Home Finance ROLE OF COMMERCIAL BANKS IN ECONOMIC DEVELOPMENT

ROLE OF COMMERCIAL BANKS IN ECONOMIC DEVELOPMENT

The Banking Sector has for centuries therefore now design one of the support of economic development. 

Actually, history provides us with some initial information. So to clarify economic development regarding how banks give finance for imperialist ventures in newly acquired colonies.

Over time banks have formed an important part in grant a street for both savings and investment.

Land, labour, capital and entrepreneurs so are the basic economic stock attainable to business.

However, to make the use of these resources, a business demand finance to purchase land, So hire labour, pay for capital goods and pay for the distinct entity with specialized skills.

Explanation about following terms:

  1. Initial steps
  2. Secondary steps
  3. Modern steps
  4. Conclusion
  5. FAQ’s

Process of economic development:

role of economic development

In a country like Pakistan, the people suffer that is to say from lack of savings to set up the business.

This gap has to be filled by the massive resources to clarify of the banking sectors.

Describe the role of commercial banks consequently in economic development is given below:

Role of commercial bank in economic development

Initial steps:

In initial steps, economic development, however, is the main purpose of a commercial bank they provide an important role in economic development.

These steps are the following:

Mobilizes Savings:

Commercial banks help to mobilize the savings to clarify of the people for productive purposes.

They collect dissipation and idle savings of people, so pool them together and make fund available for productive purposes.

Promotes Foreign Trade: 

Commercial banks promote foreign trade, In other words, They finance the foreign trade of the country by granting loans, opening letter of credit, discounting foreign bills of exchange and issuing bank drafts. 

Foreign trade is the main element of the economic development however and provide services by commercial banks to make easy for business purpose.

Foreign trade

Encourages Savings:

 With the existence of commercial banks and with attractive incentives such as high-interest rates etc., the people are encouraged to save more. 

Commercial banks persuade to clarify the people to save more.

Different saving system with charming interest rates are commenced for this purpose.

Number of bank branches is opened therefore in urban and rural areas.

Encourages Investments: 

Commercial banks provide short-term and medium-term loans for industries, most important trade and commerce at reasonable rates of interest.

Easy loans pull toward therefore the investors to invest in a new firm. The banks act as a result bridge between savers and investors.

Commercial banks mobilize the savings certainly of the people.

They make them valid to the farmers, so merchants and Industrialists for the development of agriculture, trade and industry.

Development of the Agricultural Sector:

Commercial banks to clarify provide easy loans to farmers. For the purpose of buying tractors, threshers, installation of tube-walls, purchase of fertilizers, seeds, etc.

The provision of loans to the agriculture sector, that is to say, has greatly helped in Increasing agricultural production and income of the farmers.

The central bank help to clarify the commercial banks in economic development.

Development of Industrial Sector: 

Commercial banks that is to say provide short term and medium-term loans to industry.

Commercial banks not only grant finance for the evolution of industry but as well help the Industry in many other ways.

The commercial banks are playing an important role as a result of the expansion and development of the industrial sector in the country.

Development of Commerce and Trade:

Commercial banks to clarify provide loans to retailers and wholesalers to stock goods in which they deal. 

Banks have facilitated the business community so for the development of commerce and trade in the country.

commerce and trade

Saving in Metallic Reserve:

Cheques and drafts etc. so Work like money. In this way, the need of valuable metals therefore to make coins decrease and valuable reserve of the country can be utilized on other prominent matters.

Finances Government Projects:

Commercial banks help the government when it faces a financial crisis. In order to provide funds for public projects, banks purchase government securities.

This is a type of loan to the government that is to say for the purposes of development projects, etc.

Employment Opportunities: 

Commercial banks advance loans to young educated and technically trained persons but in establishing their own businesses.

The banks are not only helping in human capital formation but also increase employment opportunities and economic or entrepreneurial development in the country.

Source: Wikipedia

Secondary Steps:

In which we discuss to clarify the importance of economic development. These steps view the structure certainly of economic development in the society. So finally we provide the following steps:

Better Standard of Living: 

Commercial banks help to increase business activities so within the country. As a result employment opportunities increase.

It gives rise to the national income as well as per capita income of the individuals. People get the opportunity because to improve self-development and their standard of living.

Capital Formation:

Capital formation means an increase in the stock of capital goods in the economy. such as an increase in the number of production units, plant, machinery etc. 

Economic development is not possible, that is to say, without a high rate of capital formation.

capital formation

The commercial banks to clarify play an important role in the capital formation and economic development.

Balanced Development: 

The commercial banks help in achieving therefore balanced development in different regions of the country.

Banks help to transfer the resources and funds however from developed areas to the underdeveloped areas of the country.

This helps to increase the investment, during production and employment level in underdeveloped areas.

Implementation of Monetary Policy:

The central bank of the country to clarify forms the monetary policy to control and regulate the volume of credit in the country.

The commercial banks help the economic growth of the country by following the monetary policy of the central bank.

Expansion of Credit:

 Commercial banks can promote the economic activity similarly by an expansion of credit.

