Globally, we cannot talk about economic growth and financial stability without the role of capital markets. Capital markets are markets for securities where corporate institutions and governments raise long-term finance through equity, debt, and hybrids. Sustained economic growth is largely dependent on the ability of its financial system to provide long-term finance to support development projects. In this article, we explore the role of investment banks in capital markets and how they drive economic growth by creating opportunities for investors.
Capital markets
Capital markets enable the efficient allocation of capital by directing surplus resources from investors to entities in need of financing. Conversely, the capital markets provide entities in need of financing with access to surplus resources from investors. Capital markets are made up of primary and secondary markets. In the primary markets, borrowers issue financial securities, such as stocks or fixed-income securities, while investors deploy their excess capital to acquire these assets. In the secondary markets, the already issued financial securities are traded among investors through financial intermediaries, for example, brokers, investment banks or mutual funds. Capital markets have several participants which include issuers, investors, insurance companies, stock exchanges, investment banks, commercial banks, mutual funds, brokers, investment advisors, the central government, public entities, private companies and individuals, among others. Capital markets provide diversified funding options which bring participants together to meet their specific financial needs.
Malawi’s capital market has demonstrated significant growth over the years, with pension and insurance assets standing at K5.1 trillion in June 2024 compared to K321 billion in June 2014. The capital market is recognized as a fundamental pillar in the realization of Malawi Vision 2063 – a long-term development blueprint aimed at transforming the country into an inclusively wealthy and self-reliant middle-income nation. The capital market enables capital formation and facilitates economic expansion by bridging the gap between those with surplus funds and those in need of long-term financing. Malawi’s capital market continues to experience substantial growth, in both the equity and debt markets.
The equity market recorded an impressive 528% nominal growth rate while the debt market recorded 282% nominal growth rate in 3 years period from 2022. Equity market capitalization increased from K2.5 trillion in February 2022 to K15.5 trillion in February 2025 while the debt market capitalization grew from K1.6 trillion in February 2022 to K5.9 trillion in February 2025. This positive performance of both the equity and debt markets has attracted investors as shown by the increased trading volumes despite prevailing macroeconomic challenges, reflecting heightened investor confidence and increased participation in capital market activities.
Investment banks
Investment banks are financial institutions which play a crucial role in capital markets by acting as intermediaries between investors and those seeking financing. They primarily facilitate the issuance of securities helping businesses, governments and other organizations raise capital from investors. Investors are assured of better and more predictable returns by having efficient intermediaries that facilitate participants investing in opportunities. Investment banks do not only facilitate capital raising, but provide advisory services, manage risks and conduct thorough market research that helps businesses grow while offering investors avenues for wealth creation. Their expertise in corporate finance, market analysis and in-depth knowledge of the market assists in structuring, negotiating and executing deals which offer customized and unique solutions to the market.
Investment banks operate across multiple segments, offering specialized services that ensure seamless financial transactions and market efficiency. Their ability to assess market conditions, evaluate risks and structure complex financial deals makes them indispensable to both investors and corporate clients. Investors are attracted to opportunities which optimize returns on their investment, therefore, investment banks ensure that the transactions are structured for bankability to raise the necessary capital. The banks also ensure that the opportunities align with the investment objectives of the investors.
How investment banks connect investors to opportunities
Capital raising services
One of the primary functions of investment banks is to help companies and governments raise capital through equity and debt offerings for business expansion and infrastructure development. They connect investors with companies seeking funding through managing private placements and listing on the stock exchanges.
The capital-raising process starts when a company (the issuer) identifies a project requiring funding and approaches an investment bank to assist in the process of securing funding. The investment bank assesses the market interest for the project, reviews the company’s details thoroughly and obtains internal approvals to proceed with the transaction. Next, the investment bank advises the company on the best capital raising structure, whether debt or equity or a combination of the two. They then prepare a prospectus or information memorandum, a document that provides potential investors with essential information detailing the company’s financial status, risks, and investment terms. The investment bank then organizes a roadshow where the company’s management and the bank present the investment opportunity to potential investors.
