Financial Innovations and Credit Market Evolution

Financial innovations reduce transaction costs and risk and so bring about a widening and deepening of capital markets and contribute to acceleration of economic development through the favourable impact on saving, investment and output. This paper examines the relationship between finance and development and the nature and characteristics of financial innovations. The author discusses the role of policy intervention in quickening the pace of financial development. A case study of an innovative bank is used to illustrate innovations essential for financing small farm and non-farm enterprises and mobilising resources from middle and tow income groups in developing countries.