Financial innovations contribute to economic development by correcting market inefficiency and imperfection, and helping individuals and firms budget effectively even during periods of temporary lower income.
Anthony and Aboagye (2014) find that a country’s level of financial deepness is positively associated with its economic growth rate; however, its exact significance varies across nations.
Digital Payments
Billions of dollars are distributed daily in developing countries to pay wages, social transfers, relief funds, supplier and farmer payments and more. Shifting these transactions to digital forms could reduce costs for governments and private-sector enterprises while improving transparency, security and reducing leakage and corruption.
Small-scale entrepreneurs may find that switching to digital payment systems can improve their access to formal credit. According to one recent survey, half of businesses surveyed in developing countries required loans but did not have access. Reliable credit information as well as user-friendly digital payment platforms available through mobile phones is key in expanding access.
For digital payment systems to thrive in developing nations, four essential infrastructures must be in place: power, internet connectivity, mobile network coverage and a strong regulatory framework that supports their use. Promoting digital literacy while providing user-friendly platforms at an affordable cost are also key steps toward success.
Crowdfunding
Similar to lending small sums of money to friends and family, crowdfunding allows individuals to pledge funds online in support of creative projects, groundbreaking technologies or ventures. These pledges may serve as loans or donations depending on the project and platform chosen.
Kroijer notes that crowdfunding offers an effective solution for developing countries which struggle with inefficient traditional development finance channels, like Nepal where over $23 million was donated for relief efforts through platforms like AlliedCrowd.
Crowdfunding has yet to gain ground in Africa; Zambia, Kenya and South Africa only account for 0.5% of global crowdfunding volumes. Cambridge Judge Business School conducted research that revealed crowdfunding success depends on various factors like corruption control and quality regulation a country implements; costs associated with doing business as well as desired financial returns can all influence success in crowdfunding ventures.
Biometric Payments
Provide individuals in developing countries with unique identifiers has never been more important. Without it, tax evasion and fraud become rampant; Liberia saw this firsthand by switching from paper-based salary payments to electronic salary payments which saved $4 million each year! In addition, recent studies demonstrated how adding biometric ID technology into LPG subsidy programs reduced corruption by eliminating incentives for households to claim lower government rates before purchasing products at more costly black market prices.
Fingerprint scanning to unlock phones and access apps has long been standard practice, while facial recognition technology is increasingly popular. Built into point-of-sale devices, this hardware can scan and identify faces associated with bank cards on file; it can even be used for age verification when purchasing alcohol beverages. In India, an innovative payment system combined with biometric sensors on existing ATMs has produced impressive returns by shifting power away from local officials – showing how tools instead of culture tendencies often shape anticorruption campaigns.
Mobile Banking
As digital technologies advance, formal financial systems are being reconfigured to be inclusive and accessible for all citizens. This involves offering mobile banking, Internet banking, electronic transfers, microfinance services and insurance products at cost-effective prices; all with the potential of improving poor people’s lives while contributing as consumers in our economy.
However, poor communities still face difficulties adopting and continuing to use mobile banking technologies despite its numerous advantages. This difficulty is compounded by multiple service providers with different business models serving them; further complicating matters further as members often come from diverse cultures with distinct values.
These factors influence the usage and adoption of mobile banking in developing countries. Studies have revealed that cultural factors, including gender differences (male-dominated societies versus female-dominated ones) and expected roles for men and women within families can impact adoption rates of mobile banking services. Smartphone use also increases likelihood for this practice.
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