The bank also figures out the best price for the investment through a process called book building, where they collect bids from investors to determine the optimal price. The issuer then issues the investment security to the investors and subsequently the investment can be traded on the secondary market either on an exchange like the MSE if listed or over the counter.
Advisory services
Investment banks provide expert financial advisory services tailor made to the client’s financial needs and investors’ appetite. Investment banks provide strategic advice to companies seeking strategic partnerships for their business and financial growth. Their services include advisory on mergers and acquisitions, corporate restructuring, divestitures, and strategy
- Mergers and acquisitions (M&A): Structuring and executing transactions that maximize valuemfor shareholders.
- Corporate restructuring & divestitures: Assisting firms in optimizing business portfolios and shedding non-core assets.
- Market entry & expansion strategies: Advising companies on strategic partnerships and market positioning.
- Business valuation & due diligence: Conducting financial and operational assessments to guide investment decisions.
Through these services, investment banks identify the best financing options for clients, conduct due diligence, market research, business valuations, and strategy evaluations to structure and execute deals that maximize value for both borrowers and lenders.
Underwriting and risk management
Investment banks protect investors’ capital by offering risk management solutions such as underwriting, hedging strategies and portfolio diversifications. Investment banks underwrite securities by guaranteeing the issued securities will be sold to the public. For example, in initial public offerings, underwriters are key as they provide assurance that all unsubscribed shares will be taken up by them. Similarly, in debt markets, investment banks underwrite the debt issuances by guaranteeing that the issuers will raise the required funding in cases of low participation from investors.
Investment banks also manage risks through comprehensive research to identify key risk factors prevailing in the market and provide mitigations to help investors minimize losses while optimizing returns. This ensures that investors can capitalize on opportunities without exposing themselves to unnecessary risks.
Market research
Investment banks provide in-depth market research and analysis, offering investors data-driven insights into various industries and asset classes. Their research teams analyze economic trends, historical financial performance and the prevailing market conditions which form a basis for predicting market movements.
- Macroeconomic trends: Monitoring inflation rates, monetary policies, and economic growth forecasts.
- Industry and sector performance: Evaluating market opportunities across various industries.
- Financial modelling and projections: Forecasting company earnings, valuations, and investment risks.
- Regulatory developments: Advising clients on policy changes and compliance requirements.
The market research findings serve as a basis for providing financial advisory services which assist investors in making informed investment decisions. By offering timely and insightful market intelligence, investment banks enable investors to optimize their portfolios and capitalize on emerging opportunities.
Where can one access investment banking services in Malawi?
In Malawi, investment banking remains a relatively untapped sector, with CDH Investment Bank being the only fully-fledged investment bank, having commenced operations on April 2, 2012. CDH Investment Bank is a registered corporate advisor by the Malawi Stock Exchange and is a licensed valuer by the Registrar of companies. CDH Investment Bank leverages on its existing expertise in arranging various transactions to provide viable solutions to clients, supported by an experienced team with in-depth market knowledge. Recently, some commercial banks and other financial advisory institutions have expanded their services to include investment banking. The sector presents significant growth potential, particularly as the country focuses on large-scale infrastructure projects that require substantial funding for implementation.
Capital markets are the backbone of economic development, providing the necessary financial infrastructure for businesses, governments, and investors to thrive. Investment banks serve as critical enablers of this ecosystem, ensuring capital flows efficiently while mitigating risks and optimizing investment returns.
In Malawi, the rapid growth of the capital market both in the equity and debt markets demonstrates the increasing confidence in market-based financing solutions. With investment banks at the forefront of capital formation, risk management, and financial advisory, they continue to bridge the gap between investors and opportunities, fostering a robust and resilient financial landscape for sustained economic
