Strengthening capital markets in Bosnia and Herzegovina

3. The way forward: Priorities for capital market development in Bosnia and Herzegovina

The discussions held during the meetings organised under the EU for Private Sector Development initiative, which took place in Bosnia and Herzegovina from 10 to 12 March 2026, highlighted several priority areas where targeted policy action could support the development of local capital markets.

The recommendations outlined below are not intended to be exhaustive. A comprehensive assessment of capital market development would require more in-depth analysis and a broader review process. Nevertheless, the recommendations reflect recurring themes identified across stakeholder exchanges and point to key areas where progress could meaningfully strengthen the capital markets’ development and businesses’ access to finance, encompassing both short- and longer-term policy actions:

The public equity and corporate bond markets

• Improve alignment of existing stock exchange frameworks with EU standards to enhance interoperability. Although both stock exchanges operate under similar legal principles, differences remain in operational and regulatory practices, resulting in divergent transparency and disclosure standards for investors and issuers. Moreover, there is no formal mechanism for cross‑listing or interoperable trading. Liquidity thus remains fragmented, and investors cannot easily execute trades in the same security across venues. The planned establishment of a third exchange in the Brčko District is likely to further complicate the situation.

  Multiple stock exchanges are, however, not inherently problematic: for example, several EU countries, including Germany and Spain, operate multiple exchanges. However, these markets are generally interoperable and function within a harmonised regulatory framework (Box 4). In the case of Bosnia and Herzegovina, structured co-operation agreements between stock exchanges and their respective supervisory authorities, developed within the bounds of each authority's constitutional competences, can facilitate interoperability and improve market functioning for investors and issuers alike.

Box 4. Integrated stock exchange infrastructure in Spain

The Spanish domestic capital market operates on a highly integrated infrastructure that reduces fragmentation between regional exchanges. In Spain, the four major stock exchanges (Madrid, Barcelona, Bilbao and Valencia) are connected through a single electronic trading platform (SIBE) operated by Bolsas y Mercados Españoles (BME), allowing them to function as a unified market rather than separate venues and facilitating access to liquidity and price discovery across all segments of the market.

• Main regulated market for large, listed companies

• Specific market segments for SMEs and high-growth firms with simpler listing requirements

• Multilateral trading facilities (MTFs) offering alternative trading venues

• Centralised clearing and settlement via Iberclear and BME Clearing

• Compliance with EU regulations (MiFID II/MiFIR) supporting transparency and cross-border integration

This integrated structure helps address some of the challenges that fragmented systems face, such as low trading volumes and barriers for issuers, and supports more seamless conditions for investment and trading within the national market.

Source: (OECD, 2024[48])

• Establish structured advisory and capacity building services, to support businesses in accessing capital markets. Businesses, particularly SMEs, face challenges, as they are often unfamiliar with the range of financing options available beyond traditional bank loans, and alternatives such as capital market instruments are not well understood. While the Sarajevo Stock Exchange currently offers support to potential issuers, including one-on-one consultations for companies interested in issuing corporate bonds or equity, these efforts remain limited in scale. Expanding such services into a more formalised and co-ordinated support ecosystem could significantly improve firms’ readiness to access market-based financing. This could include tailored advisory programmes covering financial structuring and disclosure requirements, as well as practical guidance throughout the issuance process.

• Simplify corporate bond issuance procedures, particularly for SMEs and smaller issues. Current procedural and regulatory requirements can limit the attractiveness of corporate bond issuance, particularly for smaller companies for whom compliance costs weigh most heavily. Targeted reforms in both entities could meaningfully expand the use of corporate bonds as a financing tool and broaden participation in the market.

  • Increase the threshold for simplified prospectus requirements for corporate bond issuances in the FBiH. Currently, simplified prospectus requirements apply only to very small issuances of less than BAM 50 000 (EUR 25 576). Raising the threshold would reduce administrative and compliance costs associated with bond issuance, encouraging more SMEs to raise funds through the bond market. At the same time, it would allow companies to raise funds at a scale better aligned with business development needs.

