When you transform financial sector in developing economies by encouraging greater financial sector openness and better, sounder financial regulation, you’re helping to develop countries transform their domestic financial sectors into economic engines of growth.
This is because financial sector reform and liberalization of financial services markets are closely connected. Strong, efficient financial sectors are essential for developing countries seeking productivity gains and to protect their economies against global shocks. Therefore openness to foreign direct investment in the financial sector coupled with improved financial supervision and regulation is a clear path to economic growth and stability.
It establishes an environment in which foreign-owned financial firms can compete on equal footing with domestic ones. Such as foreign direct investment in domestic financial services businesses. It may also take the form of cross-border trade in financial services.
The regulated financial institutions allow a foreign presence in banking, brokerage, asset management, investment banking, and insurance industries, which stand to benefit substantially.
Since investors look to the protections that regulation provides to protect them from threats to their finances. Having financial regulations in place can help build the economy in that way as more investors will be more attracted to invest in where their finances can receive protection.
The foreign financial institutions can introduce business practices, technology, products, and risk management systems honed in the more developed markets. And, of course, foreign financial institutions can bring their own financial resources to bear as well.