Role of banks in the economic development essay

No economic development of sizable magnitude is possible unless there is an adequate degree of capital formation.

In this way, they promote the development of agriculture, trade and industry. InColin Clark, estimating the capital needs of China, India and Pakistan, pointed out that they must save Helpful in the Development of Priority Sectors: The role of banks in economic development is to remove the deficiency of capital by stimulating savings and investment.

Also export-base can be expanded only when exporters are offered easy finance facility. A sound banking system mobilizes the small and scattered savings of the community, and makes them available for investment in productive enterprises.

We see that in India the period of economic development has coincided with a phenomenal increase in bank deposits—and bank offices. A very important characteristic of an under-developed economy is deficiency of capital which is the result of insufficient savings made by the community.

Commercial Banks contribute their might in the development of priority sectors of the economy. This stimulates thrift as well as attracts idle savings into organised capital market of the country.

In this connection, the banks perform two important functions: The banks help achieve this objective by means of its selective credit policy. By extending credit facility to the investors and entrepreneurs, banks convert savings into capital formation which is an instrumental variable of growth and development of less developed countries.

It is also difficult to see who would distribute these savings among entrepreneurs.

Essay on the Role of Banks in Economic Development

Banks influence the rate of interest as well as structure of interest rates by means of credit creation. The serious capital deficiency in under-developed countries is reflected in the small amount of capital equipment per worker and in limited knowledge, training and scientific advance.

Essay on the Role of Commercial Banks in Economic Development

Also, commercial banks are helpful in innovations, yet another vital parameter of growth and development. This facilitates control of credit in assonance with credit needs of diverse sectors of the economy.

An organised system of commercial banking is almost a pre-condition for any monetary discipline sought to be achieved through any type of monetary policy.

Helpful in the Effective Implementation of Monetary Policy: In fact commercial banks constitute the centre-stage of any monetary programme of the Government or the Central Bank of the country. Innovations stimulate the process of growth through new technology, discovery of new markets for the existing products as well as new products for the existing markets.

In the under-developed countries, not only is the capital stock extremely small but, as pointed out above, the current rate of capital formation is also very low.

Banks in less developed countries are often engaged in fostering the enterprising interest of farmers and small scale industrialists with a view to improving the rate of production, attaining self-sufficiency in food grain production and achieving equitable distribution of income and property.Essay on the Role of Commercial Banks in Economic Development Article shared by Commercial banks play a significant role in economic development of less developed countries like India.

Detail role of commercial banks in economic development is given below: Trade Development The commercial banks provide capital, technical assistance and other facilities to businessmen according to their need, which leads to development in trade.

Role of Commercial Banks in the Economic Development of a Country: Commercial banks are one of the three primary agents which help circulating funds in the market.

Commercial banks provide loans and corporate bonds to the households, new start ups and small medium enterprises to run their businesses.

Thus, the banks have come to play a dominant and useful role in promoting economic development by- mobilising the financial resources of the community and by making them flow into the desired channels.

The Indian banks are now playing a very active role in fostering economic development of the country. Therefore, central bank can play an important role by promoting capital formation through mobilizing saving s and encouraging investment. Role of banks in the Economic development: There should be no anonymity as about the importance of Banking in the Economic development of a developing country like Bangladesh.

Role of banks in the economic development essay
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