One of the key features of financial deepening is that it accelerates economic growth through the expansion of access to those who do not have adequate finance themselves.
Promoting well-managed financial deepening in low-income countries (LICs) can enhance resilience and capacity to cope with shocks, improve macroeconomic policy effectiveness, and support solid and durable inclusive growth.
Limited policy space and instruments to mitigate the ensuing macroeconomic volatility often translate into large growth and welfare costs for these countries.
A large body of empirical research supports the view that development of the financial system contributes to economic growth.
[6] Empirical evidence consistently emphasises the nexus between finance and growth, though the issue of direction of causality is more difficult to determine.
[4] Financial deepening can 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.
In developing countries policy and exogenous influences determine whether financial deepening achieves optimum results.
It notes that costs and benefit exercises need to be attempted by the banks to make financial inclusion congruent with their business models.