COMCEC Financial Outlook 2018
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shown significant improvements during recent years which is highly correlated to the
development of stock exchange markets as well as economic growth.
A well established, stable and functioning stock market will ease accumulation and attraction of
long-term capital for a sustainable economic growth and development. The stock market has a
key role in financial markets and smooth functioning stock market is accepted as a substantial
condition for financial sector evolution. This is also considered a pre-requisite to the sustainable
economic growth and development that makes the national economy to enhance more foreign
investors. A well-functioning stock market plays an important role in encouraging liquidity,
mobilizing and assembling savings, producing information for prospective investments and
capital allocation. Therefore, it is accepted that the existence of an active and stable stock market
can stimulate the rate of economic growth12.
As a result, as also highlighted in the literature, macroeconomic and institutional factors play an
important role in stock market development. The macroeconomic factors such as real income,
developments in the banking sector, interest rate, private capital flows, inflation and exchange
rates have effects on stock market development. As for the institutional factors, legal
environment, regulations, legal protection of investors, corporate governance, financial
liberalization and trade openness etc. in an economy can affect the development of the stock
market. As the stock markets consist of various financial instruments such as securities, public
and corporate bonds, future and option contracts, a stable and well-functioning stock market
helps to attract foreign investors. The findings and analysis of these two indicators, stock market
capitalization and stock market total value traded, show that stock markets in the OIC Member
States have a potential for further expansion to enhance and enlarge the development of the
markets to meet the financing need of corporations.
In terms of financial depth, the OIC countries have shown significant fluctuations among various
income groups over the selected period. While the high income group and upper-middle income
group countries have performed better than the other groups as well as from the world
averages, the averages of the indicator for other groups have been recorded worse than world
averages. Over the years, for all indicators, there has been a trend of improvement that is a good
sign of financial development in the OIC member countries.
1.2 Financial Access
Financial access (inclusion) can briefly be defined as the use of financial services by individuals
and firms. Financial access helps peoples and corporations to get the benefit of new business
opportunities, invest more in education, save for the future, and insure against various risks etc.
This topic has been of growing interest all over the world, and considered as one of the main
areas particularly in emerging market and developing economies for the further development
of financial markets. The benefits of the financial intermediation and markets are believed not
being used by all sectors and population that resulted in negative effects on inclusive economic
growth, poverty alleviation, income distribution and efficient allocation of resources etc.
Cihak, Demirgüç-Kunt (2012) highlights the importance of financial access of the different
groups of economic units as follows: ‘A well-functioning financial system allocates capital based
12 Azam, M., Haseeb, M., Samsi, A.B., Raji, J., “Stock Market Development and Economic Growth: Evidences from Asia-4
Countries”, International Journal of Economics and Financial Issues, Vol 6, Issue 3, 2016