Through the expansion to clarify of credit, banks! so Increase the supply of money and contribute to the development of infrastructure in the country. 

Commercial banks are called subsequently the factories of credit. They advance much more than what they collect from people in the form of deposits.

Through the process of credit creations, commercial banks provide finance to all sectors of the economy thus making them more developed than before.

Use of Modern Technology:

The commercial banks provide funds subsequently to the import of modern technology from the developed countries.

Thus due to commercial banks, under-developed countries can avail the benefits of modern technology.

Export Promotion Cell: 

The commercial banks have established consequently export promotion cell in the country.

They provide important information to clarify about trade and economic conditions to the exporter free! of cost. This helps to increase subsequently the export of the country. 

Commercial banks that is to say provide funds are utilized for the import of modem technology for developed countries.

Attaining Self Sufficiency: 

The main problem of poor and underdeveloped countries consequently is foreign debt and dependence on developed countries.

Commercial banks provide easy loans and advisory subsequently services to business community.

Through the bank, therefore, the resources of the country are utilized for the most productive purposes which help in the process of attaining self-sufficiency.

Collection of Zakat: 

Commercial banks to clarify collect Zakat from their account holders and deposit the same in the Central Zakat Fund. therefore, according to Zakat and Usher Ordinance, 1980.

It helps the government to improve the economic conditions however of the poor and to reduce the unequal distribution of income.

Transfer of Money:

Banks provide services for the transfer of money from one place to another.

Banks are playing a most important role for the remittance of 22 million dollars of Pakistani working abroad.

Modern Steps:

Now a day’s, economic development consequently functions of the central bank and is an important factor of commercial banks. All the banks give loan for this factor and also invest in which factor.

Modern steps mean currently economic development condition so in which country. Therefore, we can provide the following modern steps of economic development:

Financial Advice’s:

Commercial banks give useful financial and business advice. subsequently to their customers which promote business.

Success of Monetary Policy:

All scheduled commercial banks to clarify work for the success of monetary policy.

Under the consequently supervision of the central bank. This brings stability to clarify in the economic system of the country.

Direct Investment:

Bank Invests its surplus funds certainly in profitable business. Therefore this promotes commerce and industry.

Direct investment

Trade Development:

The commercial banks consequently give capital. So technical aid and other willingness to businessman according to their requirements, which leads to evolution in trade.

Development of Transport:

The commercial banks to clarify financed the transport sector. Therefore through the Prime Minister’s Transport Scheme.

It has decrease unemployment on one hand and expansion the transport convenience on the other hand.

Unlikely areas are joined to the main markets however through developed transport system.

More Production:

An honor banking system subsequently guarantees more output in all sectors of the economy.

It increases the production capabilities of the economy therefore by strengthening capital structure and division of labour.

Safe Custody:

The business involves and individuals certainly can make their selves tension free by depositing their surplus money in banks.

The banks also set them the facility of lockers to store their valuable articles and necessary documents safe.

Construction of Houses:

Commercial banks give credit convenience consequently to their customers for the purchase of property or construction of houses.

Assistance of Government:

By providing funds to government for development program’s, therefore the commercial banks share the government for economic stability.

Training Center:

Commercial banks established many commercial centres because for their workers to modernize the banking system of a country.

In this way, the banking experts improve their capacity certainly and contribute towards the development of the country.

Miscellaneous services; 

In addition to the above, the commercial banks provide the following services for promoting economic development in the country.

(a) Commercial banks provide funds to clarify for research and Innovation to individuals and different research institutes.

(b) Banks help in the growth subsequently of now enterprises by providing funds.

© However, banks provide services for the transfer of money from one! place to another.

(d) Banks are playing an important role in the collection of cheques, So bills of exchange, demand drafts etc.

CONCLUSION:

The commercial banks are so many signs in the advanced business world! that the commercial life will be paralyzed therefore if banks stop their functions for a day or two.

So, commercial banks are fundamental for domestic and foreign trade, industries and commerce in detailed and economic development in general. 

In the words of Stevenson:

“Banks are custodian and distributors of liquid so capital which is the life-blood of our commercial and industrial activities.”

FAQ

1.What is economic development?

Economic development is a process in which the development of the country and social development facilities provide to the people by the government. In which include price stability, high employment and many other sectors are involved.

Actually history provides us with some initial information to clarify economic development regarding how banks give finance for imperialist ventures in newly acquired colonies.

2.What is the role of commercial bank in economic development?

Commercial bank plays an important role in economic development. Over time banks have formed an important part in grant a street for both savings and investment.

Land, labour, capital and entrepreneurs so are the basic economic stock attainable to business.

However, to make the use of these resources, a business demand finance to purchase land, So hire labour, pay for capital goods and pay for the distinct entity with specialized skills.

3.How many steps are involved in economic development?

Many steps performed by a commercial bank in economic development. So we can discuss some here mentioned in given below:

1. Mobilizes Savings
2. Encourages Investments
3. Employment Opportunities
4. Saving in Metallic Reserve
5. Attaining Self Sufficiency
6. Safe Custody

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