Capital market as an alternative source of business financing

This paper aims to analyze the reasons behind the high discrepancy in bank and capital market financing of business in Uzbekistan and to work out solutions for balancing the sources of business financing. Currently, Uzbekistan’s capital market is not providing a real competitive source of business financing, an alternative system of mobilizing savings and allocation, and providing a reliable means of attracting foreign investment. This article mainly discusses the competitive neutrality problem in business financing between the banking sector and Uzbekistan’s equity market. In this country, both the banking sector and the capital market participate in business financing. However, due to different regulative approaches, bank credits dominate in providing finance to businesses. Banks enjoy considerable state support, subsidies, guarantees, and privileges. Significant differences in regulation not only create the monopolistic situation in favour of banks in business financing, but also indirectly restrain an institution in its infancy, as is the capital market, to develop and provide relatively affordable, long-term, and stable funding to business. The root of the problem lies in the disparity between the regulatory approaches on the part of the state towards the banking sector and the capital market. Therefore, it seems unlikely that any plausible solution to the above problem could be achieved without a comprehensive examination of its causes. This paper is an attempt towards such a review. It provides an analysis of the bank-based and market financial systems main features, attempts to examine the notions of debt and equity financing, and explores the main regulatory differences of banking and capital market financing.