He said the presence of a strong regulator, a sound and resilient supervisory and regulatory framework as well as robust consumer protection statute were some of the critical foundation required.
All these factors must be in place to ensure these institutions “clear the hurdle” to become a viable source or financing and benefit the economy, he said, when delivering the keynote address at the “Future finance conference 2016” on Friday.
Muhammad pointed out the banking sector, by itself, would not be able to cater for all the increasing and expanding needs of the economy of the future.
“This is precisely why we need to develop the role of market-based financing institutions as a new source of funding.
“Niche institutions such as factoring and leasing companies, angel funds and alternative credit providers of various industries such as motor, housing and consumer retail sector can play an important role in contributing towards providing consumers with greater funding choices.
“There, however exist a high bar and strict preconditions that must be met before this funding model can take root and flourish,” he said.
Muhammad also said the ultimate aim remains in protecting consumers’ interests, preventing predatory practices, managing debt levels, including high household debt, and preventing borrowers from falling into financial hardship due to inability to service debt.
“At the same time, we must not ignore important changes in the global and domestic financial landscape that will affect current and future priorities to deliver a financial system that effectively serves our economy,” he said.
He added that one of the most significant changes has been the commoditisation of financial services.
This has been largely driven by technological advancements, enabling financial products and services to be delivered by a broader set of institutions while driving lower margins for traditional providers such as banks and insurance companies.
These “disruptions’ introduce new ways of interacting with consumers as well as changes to the nature of financial intermediation itself.
Muhammad pointed out the implications were far reaching and called for a re-thinking of business models and growth strategies, regulatory frameworks and customer relationships.
The global economy and financial systems have also become more interconnected. While this development augers well for businesses and trade, it also dramatically compounds the economic and social costs of financial failures.