Types of Financial Innovation



        Financial innovation enhances sustainability of institutions and their outreach to the poor. A useful distinction between different types of financial innovations include:

  1. Financial system/institutional innovations.

    Such innovations can effect the financial sector as a whole, relate to changes in business structures, to the establishment of new types of financial intermediaries, or to changes in the legal and supervisory framework. Important examples include the use of the group mechanism to retail financial services, formalizing informal finance sysems, reducing the access barriers for women, or setting up a completely new service structure.

  2. Process innovations

    Such innovations cover the introduction of new business processes leading to increased efficiency, market expansion, etc. Examples include office automation and use of computers with accounting and client data management software.

  3. Product innovations

    Such innovations include the introduction of new credit, deposit, insurance, leasing, hire purchase, and other financial products. Product innovations are introduced to respond better to changes in market demand or to improve the efficiency of

Source:
  • Hartmut Schneider, "Microfinance for the Poor?" Development Centre Seminars. Paris: OECD and IFAD, 1997.
  • Schrieder, G., and F. Heidhues. 1995. "Reaching the Poor through Financial Innovations", Quarterly Journal of International Agriculture 34 (2): 132-148.
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Hari Srinivas - hsrinivas@gdrc.org
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