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VOL. 8, ISSUE 1 (2026)
The backbone of growth: Analyzing the role of banking systems as the foundation for economic development in developing economies
Authors
Nibedita Mallick, Dipak Kundu
Abstract
This research paper investigates the critical role of banking systems
as the fundamental infrastructure for economic development in developing
economies. While physical infrastructure (roads, ports) is often prioritized,
the financial architecture—specifically the banking sector—serves as the
central nervous system that facilitates capital allocation, risk management,
and liquidity provision. This study synthesizes theoretical frameworks,
including the Schumpeterian theory of creative destruction and the McKinnon-Shaw
hypothesis, to argue that financial deepening is a prerequisite for sustainable
growth. Through quantitative analysis of macroeconomic indicators and
qualitative case studies of India, Kenya, and Nigeria, the paper examines how
commercial banking, microfinance, and digital banking innovations drive
industrialization, poverty reduction, and GDP growth. The findings suggest that
while banking penetration correlates strongly with economic development, the
efficacy of this backbone is contingent upon regulatory stability,
institutional depth, and the transition from state-dominated credit allocation
to market-driven mechanisms. The paper concludes with policy recommendations
for strengthening banking resilience in emerging markets.
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Pages:28-35
How to cite this article:
Nibedita Mallick, Dipak Kundu "The backbone of growth: Analyzing the role of banking systems as the foundation for economic development in developing economies". International Journal of Finance and Commerce, Vol 8, Issue 1, 2026, Pages 28-35
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