pool. syndication and securitization also lead to greater risk distribution. commercial and industrial ( c & i ) lending potential has expanded with the adoption of syndication practices, allowing credit risks to be spread across a greater number of participating banks and nonbank lenders. perhaps an even more significant support for the expansion of c & i loans is the rapid growth of collateralized loan obligations ( clos ) – special purpose entities that buy c & i loans with funds raised from investors seeking different risk exposures. clos allow loans to be financed primarily with high - rated debt securities issued to institutions like mutual funds, pension funds, and insurance companies. indeed, in recent years, the share of syndicated c & i term loans funded by institutional investors is estimated to have exceeded that funded by commercial banks. for clo structures to be effective, they invariably must include a more risky equity tranche. even the most sophisticated financial products are not immune to the physical law of conservation of matter – the risk must rest somewhere. hedge funds reportedly have served as willing buyers of these riskier positions, and we are all aware of their phenomenal growth. now, more than 4, 000 hedge funds hold assets of about $ 1 - 1 / 2 trillion. as important as the participation of hedge funds, the derivative products themselves allow credit risk to be hedged, which has the beneficial effect of further increasing the pool of other investors as well. the increase in financial product and provider innovation appears to be quite persistent ; future trends, however, are likely to be significantly influenced by legal, regulatory, and other public policies. the second factor, perhaps equally persistent, supporting strong investor confidence in u. s. markets has been our economy ’ s strong macroeconomic performance. researchers have documented the socalled “ great moderation ” in which the u. s. economy has achieved a marked reduction in the volatility of both real gross domestic product ( gdp ) and core inflation over the past twenty years or so. in theory, reduced volatility, if perceived to be persistent, can support higher asset valuations – and lower risk premiums – as investors require less compensation for risks about expected growth and inflation. in this manner, confidence appears to beget confidence, with recent history giving some measure of plausibility to the notion that very bad macroeconomic outcomes can be avoided. the great moderation, however, is neither a law of physics nor a guarantee of future outcomes. it is only a description – an

charles s r chuka : malawi stock exchange - contributing to the growth and development of the economy speech by mr charles s r chuka, governor of the reserve bank of malawi, at the 20th anniversary celebrations of the malawi stock exchange, blantyre, 1 december 2016. * * * the chairman of the malawi stock exchange, mr. augustine chithenga, secretary to the treasury, represented by mr. ambrose mzoma, directors of the board of the mse, deputy governor economics, dr. naomi ngwira, the ceo of the mse, mr. john kamanga, business captains, distinguished guests, members of the press, ladies and gentlemen. i feel greatly honoured to join you this afternoon during this symposium marking the 20th anniversary of the malawi stock exchange ( mse ). i am particularly delighted to make my brief remarks because the story of the mse is intricately intertwined with that of the malawi economy. by its nature, the performance of the exchange represent a perfect mirror image of the country ’ s economic fortunes. two take always from my remarks. first and foremost, macroeconomic stability is always a prerequisite for a conducive investment climate in which stock exchanges find their niche. second, stock exchanges grow at the back of accelerated and sustained economic growth. the ceo will soon help us understand and appreciate the performance, challenges and prospects for the exchange in a moment, and so i will limit my remarks to the basic questions of why the reserve bank of malawi together with treasury established the mse ; what went wrong ; and what will be different in the years ahead. a little background is in order for a better appreciation of the context. during the 1970s and 1980s the malawi economy grew at a fast pace as a result of the development of much of the economic infrastructure we see today as well as the tremendous growth in the agricultural sector. economic infrastructure was financed largely by increasing donor aid, but government augmented that by issuing long - term domestic bonds – local registered stocks ( lrs ). government bond issuance was made possible by relative macroeconomic stability achieved through fixed exchange rate regimes supported by strict exchange controls. the monetary policy framework was basic, the central bank used to set credit ceilings for each bank and also decided on bank lending rates. in fact, banks were directed to focus on lending to agriculture at 2 percentage points below base rate. the foregoing macroeconomic policy framework paid off in terms increased agricultural productivity and diversification. government invested heavily in