The Importance of Domestic Institutional Investors in Pakistan’s Growing Bond Market

Marshall Mays ()
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Marshall Mays: Emerging Alpha Advisors Limited

SBP Research Bulletin, 2007, vol. 3, 89-106

Abstract: As financial systems migrate from a bank-centric model to one that includes bond markets as a companion channel for credit intermediation, they face challenges from both institutional inertia and in learning what works best locally, in a way that limits the risks of experimentation. While many countries learned too much of one of the many lessons from the 1997- 98 Asian experience, they have failed to learn an unavoidable corollary: domestic institutional investors (IIs) must be the pillars of domestic capital markets. Developing the risk-management capability of these domestic IIs has been slower than other aspects of capital-market development throughout Asia. This has been, in part, because the government has a conflict of interest with these IIs, since it is the issuer of its own sovereign bond and the regulator of the market. As Pakistan continues its own market development, it would do well to focus on this area – the demand side rather than just the supply side. This paper explores the experience of others and ways in which Pakistan might proceed.

Date: 2007
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