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Political Instability: How Finance Institutions Can Cope

November 21, 2017

Picture courtesy of McKinsey&Company 

 

Financial development is necessary to propel economic growth, to create wealth and develop a nation. However, political instability has a strong effect on the overall economic development. This kind of instability is normally caused by severe economic inequality which could eventually affect financial development. Therefore, we need to know that political stability as well as the fundamental conditions which induce it have to be added to our understanding of the main determinants of modern financial development.   

 

In Zimbabwe, for instance, political instability has led to financial backwardness. The political instability is mostly as a result of a weak democracy which is instigated by economic inequality. Hence, we can unearth a detailed explanation for the unwillingness and incapacity to protect the investors; this is mostly noted when there is severe inequality. Understanding that political stability diminishes financial development may have a positive influence on a country’s economic development.

 

It is noted that banks are bound to fail in a politically unstable environment which may severely affect customer firms. If a bank fails then the connected firms could temporarily lose their source of funding and opt to searching for other secure lenders. Political instability may lead to a collapse of the banking sector which will eventually affect the users who rely on bank credit to fund projects. Due to the fact that issues in the banking sector may influence the economic growth of a country, it is important to learn measures that can be undertaken to prevent the crisis.

Digital technologies have become one of the solutions that financial institutions are using to avoid any inconveniences that come from factors like political instability. As a matter of fact, there are some software solutions that are bound to ensure that a bank does not face the risk of failing. For instance, core software banking solutions will allow the bank customers to manage their bank accounts through interconnected branches irrespective of their location. Such software solutions are technologically advanced to include various suites that allows banks to manage their operations while catering to the core banking needs from one platform.

 

Clients of financial institutions majorly require accessibility, security and assurance when they infuse their finances or save them in such organizations. Therefore, software solutions may be the only measure that can be used to improve banking and guarantee security of the customer’s money.

 

  

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