The writer is managing director of the World Bank Group’s International Finance Corporation
Economic uncertainty, rising borrowing costs and changing investment patterns are putting mounting pressure on developing countries as they seek to finance growth.
Against this backdrop, research by the International Finance Corporation, the private sector arm of the World Bank Group, reveals an under-appreciated trend: the substantial expansion of local capital markets. This growth offers important insights for investors and policymakers navigating an increasingly complex financial landscape.
The story of capital markets in developing countries is not just a tale of numbers; it is one of opportunity and innovation. Fresh data reveals that since 2000, capital market debt and equity financing have grown fourfold in middle-income countries and eightfold in low-income countries.
What makes this growth striking is that it has occurred at rates four times faster than in developed markets, allowing local businesses to access vital resources that power economic progress. In fact, between 1990 and 2024, bond and equity issuances by almost 22,000 companies in developing countries totalled more than $4tn. This was a doubling as a share of GDP.
This growth has come in spite of a rapidly shifting global environment characterised by tighter monetary policies in advanced economies, rising inflation, and lingering effects of the Covid-19 pandemic.
The continued expansion of local capital markets underscores their growing resilience — offering a much-needed avenue for businesses to secure funding, drive innovation and create jobs in the face of global uncertainty.
This is not just happening in the well-established markets in emerging economies; it is spreading to a broader range of countries and firms. The growth is particularly pronounced in east Asia and Latin America, but it is also spreading to sub-Saharan Africa, south Asia, and the Middle East.
Perhaps most striking is the rise of firms from low-income countries entering capital markets for the first time. Over 70 per cent of these firms had never issued debt or equity until the 2000s. On average, these were smaller, younger businesses than previous issuers, with limited initial capital. Yet, by raising funds through bonds and equity, often denominated in local currencies, they have increased their physical capital by as much as 16 per cent within the first year. Their sales have grown by 10 per cent, and employment has jumped by 5 per cent. In regions with limited formal employment opportunities, this translates into millions of new jobs.
“In sub-Saharan Africa, the share of GDP represented by capital market issuances has increased ninefold in the past two decades.”
After the 1997 financial crisis, countries like Indonesia, South Korea and Malaysia underwent sweeping economic reforms focusing on building robust domestic capital markets. As a result, these economies have seen a dramatic rise in capital market issuances. Between 1990 and 2024, their combined bond and equity issuances grew from an average of 11 per cent of GDP to about 25 per cent. The growth in Asia has not just been a story of big companies getting bigger — it has been about growing smaller businesses and fostering a thriving entrepreneurial ecosystem.
While other regions, such as the Middle East, north Africa, and sub-Saharan Africa, started from a lower base, their growth has accelerated faster than others. In sub-Saharan Africa, the share of GDP represented by capital market issuances has increased ninefold in the past two decades. And in countries like Kenya and Nigeria, businesses are now tapping into capital markets for the first time, driving local growth and creating jobs.
Recent World Bank Group analysis shows that this expansion is directly related to effective public policies, sound governance and a focus on strengthening local financial systems. Governments that issue their own bonds create benchmarks that foster deeper, more liquid markets. Regulatory reforms, stronger corporate governance and investor protections have also encouraged participation from both local and global investors. And pension reforms, which create a stable investor base, have played a crucial role in reducing reliance on volatile foreign capital.
Yet, the continued growth of these markets is not guaranteed. Volatile global interest rates and investor uncertainty have narrowed funding channels for many businesses. Domestic bond and equity markets offer shelter — but do not spare them from risk.
At the IFC, our aim is to help emerging markets weather this volatility. We have helped countries on almost every continent to develop their capital markets, focusing on creating market frameworks, building local-currency government bond markets, and developing hedging instruments. This support has allowed businesses to tap into the financing they need while reducing foreign exchange risks and promoting economic stability.
As global finance navigates uncertain terrain, developing economies with deeper domestic markets stand better positioned to weather volatility while maintaining growth. For international investors seeking both returns and impact in a changing world, these evolving capital markets merit far closer attention than they have received to date.
