The financial and private sectors play a central role in meeting the World Bank Group’s development mission. Deep, efficient, and well-regulated financial markets and a good legal and regulatory environment for the private sector give firms—from microenterprises to multinationals—the opportunity to invest productively, create jobs, and grow. Well-functioning markets play a key role in helping poor people rise out of poverty by leveling the playing field of opportunity for would-be entrepreneurs and employers and by providing poor households with improved opportunities to earn incomes, save, obtain credit, and buffer themselves against hard times. Efficient markets are especially needed in Africa, where financial and private sector development is uneven; the burden of business regulation is excessive; access to finance is limited, especially in rural areas; and financial intermediation is less widespread than in any other region in the world.

Until this year, the Bank maintained separate networks for private sector and financial sector development. In view of the close ties between the two, the networks were merged in fiscal 2007 to create a central vice presidency for Financial and Private Sector Development (FPD). FPD is a joint Bank-IFC-MIGA vice presidency, and the Vice President leads the coordination of Bank and IFC technical assistance to governments in support of financial and private sector development. The new vice presidency focuses on creating the institutional foundations for effective markets, promoting open and competitive markets, and supporting social safety nets using market-based approaches. The Board discussed a new financial strategy in April 2007. The strategy identifies important changes in the Bank Group’s business environment that necessitate changes in its strategic focus, in the model for its advisory services, and in the allocation of Bank and IFC support.	Â	© The World Bank
The Bank Group has extensive country and global knowledge of the microfoundations of effective financial markets and institutions. Its investments and advisory work offer unique insights on how financial issues play out in sectors ranging from agriculture to health care. The Bank Group is thus well-placed to see all aspects of financial reform within the broader economic development agenda. This expertise enables it to engage at a practical level with countries in reform and to provide a development voice in international standard-setting bodies. In keeping with this comparative advantage, areas of special focus going forward are the development of market infrastructure (such as contract rights and enforcement, payments systems, credit information systems, and disclosure standards); prudential oversight (compatible with better risk management and wider access to financial services); and targeted initiatives to improve access to finance for the underserved and to develop domestic capital markets.

Using information—rather than loans or conditionality—to promote change, the Doing Business report, a joint Bank-IFC publication that is published annually, informs governments in 175 economies on how regulations help or hinder businesses in their countries. Since the project’s inception in 2003, more than 70 regulatory reforms have been inspired or informed by Doing Business, making it easier to start, run, or close down businesses around the world. In addition to the Doing Business report, a series of subnational reports published in fiscal 2007 covered states and cities in Bangladesh, Brazil, India, Mexico, and Pakistan.

Complementing the Doing Business analysis are enterprise surveys, through which the Enterprise Analysis unit seeks to obtain firm-level views on constraints to doing business. By the end of fiscal 2007, the unit had surveyed 65,000 firms in more than 90 countries. Additionally, the unit piloted a new instrument in fiscal 2007 to survey business people
in the retail, microenterprise, and information technology sectors in India.

The Bank continues to assess corporate governance and to assist countries in improving their corporate governance practices. In fiscal 2007, it completed nine corporate governance
reviews, including four corporate governance Reports on the Observance of Standards and Codes, four reviews of governance at state-owned enterprises, and one review of corporate governance in the banking sector.

Fourteen financial sector assessments were completed under the joint World Bank–International Monetary Fund Financial Sector Assessment Program in fiscal 2007, including six second-round assessments (updates). To perform assessments, staff from the Bank and the Fund—assisted by experts from cooperating official agencies—conduct a comprehensive peer review of a country’s financial system. This review helps countries prioritize appropriate policy responses to discovered vulnerabilities. The assessment teams also highlight opportunities for improving the sector’s ability to promote sound economic development. The pipeline for fiscal 2008 indicates that demand for the program continues unabated.

During fiscal 2007, FPD established a program to develop financial markets that would help households deal with risk. The program—Financial Markets for Social Safety Nets—addresses housing finance, funded pensions, and insurance. The housing finance unit helped increase access to housing finance for lower-income households and expanded residential mortgage markets through loans, grants, and advisory services in all regions. The pension unit prepared reports on the Brazilian and Czech pension systems, which the relevant governments can use to strengthen the case for reform. The insurance unit supports the provision of health, life, livestock, and crop insurance to the poor; such programs are already active in Africa, East Asia, and South Asia. The Financial Markets for Social Safety Nets Program is currently supervising $2.5 billion in Bank loans and is supporting preparation of new loans worth $1.5 billion.

FPD continues to invest in Web sites, training programs, case studies, and how-to guides in order to share knowledge. Five practitioner toolkits were published in fiscal 2007 on licensing, alternative dispute resolution, public-private dialogue, inspections, and business registration.

FPD also partners with institutions outside the World Bank Group to further its mission. The Foreign Investment Advisory Service (FIAS)—funded by the Bank, IFC, and MIGA, together with several donors—helps developing countries improve their business environments in order to increase private sector activity and investments with positive development impact. The Consultative Group to Assist the Poor—a 33-member, independent institution housed at  the World Bank—works with financial institutions, ratings agencies, governments, funders, and others to promote microfinance. FPD also promotes better corporate governance in private sector companies through the Global Corporate Governance Forum. This multidonor trust fund was cofounded by the World Bank Group and the Organisation for Economic Co-operation and Development (OECD) to promote local, regional, and global initiatives that  improve the institutional framework and practices of corporate governance. FPD manages the Financial Sector Reform and strengthening Initiative (FIRST), which donors pledged to continue supporting through 2012. FIRST promotes stable, deep, and diverse financial sectors by providing grants. Since it was set up in 2002, the initiative has supported about 220 technical assistance projects in the financial sector.

The Bank sharpened its focus on fighting money laundering and the financing of terrorism in Africa this fiscal year. A  parliamentarian forum, organized with the Global Organization of Parliamentarians Against Corruption, provided parliamentarians—the majority from Africa—with a forum in which to discuss challenges associated with fighting corruption,
money laundering, and terrorist financing. The Bank also funded several multiyear comprehensive technical assistance programs in Africa that seek to develop systems that protect market integrity without hampering access to finance. (See www.worldbank.org/finance.)

© 2007 The International Bank for Reconstruction and Development/The World Bank