Financial Sector Competition
Creating open, investable, and innovation-ready financial markets— the role of the UNCDF Policy Accelerator.
A competitive financial sector is the foundation of an investment-ready economy.
When markets are open, rules predictable, and incentives aligned, capital flows more easily to MSMEs, women, and last-mile communities—driving growth and resilience.
UNCDF helps regulators design competition frameworks that reduce concentration, lower costs, and unlock private investment, strengthening the conditions for inclusive digital finance and sustainable development.
Breaking the Bottlenecks to Competitive Growth
Across many emerging financial markets, regulators face a common structural challenge: concentrated market power combined with high barriers to entry that undermine contestability and limit the sector’s contribution to inclusive growth. Dominant providers often control essential infrastructure such as payment switches, agent networks, or digital credit ecosystems, enabling them to influence pricing, restrict interoperability, and set access terms that tilt the playing field in their favor. These dynamics reduce competitive pressure, dampen innovation incentives, and raise transaction costs for consumers and MSMEs. They also weaken the credibility of the regulatory environment from an investor perspective, as markets shaped by entrenched incumbency and opaque access rules are perceived as higher risk and less able to generate diversified, resilient pipelines of financial service providers.
Compounding this is the fragmentation of regulatory oversight across central banks, telecommunications regulators, ICT ministries, and competition authorities. Each institution governs a piece of the digital finance landscape, yet few are equipped with the tools or coordination mechanisms needed to manage competition issues holistically. Licensing frameworks are frequently calibrated for large institutions, making it difficult for fintechs, women-led enterprises, and smaller financial institutions to enter and scale. Inconsistent policy signals increase compliance costs, encourage regulatory arbitrage, and reduce the predictability investors require to commit capital to new markets or technologies. Together, these factors limit financial sector deepening, slow the diffusion of innovation, and create structural bottlenecks that constrain a country’s ability to mobilize investment in support of national development priorities.
Impact Signals What regulators and policymakers should expect to see when competition improves.
Reduced market concentration measured through new provider licensing, market share shifts, and expanded service options.
Lower transaction and onboarding costs, especially off-net fees and cross-provider transfers.
More investment-ready fintechs and FSPs, supported by proportional licensing and open access to infrastructure.
Higher levels of capital flow into MSME finance, digital payments, and last-mile delivery channels.
Improved consumer outcomes—lower fees, fewer complaints, broader coverage.
How We Drive Change
1. Diagnose Market Power & Structural Barriers
We map concentration, licensing constraints, bottlenecks in infrastructure access, pricing distortions, and cross-sector governance gaps—using a market systems lens with gender and inclusion markers.
2. Co-Design Reform Options with Authorities
Regulators, competition authorities, and market actors jointly shape policy pathways—including tiered licensing, interoperability mandates, and mechanisms to ensure transparent access to essential facilities.
3. Build Institutional Capability & Market Dialogue
UNCDF strengthens regulatory units, develops supervisory tools, and facilitates inclusive public–private dialogue so that reforms are coordinated, implementable, and aligned with investment incentives.
4. Support Implementation & Investment Readiness
We help governments sequence reforms, adopt open standards, apply proportionality, and link changes to downstream investment opportunities—making markets more predictable and investable.
Policy Actions We Support
Lower entry barriers through tiered or proportional licensing for fintechs and non-bank financial institutions.
Enable fair access to essential digital finance infrastructure (switches, agent networks, APIs).
Mandate or incentivize interoperability for payment systems, wallets, and digital credit ecosystems.
Harmonize regulatory mandates across financial, telecom, and competition authorities.
Standardize open API frameworks to support shared innovation and partnership-based business models.
Align investment incentives with inclusion priorities, including women’s economic participation and MSME finance.
