“We’re not getting the equity investment that is needed in the global economy because of a flight to safety,” she said, while speaking at the B20 India Summit being held in New Delhi from August 25-27. The flight to safety makes everyone leave emerging markets. “And the emerging markets are really the engine of growth,” Songwe, Chairwoman and Founder of Liquidity and Sustainability Facility, said.
Interest rates in the emerging markets have been around 6% whereas it isn’t even 1% in the developing and developed markets. It is only now that the Federal Reserve has raised the US interest rates to a 22-year high to 5.5%.
She also explained that one of the things that kills development in an emerging developing country is when you are forced to do a fire sale because you need financing. Fire sales refer to sales of goods at a very low price, and it usually happens during a bankruptcy.
“This means that before you get into a liquidity crisis, if you don’t have access very quickly to resources, to central bank or the IMF resources, then what you do is you do fire sales. You sell your best assets to be able to get liquidity and this is essentially what is keeping emerging developing countries in low-income stages. So we need to find new facilities that provide secondary capital markets to push inclusion levels of interest rates and access to markets,” she said.Further, in emerging markets, many micro, small and medium enterprises (MSMEs) are in the informal economy. Speaking more on this, Shinta Kamdani, CEO of Sintesa Group, said Indonesia’s informal economy is an example of this.Indonesia has 83 million people, out of which 60% of workers are in the informal economy and the government is trying to move them to the formal economy. “This is not just the story of Indonesia or Asia but there are many such countries in a similar situation,” she said, adding that the G20 presidency moving among countries that have a lot of similarities will give more focus towards financial inclusion.Indonesia has a national index created by the Economic Development Planning Ministry to measure the financial inclusivity ratio or third party accounts or bank accounts against the working population and bank credit to MSMEs. “So we are taking this very seriously. We believe that improving the financial assets to MSME and the informal sector shouldn’t be seen as financial deepening,” she added.
The B20 (Business20) is the G20’s dialogue forum with the global business community. Established in 2010, B20 is known to be the most prominent engagement groups in G20, with companies and business organisations as participants.
