Introduction into MENA Financial Markets and Institutions

There are significant differences in the levels of financial sector development among the countries throughout the MENA region. However, some broad generalisations can be made about its overall financial system. Despite the dramatic growth in financial institutions, the region’s financial sector is highly dominated by the banking system and plays a small role in the economy. In general, the world capital markets show on average a balanced capital structure of approximately 40 per cent debt securities, 20 per cent stock market capitalisation and 40 per cent bank assets (IMF Global Financial Stability Report, 2010). When comparing this to the MENA region, we find the average balance of capital structure heavily skewed towards bank assets 57 per cent with a strong stock market capitalisation of 37 per cent. However, debt securities still play a minor role with less than 11 per cent. Although the region’s equity markets have a considerably high portion of the capital market structure, compared with the world average, it still considered ‘emerging’ due to its limited role in economic growth.

The aim of this chapter is to compile a comprehensive body of information from a number of various scattered sources about the region’s financial markets and institutions. This chapter is comprised of four sections with the first reviewing the region’s existing regulations and supervisions as the most relevant issue to different financial sector components and to this thesis’ theoretical framework as well. The second section will discuss the region’s banking sector and adopted monetary policy, whilst the third highlights the different components of the region’s non-banking financial sector. Finally, the fourth section characterises the main features of region’s equity markets.

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