  • Introduce greater flexibility in issuance conditions in both entities. Bond issuances are often subject to minimum subscription requirements (e.g. around 60% of the planned issue in FBiH) for an offering to be considered successful. If this threshold is not met, issuers may need to cancel or relaunch the issuance or adjust key terms, such as interest rates or maturity. Relaxing such thresholds in certain cases, such as for SMEs with smaller issuances, would give issuers greater flexibility to determine what constitutes a successful placement and reduce the risk of repeated issuances or adverse market signalling. This could encourage more companies – particularly SMEs, which may face limited initial demand – to test the market and raise funds without being constrained by rigid issuance conditions.

Institutional investors

• Introduce (FBiH) and strengthen (RS) tax incentives for voluntary pension funds. Given significant variation in the maturity of voluntary pension frameworks across the two entities, targeted action is needed:

  • Resolve regulatory barriers in the FBiH that have prevented any voluntary pension fund from becoming operational, most critically by addressing the incompatibility between ownership requirements for pension fund management companies and banking regulations;

  • Introduce fiscal incentives in the FBiH for both employers and employees to participate in voluntary schemes, drawing on tools used in countries such as the Netherlands (Box 5);

  • Review the adequacy of existing provisions in RS, including consideration of raising the current BAM 1 200 (EUR 610) annual employer contribution exemption threshold and broadening auto-enrolment participation beyond the public sector; and

  • Pursue convergence of pension tax frameworks across entities, recognising that the FBiH's more complex institutional architecture (involving cantonal institutions and federal parliamentary procedure) may slow the pace of reform relative to RS. However, even incremental convergence would reduce cross-entity distortions and better support capital market development at the level of Bosnia and Herzegovina.

Box 5. Fiscal incentives for institutional investors in the Netherlands

A common practice across OECD member states is to provide favourable tax treatment to pension funds to support long-term investment. One widely used approach is the “Exempt-Exempt-Taxed” (EET) model, which allows capital to accumulate efficiently and enables pension funds to play a central role in financial markets.

The Netherlands provides a clear example of such a system. Both its voluntary (private) and occupational pension funds operate under an EET model, which in turn has contributed to the emergence of pension funds as major institutional investors, supporting the depth and liquidity of capital markets. This system has enabled substantial asset accumulation, with pension fund holdings exceeding 150% of GDP (OECD, 2025[38]).

Key features in the Dutch system include:

• Contributions to pension funds, including voluntary schemes, are tax-deductible, encouraging participation and long-term savings;

• Investment income at the fund level (interest, dividends, capital gains) is fully exempt from corporate income tax, allowing returns to accumulate without erosion;

• Pension benefits are taxed upon withdrawal, ensuring deferred rather than double taxation.

Moreover, the ongoing transition from a defined benefit to a defined contribution system, formalised under the Future of Pensions Act, aims to link pension outcomes more closely to investment performance. Pension funds are required to comply with the new framework by 1 January 2028. As pension payments will depend on how much is invested, instead of a fixed payout, this is expected to encourage more diversified and higher-return investment strategies, including greater participation in capital markets.

Sources: (OECD, 2025[49]; OECD, 2025[38]).

Households as investors

• Continue efforts to restore investor confidence in capital markets. Rebuilding public trust in these markets requires sustained institutional effort across both entities, going beyond the restoration of normal regulatory operations. This includes strengthening transparency and enforcement capacity, expanding co-operation with peer regulators at the regional and EU level, and ensuring the independence of regulatory bodies from political interference. Over time, consistent and credible regulatory conduct across both entities will be essential for attracting new issuers and investors and for deepening participation in capital markets more broadly.

