk management and corporate governance of individual financial institutions is vital for economic stability. This topic covers issues related to central bank supervision, trade financing, anti-money laundering, and Islamic financing.

  • Infrastructure and Housing Financing

    The region needs to invest aggressively in infrastructure to continue to provide a favorable business environment and improve people’s living standards. Because government resources are far from sufficient, infrastructure needs to access commercial finances, thus calling for public–private partnerships (PPPs).

  • Financial Inclusion and Microfinance

    About 90% of the 180 million poor households in the region lack access to institutional financial services. Most formal financial institutions deny the poor their services because of perceived high risks, the high costs involved in small transactions, and the poor’s inability to provide marketable collateral for loans.

  • Small and Medium-Sized Enterprise Financing

    The expansion of small and medium-sized enterprises (SMEs) is crucial for inclusive growth and poverty reduction. SMEs’ access to finance can be improved not only through credit institutions, but also leasing, credit guarantees, factoring, insurance companies, and capital markets.

  • Regional Economic and Financial Integration

    The Asia and the Pacific region includes large net savings countries as well as large net borrowers. The region as a whole is also simultaneously a large exporter and importer of capital. The financial sector and markets in the region need to be integrated to allow the channeling of savings from net saving developing countries to net borrowing ones.