Why Is Banking & Finance Important For A Nation’s Economy?

Banking & finance sectors play an effective role in their economic development. The majority of the people from the underdeveloped countries is below poverty level, unemployed and engaged in traditional agricultural activities. There is shortage of active capital. In order to overcome from the deficiency of capital formation, banking and financial sectors educating people about the savings and investments to increase the growth of the active capital.

Importance Of Banking & Finance For A Nation’s Economy

So, Consider these reasons why is banking and finance important for a nation’s economy:

Eliminate The Deficiency Of Capital Formation

In any economy, financial growth is not possible unless there is a structured capital formation. By the way deficiency in capital formation is the impact of the low savings made by the community. So the major reason for capital deficiency in any country is small amount of capital equipment per worker and lack of knowledge about the savings and investments. At this stage, banks play a vital role. Banking & finance sector stimulates savings and investments to remove deficiency in capital formation. Therefore many banks mobilize deposits by offering less rate of interest and thus convert these savings into potential investment. Otherwise there will be no value for the active capital.

Provision Of Finance And Credit

Banks are the main source for finance and credit for many industry and trade. For many business and industry credit is the main asset. Therefore, banks and finance sector has become the nerve centers of all financial activities and with the presence of sound banking system any business or trade can operate.
Banks not only provide finance and credit, it also covers foreign trade transactions and foreign trade business. They also help for the deferred payments and domestic industries.

Extend The Size Of The Market

Commercial banks provide a better opportunity for the industry and commerce in another way. With the sound banking system, it is possible for industry and commerce to extend their operation for more ROI. Nowadays commercial banks act as a mediator between buyers and sellers. For industries, goods are supplied on bank guarantee, to improve the productivity of the industries.

Balanced Regional Development

Commercial banks help in proper allocation of funds in other operations. When the banks lend their funds for more productive use then automatically there will be more profits. So opening new the branches make it possible to choose different regions for more funding. A region with more growth attracts more bank funds. Thus banks are the main reason for balanced regional development in the country.

Financing Agriculture And Allied Activities

The commercial banks help farmers to improve their agricultural activities. They opened many branches in rural area to provide credit for agriculture and allied activities. They provide loans for various agricultural activities like marketing their produce, irrigation facilities, developing land, etc.
The banks also provide loan for animal husbandry, dairy farming, sheep breeding, poultry farming and also for horticulture.

Financing Consumer Activities

People in underdeveloped countries don’t possess sufficient financial resource to fulfill their dreams in buying consumer durable. So, the commercial banks facilitate them by providing advance loan for the purchase of durable like houses, vehicles and other immovable properties etc. In this way they provide financial help for the people to raise their standard of living.

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