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Role of Financial Institutions in the Financial Development and Economic Development

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Submitted By srejan
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Role of Financial Institutions in the financial development and economic development
Financial intermediaries perform an important role in the development process, particularly through their role in allocating resources to their most productive uses. More efficient financial markets help economic agents hedge, trade, pool risk, raising investment and economic growth. Financial institutions provide consumers and commercial clients with a wide range of services and different types of banking products. The importance of financial institutions to the wider economy is apparent during market booms and recessions. During economic upturns, financial institutions provide the financing that drives economic growth, and during recessions, banks curtail lending. This can exacerbate a country's financial problems and draw attention to the fact that economies are heavily reliant upon the financial sector.
The importance of financial institutions and passed legislation made it easier for more people to obtain products and services from these entities. In many countries, banks are encouraged or even compelled to lend money to home buyers and small businesses. Readily available loans encourage consumer spending, and this spending leads to economic growth. There is now a clear realization that sustainable development will not and cannot be achieved by governments acting alone. In this context, the expertise of the private sector plays an important role.

Role of Financial Institutions in the financial development and economic development are as follows:
1- Motivating the Financial Sector
In general Financial Institutions will only use their resources for the benefit of their interest - i.e. help to generate profits, either directly or indirectly. The considerations are important because with the help of growth of institutions there is increase in the investment business in the…...

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