Financial innovation and credit market development

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Abstract
This paper studies the significance of social innovations - in particular, financial and fiscal innovations. Financial innovations tend to reduce transaction costs and risk, and as a result bring about widening, deepening and integration of capital markets. Such financial development accelerates the pace of economic development through its favorable impact on saving, investment, and output. The relationship between finance and development and the precise role of financial innovations are discussed in Section I, while Section II deals with the nature and characteristics of financial innovations. Section III examines the role of policy intervention in quickening the pace of financial development in the developing countries. The nature and characteristics of financial innovations essential for financial small farm and nonfarm enterprises and for mobilizing resources from middle and low income groups in the developing countries, are illustrated by a case study of an innovative bank in Section IV. Some concluding observations are made in the final section.
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