About the Gemloc Program

Financial sector development in many emerging markets has been hampered by the absence of liquid, longer-term domestic investment instruments.

Institutional investors have been put off from investing in local currency debt in emerging markets by the lack of access, poor market infrastructure, and excessive red tape. While about 70% of all emerging markets debt is denominated in local currency, institutional investors hold only around 10% of their emerging markets debt investments in local currency.

The Gemloc Program -- or Global Emerging Markets Local Currency Bond Program -- is designed to support development of local currency bond markets and increase their investability so that more institutional investment from local and global investors can flow into local currency bond markets in developing countries.

Stronger, more liquid local currency bond markets can lower the cost of borrowing and reduce financing and investment mismatches and the risks they create. They support development and enhance a country’s resilience to shocks. Institutional investors, both domestic and international, have expressed strong interest in investing in a diversified portfolio of local emerging market bonds as they offer diversification with low correlations and potential returns from an improving credit environment and currency appreciation.

The Gemloc Program has three separate but complementary parts:

• Investment Manager. The first component is an investment manager to promote investment in the local currency bonds of emerging market countries.
• Debt-Market Indices. The second component is an independent, transparent index for emerging markets local currency debt that will be established and managed by a private sector index company. Inclusion in the index will be based on market size plus a score for investability based on a set of predetermined criteria. The new index will create significant benefits as a global public good and as a benchmark for this asset class. So far, less than 2% of local currency debt is benchmarked against leading market indices, which include relatively few countries and instruments. The index will open the way for a broad range of countries to be considered for investment.
• Advisory Services. The World Bank will provide advisory services to emerging market countries to develop and strengthen their local bond markets. Country specific programs will be designed with stakeholders to facilitate policy reforms, and improve market infrastructure and regulation.