Financial Sector Assessment a handbook, Chapter 4 Assessing Financial Structure and Financial Development, imf and World Bank, August 2005

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tor, savings and payment services are often in greater demand in this sector than credit 
services.
4.6
Reviews of Cross-Cutting Issues
The development assessment draws both on infrastructural assessments (for each of which 
one or more sets of standards have been developed by the relevant international bodies) 
and on sectoral assessments. As explained, development dimensions must be added to, or 
built on, aspects of the sectoral prudential standards. Among the development dimensions 
that have been highlighted in this regard are the competition issues such as entry and exit 
policies, the taxation issues, and the distorting or chilling side effects of poorly designed 
prudential regulation. Some of the issues also arise on a cross-sectoral basis or in respect 
to undeveloped sectors and segments, which will now be discussed. 
4.6.1
Missing Markets and Missing Products
Experience shows that a number of potentially useful products or markets, though readily 
observed in some low- and middle-income environments, are not present in others. The 
sectoral and demand analyses of sections 4.4 and 4.5 should detect the absence of key 
markets or services, and those analyses should be assiduous in discovering the reasons for 
missing products and markets. Many such products—leasing, factoring, reverse factoring, 
venture capital and other forms of private equity, and various types of long-term finance—
can be provided by commercial banks. Otherwise, they may be provided through finance 
companies or other specialized banks or nearbanks, which are often nondeposit taking. 
Insurance and collective savings funds are also important potential providers of those and 
other products (especially for longer terms and for higher-risk profiles). 
It is useful to distinguish between the following underlying causes of underdeveloped 
or missing markets: macroeconomic or legal. Macroeconomic causes may include an infla-
tion history that impedes long-term contracting at reasonable interest rates. Regulatory 
impediments may include restrictions on contractual savings institutions to hold private 
sector assets. Those factors effectively restrict the supply of long-term resources or prohibit 
financial institutions from entering certain markets. Taxation rules or the lack of clear rules 
can result in higher costs for certain financing products, such as leasing. While deficiencies 
in the legal system can impede effective financial intermediation overall, the negative mar-
ginal effect may be especially strong for certain products that depend more on its effective 
functioning, such as leasing. It is important to analyze whether there is a lack of appropri-
ate legislation, a consistent lack of application of the legislation by the court system, or a 
lack of appropriate registration systems at reasonable costs. But there may also be demand 
factors; the demand for certain services may not be sufficient to justify the set-up costs.