• Build on existing incentive structures to stimulate retail investment in capital markets. Although some incentives are already in place, scope remains to deepen and extend these frameworks and to ensure households are aware of and able to benefit from them:

  • Introduce tax-advantaged investment accounts that bundle existing exemptions into a single, accessible retail product, as well as exemption thresholds that fully shield small and first-time investors from residual investment income taxation. International experience demonstrates that simplified, transparent models of this kind, such as Sweden's Investment Savings Account (OECD, 2025[50]), can significantly encourage broader retail participation.

  • Improve awareness of existing incentives by publishing a plain-language guide to investment tax treatment, disseminated through tax authorities, securities regulators and financial intermediaries, complemented by requirements on brokers and fund distributors to communicate applicable exemptions at the point of sale.

• Expand opportunities to improve financial literacy among citizens. Many individuals in Bosnia and Herzegovina lack understanding of basic financial concepts, such as compound returns and diversification (Halilovic et al., 2019[51]). As a result, a large share of their assets is held in bank deposits, losing value over time when inflation exceeds interest earnings. Tailored initiatives can be developed to help individuals develop a clearer understanding of financial concepts related to capital markets, along with the options of investments available to them.

  • Develop and scale sovereign retail debt programmes as an accessible entry point to capital markets. Such programmes provide retail investors with practical exposure to bonds, investment risk, and portfolio diversification, helping to build financial literacy and broaden participation in capital markets. RS has already taken a step in this direction through its 2025 savings bond issue but could deepen and expand this programme further. FBiH could draw on this experience – as well as on international good practice, such as Slovenia's retail debt programme (Box 6) – to establish a comparable initiative, widening the retail investor base across both entities.

Box 6. Retail bond programme in Slovenia

Following the severe floods and landslides that affected Slovenia in 2023, with reconstruction costs estimated at around EUR 7 billion, the government faced increased financing needs. Against this backdrop, and within the broader context of prolonged capital market weakening since the 2008 financial crisis, the government introduced a retail bond programme under its Capital Market Development Strategy 2023-2030.

The first issuance took place in February 2024, when three-year bonds were offered to domestic retail investors. Demand was strong, with 5 660 new trading accounts opened, suggesting that many first-time retail investors entered the capital market, and over EUR 258 million raised. Building on this success, a second issuance followed in March 2025, with a third launched in March 2026.

The bonds are accessible with a minimum investment of EUR 1 000. Interest income up to EUR 1 000 per year is tax-exempt, while amounts above this threshold are taxed at 25%, in line with the treatment of bank deposit interest. Following issuance, the bonds are listed on the Ljubljana Stock Exchange, allowing them to be freely traded.

For Bosnia and Herzegovina, which has a bank-dominated financial system, Slovenia’s experience illustrates how retail bond programmes can help attract new investors and increase participation in capital markets, thereby supporting the gradual development of domestic markets over time.

Sources: (OECD, 2025[7]; Ministry of Finance of Slovenia, 2025[52]; EBRD, 2023[53]).

The private equity market

• Continue supporting the innovation ecosystem to provide high quality start-ups and attracting private equity, venture capital and angel investment.

  • Introduce definitions for key terms and align with international definitions the legal frameworks for alternative financial instruments. A constraint across both entities is the absence of clear legal definitions tailored to the specific features of private equity. Clear legal definitions for key terms like “startups” and “angel investing” would provide greater clarity for both business owners and investors, potentially enabling the development of a more vibrant angel investment sector. Both entities and Brčko District could consider amending their existing Laws on Companies to include these definitions. Additionally, the competent ministries or agencies across all levels of government should co-ordinate to ensure consistency in these definitions.

  • Develop financial incentives and targeted measures to encourage angel investment. Direct government co-financing of private business angel networks is generally not preferred, as it can risk market distortion and requires specialised expertise. Instead, experience suggests that market-compatible incentives, such as tax measures or well-designed grant schemes targeting individual investors (Box 7), can be effective in stimulating angel investment, particularly among less experienced investors (Denes et al., 2020[54]).

