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Wednesday, November 7, 2007

Financial Sector Deepening Panacea for Emerging Markets

Financial deepening
This refers to the increased provision of financial services with a wider choice of services geared to all levels of society.It also refers to the macro effects of financial deepening on the larger economy. More financial deepening generally means an increased money supply. The more liquid money is available in an economy, the more opportunities exist for continued growth.
It can also play an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services like health and education, thus having a more direct impact on poverty reduction.

Financial Markets
In economics a financial market is a mechanism that allows people to easily buy and sell financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other items of value at low transaction costs and at prices that reflect the efficient market hypothesis. Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.

Growing Interest in financial deepening
There has been a growing interest, around the developing world and economies in transition, in the promotion of rural financial deepening. The hope of better risk sharing, more efficient allocation of capital, more productive investment, and, ultimately, higher standards of living for all is propelling the drive for stronger connections between financial systems across the world.
Moreover, attention has gradually shifted, from the earlier exclusive emphasis on credit,
towards a growing recognition of the importance of different types of financial services,
-Deposit facilities and similar means to accumulate liquid reserves and hold
stores of value.
-Payments instruments and opportunities to send and receive remittances
and to exchange currencies and
-Mechanisms to manage liquidity and cope teh risks.

Asian economies, particularly emerging markets, are taking an active part in this quest, at both the regional and global levels. At the global level, Asia's integration with the international financial system is well advanced.

Financial Integration
In the years since the 1997–98 financial crisis, Asian governments have affirmed their intention to promote financial integration at the regional level with a view to both reducing vulnerabilities and improving the allocation of savings. A series of initiatives have been launched to boost regional self-sufficiency, ranging from information sharing to financing arrangements in foreign exchange. Governments are also taking steps to deepen regional bond markets to reduce reliance on bank financing and to shelter the regional economy from the possible repercussions of future volatile capital flows originating elsewhere in the world.

Financial Sector Deepening in Kenya
The Financial Sector Deepening (FSD) Trust was established in early 2005 to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty.more

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