Financial Innovations in Developing Countries

Financial Innovations in Developing Countries

Africa has seen rapid expansion in mobile banking services due to advances in telecommunication and computer technologies, becoming an invaluable tool for financial development in Africa. What was once considered a luxury device is now used extensively across regions for economic development purposes.

ATMs/debit cards and quasi-money innovations could potentially improve intermediation efficiency and transaction costs by replacing cash carried in wallets with these financial innovations. Unfortunately, this may decrease demand for money for transaction purposes which could impede economic growth and development.

Digital Payments

Digital payments are an essential element of economic inclusion in developing nations, helping reduce transaction costs and time required for financial services and improving payment efficiency, which in turn fosters consumer demand and growth of noncash retail payments globally. McKinsey reports this growth rapidly.

Billions of dollars in cash payments are made daily across emerging and developing nations – such as wages, social transfers, humanitarian relief payments, payments to suppliers and farmers, etc. Transitioning these cash-based payments into digital can significantly enhance lives of low-income households – particularly women – while also contributing towards reaching Sustainable Development Goals.

Two-thirds of adults globally now make merchant payments, and in developing economies more than half have an account. Innovative approaches are helping drive this expansion, including nudging to encourage savings; mobile money platforms; crowdfunding gateways and roboadvising tools. Furthermore, collaborative initiatives such as SANEF in Nigeria and Mukuru in South Africa have established large agent networks accessible by banks.


Take out a $100 loan may seem trivial to many in the developed world, but for impoverished families this small sum could mean the difference between making ends meet or not. A $100 loan could help start or expand a business, pay school fees for children attending private schools, buy livestock or invest in solar power technologies.

Muhammad Yunus’ Grameen Bank pioneered microfinance in the 1970s with its founding principle that once financial services are made accessible, poor households will invest in small businesses to lift themselves out of poverty. This remains popular and has been accepted by donors, international organizations and even some governments.

Development banks have made considerable investments in microfinance financing over time. Bloomberg looked into financial service providers that offer microfinance loans or have done so previously and tracked these investments through a database called Microfinance Information Exchange Market.

Financial Inclusion

Many residents of developing nations live beyond the reach of formal financial services, paying everything with cash payments and having no secure way to save their earnings or invest their wealth. They have no access to credit either – instead relying on informal lenders and personal networks as alternatives.

Economic inclusion relies on providing affordable access and use of quality financial services that meet families and small business owners’ needs. Such access helps generate income, manage irregular cash flow patterns, invest in opportunities and deal with financial shocks effectively. Furthermore, accessing these services helps alleviate poverty while spurring economic growth by helping individuals manage risks more effectively and accumulate savings accounts.

Research on MFS and financial inclusion first started appearing in academic journals in 2008, and their number has steadily grown ever since (Figure 2). Since that time, research on these topics has increasingly centered around low- and middle-income countries in Africa and Asia with particular attention devoted to metrics and indicators related to financial inclusion metrics and indicators.

Banking Sector

In developing countries, bank deposits typically represent household savings and serve as the main source of external financing for firms; their importance can vary between countries.

Latin America relies heavily on development banks (institutions that extend credit to specific sectors of the economy) for financing domestic activities; however, during the late 1980s and early 1990s private-sector bank credit declined due to privatization initiatives in several countries.

As regulatory pressures intensify in 2024, banks must reassess their business models and utilize new technologies to enhance customer experience. Generative AI could speed up credit risk assessments and instantly notify mortgage applicants of missing documents; furthermore it could aid lenders by including rent payment histories, gig economy incomes and utility bill payments as sources for credit invisibles.