4.2. Finance Providers & Intermediaries
Those providing financing cover a broad spectrum of individuals and organizations including but not limited to:
- Commercial and investment banks
- Institutional investors
- Diaspora investors
- Microfinance institutions
- Credit unions
- A wide array of investment funds
- Local pension funds
- Sovereign wealth funds
Finance providers bundle or source funds and then provide them in the form of debt or equity to entities seeking financing.
However, the reality in USAID presence countries and emerging markets generally is that the spectrum of finance providers is narrow and thus less competitive than developed markets. Banks usually dominate the financial sectors, often accounting for 80% of financial assets. Financial institutions frequently have less depth, and less expertise in financial intermediation.
Beyond their own internal institutional capability, finance providers may be constrained by numerous external factors (i.e., enabling conditions). For example, these include:
- Unreliable audit and accounting standards
- Limited ability to gain credit history information
- Inability to secure an interest in collateral
These conditions serve to increase risks and costs to finance providers, and as a result many banks tend to focus on their best corporate clients and are less interested in reaching out to underserved areas or groups (e.g. small businesses) that may be more closely aligned to economic development objectives.