The information obtained from the review of literature has thereafter been subjected to detailed qualitative analysis in accordance with the aims and objectives of the study and the formulated research questions in a thematic manner in order to arrive at final outcomes. The adoption of such a research method has helped in the generation of interesting and useful research outcomes (Bryman & Bell, 2007).
3. Literature Review
This review of literature has entailed the detailed study of various aspects of the research subject with the help of information sources that have been accessed with systematic keyword based search. The review has been structured in a sequential manner and includes an overview of financial innovation, the evolution of innovative financial instruments, types of innovative financial instruments, the role and utility of these instruments in the global economy and the risks that are inherent in their usage.
3.1. Overview of Financial Innovation
Innovation is widely accepted and acknowledged to be one of the most important drivers and shapers of the society and the economy (Ketkar&Ratha, 2008; Adam &Guettler, 2015). The development of various innovative products and services has led to very significant changes and alterations in human life and society (Armstrong et al., 2012; Ketkar&Ratha, 2008). Innovation has been described as the development and creation of new products, services and processes that can be commercially exploited for organisational and stakeholder benefit (Adam &Guettler, 2015; Ketkar&Ratha, 2008). The area of finance has also experienced significant innovation (Ketkar&Ratha, 2008; Armstrong et al., 2012). Vachris (2017) stated that financial innovation has entailed the generation of various types of advances in areas of financial instruments and systems of payment that are used in the borrowing and lending of funds. Such innovative changes, which have been driven by modernisation and updates in equity and credit generation, risk transfer and technology have resulted in greater credit facilities for bank customers and provided banks with new and comparatively inexpensive ways for raising equity capital (Vachris, 2017; Armstrong et al., 2012).
United Nations Development Programme (2012) stated that financial innovation increases institutional sustainability and facilitates their outreach to economically disadvantaged social segments. OECD (2014) differentiated financial innovation into three specific segments, i.e. product innovation, process innovation and innovations in financial systems and institutions. Product innovation include the development, creation and introduction of various new financial products in diverse areas like deposits, credit, leasing, insurance, hire purchase and others. They are developed and introduced from time to time in order to respond and react to market alterations and improve marketing and operating effectiveness (Anderloni&Bongini, 2009; Schueffel&Vadana, 2015). Process innovations essentially comprise the development and introduction of different types of new business processes that can result in market expansion or greater efficiencies (Mention &Torkkeli, 2014; Anderloni&Bongini, 2009). Innovations in areas of financial systems and institutions can impact the financial sector and are connected to alterations in business structures, the development of new varieties of financial interme
