Other Agencies That Can Access the Capital Market
Edited by Omotolani Ajileye
Definition of Capital Market
The capital market is a financial market where individuals, businesses, governments, and other organisations raise and invest medium- and long-term funds, usually for periods of more than one year. It provides a platform where securities such as shares, bonds, and debentures are issued and traded. Through the capital market, organisations can obtain money to finance activities such as business expansion, construction of factories and infrastructure development, while investors can invest their savings in securities with the aim of earning returns such as dividends or interest. The capital market therefore helps to connect people and institutions that have surplus funds with those that need funds for long-term investment.
Other Agencies That Can Access the Capital Market
The capital market isn't only for commercial companies. Other organisations and agencies that may raise funds through the capital market include:
1. Government
The government can access the capital market to raise money for financing public projects and programmes. Federal, state and, where legally permitted, local governments can issue bonds or other approved securities to obtain long-term funds from investors. The money raised may be used for projects such as roads, schools, hospitals, electricity, water supply and other infrastructure. The government repays the borrowed money according to the terms of the security and normally pays interest to investors.
2. Public Corporations
Public corporations are organisations owned or controlled by the government that provide goods or services to the public. Where they meet the relevant legal and regulatory requirements, they can access the capital market to raise funds for expansion, modernisation and major projects. For example, a public corporation may need a large amount of money to purchase equipment or expand its operations. Capital-market financing can provide such funds without relying entirely on government budgetary allocations.
3. Financial Institutions
Financial institutions such as banks and other eligible financial organisations can raise long-term funds through the capital market. They may issue shares, bonds, or other approved securities to investors. The funds raised can be used to strengthen their capital base, expand their operations, finance lending activities or support other long-term investments. Access to the capital market therefore provides financial institutions with an additional source of funding.
4. Large Private Companies
Large private companies that meet the requirements of the relevant capital-market authorities can raise funds through the capital market. They may issue shares or debt securities to investors to obtain money for business expansion, purchasing machinery, establishing new branches, developing new products or financing major projects. This allows companies to obtain substantial long-term funds from a wide range of investors rather than depending only on bank loans.
5. Multilateral and Supranational Institutions
Multilateral and supranational institutions are organisations established by several countries to promote economic and financial development. Some of these institutions can raise funds through capital markets by issuing bonds or other securities. The funds obtained may be used to finance development projects, infrastructure, poverty-reduction programmes and other activities in member countries. Their participation also helps connect international investors with development projects.
6. State Governments and Other Eligible Public Authorities
State governments and other public authorities that satisfy applicable legal and regulatory conditions may access the capital market to raise long-term funds. For example, a state government may issue bonds to finance the construction of roads, schools, hospitals or other infrastructure. Investors who purchase the securities provide funds to the government, which then repays the principal and interest according to the agreed terms. This provides an alternative to relying solely on internally generated revenue or federal allocations.
Alo Read: Traditional Financial Institutions & The Money Market; What You Need to Know
Summary
Apart from ordinary companies, the following may access the capital market, subject to relevant laws and regulations:
Federal and sub-national governments.
Local authorities were permitted.
Public corporations.
Eligible financial institutions.
Large private companies.
Multilateral and supranational institutions.
They may raise funds through appropriate securities such as shares and bonds.