  • Partner with donors and international partners to develop targeted private equity programmes for early-stage financing. In tandem with improving the legal and regulatory framework, collaboration with partners can also help to address the gap in early-stage financing, by providing financial resources, technical assistance and expertise to support the development of both angel investing and venture capital ecosystems.

Box 7. Financial incentives to stimulate angel investment: Germany’s INVEST programme

To address financing gaps faced by young, innovative firms, the Federal Ministry for Economic Affairs and Climate Action launched the INVEST programme, designed to connect private investors, particularly business angels, with early-stage companies and encourage the provision of venture capital.

The programme combines two complementary financial incentives designed to reduce the risks associated with early-stage equity investment while improving potential returns. First, an acquisition grant provides a non-repayable, tax-free subsidy covering 15% of the equity investment, for investments ranging from EUR 10 000 to EUR 333 333. Second, an exit grant offers a lump-sum refund of capital gains tax, amounting to 25% of the profit earned from the sale of shares acquired under the programme, subject to a minimum capital gain threshold and capped at the level of the initial acquisition grant.

Empirical evidence points to the effectiveness of this approach. The programme has successfully attracted new participants into the risk financing market, with first-time investors accounting for more than half of grant recipients. At the same time, supported firms have demonstrated strong performance, with investments associated with significant increases in employment and sales growth (19% and 76%, respectively). In addition, each euro of public support has leveraged further private capital, with more than one euro of private investment mobilised per euro of subsidy.

Overall, Germany’s INVEST programme illustrates how well-designed financial incentives can expand the investor base, mobilise private capital and support the scaling of innovative firms, provided that such measures are carefully calibrated to complement, rather than crowd out, market-based financing.

Sources: (German Federal Ministry for Economic Affairs and Climate Action, n.d.[55]; Berger and Gottschalk, 2025[56]).

The corporate sector

• Address governance and ownership barriers in family-owned firms. In Bosnia and Herzegovina, many businesses are family-owned and retain both ownership and management across generations. This can create governance challenges, as concentrated ownership structures may lead to a reluctance to dilute control. Survey evidence points to a general aversion to shared ownership among entrepreneurs (Kozarević and Amra, 2016[57]). While this model can ensure stability, it may also result in inefficiencies, including resistance to professional management, slower decision making, and underutilisation of external equity capital. Encouraging a separation of ownership and management, for example through dual-class share structures (Box 8) or professional management boards, could facilitate greater openness to external investment and support broader capital market development, while still allowing families to maintain long-term strategic control.

Box 8. Family firms and dual‑class shares

In Bosnia and Herzegovina, with many long‑established family businesses that are reluctant to invite outside shareholders, traditional equity issuance can be unattractive if it risks ceding control. Dual‑class or non‑voting share classes can be a useful compromise: they allow families to maintain strategic decision making while enabling external investors to participate financially. Such structures can include shares with preferential dividend rights but restricted voting power, contributing to greater access to capital markets and help firms grow beyond closed‑family ownership.

The G20/OECD Principles of Corporate Governance recognise that companies may issue shares with different rights attached, including limited‑voting or non‑voting shares, so long as shareholders are treated equitably within each class and informed about the rights they are acquiring. This flexibility can support capital formation while preserving investor protection.

Sources: (OECD, 2025[58]; OECD, 2023[59]).

Further reading

The following are OECD reports with details on the global context of capital markets and their full-fledged reviews and assessments of capital markets of both the OECD and non-OECD countries:

• Global Debt Report 2026: Sustaining Debt Market Resilience Under Growing Pressure

• Supporting emerging markets and developing economies in developing their local capital markets

• OECD Capital Market Reviews

The following provide context, analysis and recommendations specific to Bosnia and Herzegovina’s access to finance:

• Assessing Bosnia and Herzegovina's Reform Agenda for Private Sector Development

• Western Balkans Competitiveness Outlook 2024

  • OECD: Western Balkans Competitiveness Data Hub

• SME Policy Index for Western Balkans and Türkiye 2026: Regional Profile

  • OECD: SME Policy Index Data Hub