What are the role of rural banks in economic development?

Answer 1

Role of FIs

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

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 country. With existence of more institutions there will be motivation in the financial sector to perform better and take steps for the strengthening of country. This will leads towards the prosperty in the country by eliminating the risk.

2- Development & Introduction of Niche strategies

With the development & introduction of FIs we can see the strategies for different sector especially for the niche sector of the country. The institutions develop & spread knowledge about financial products to assist the efficiency for the achievement of sustainable economic growth. In 2003 union bank introduce the 'RAAS Financing Scheme' for the small community of Gujranwala division engaged in surgical industry. For this approach to offer attractive opportunities for the financial help for growing & profitable market segment. SME bank introduced Express loan scheme for niche sector as well in 2004-05.

3- Financing the Small Scale Sector

Credit is the prime input for sustained growth of small scale sector and its availability is thus a matter of great importance. The provision of short term credit/working capital to small enterprises for its day to day requirement for purchasing raw material and other inputs like electricity, water, etc. and for payment of wages and salaries; and long term credit for creation of fixed assets like land, building, plant and machinery help the SME sector to perform better.

4- Tailor made schemes

With the help of different institutions several tailor made schemes for the betterment of economic sector of the country are available at door steps. Introduction of country wide schemes cannot give expected growth. As discussed earlier RAAS Financing Scheme, Express loan, Green tractor scheme, Yellow Cap Scheme etc showed extensive results for the betterment of growth in the country.

5- Development and Support Services

With the existence of different institutions development and support services in the form of loans and grants to different agencies working for the promotion and development of industries like associations, chambers are available. The main example of import of thermo bonded machines for the production of thermo bonded footballs is possible with the help of banks in Sialkot. Other support was observed in rural industrialization, human resource development, technology up-gradation and marketing & promotion in the country.

6- Micro finance Credit

With the development of different institutions like KHUSHHALI Bank, First Microfinance Bank, Tameer Micro finance etc Micro Credit is available to the most poorest sector of country. This proactive step to facilitate growth of the micro finance sector in country is very commendable. It is envisaged to emerge as the apex community by providing a complete range of financial and non-financial services such as loan funds, grant support, equity and institution building support.

7- Introduction of more Institutions

Banking system and the Financial Institutions play very significant role in the economy. First and foremost is in the form of catering to the need of credit for all the sections of society. The modern economies in the world have developed primarily by making best use of the credit availability in their systems. An efficient banking system must cater to the needs of high end investors by making available high amounts of capital for big projects in the industrial, infrastructure and service sectors. At the same time, the medium and small ventures must also have credit available to them for new investment and expansion of the existing units. Rural sector in a country like Pakistan, India can grow only if cheaper credit is available to the farmers for their short and medium term needs. This expected potential help the investors for the introduction of more FIs in the country.

8- Mopping up Savings

The banks and the financial institutions also cater to another important need of the society i.e. mopping up small savings at reasonable rates with several options. The common man has the option to park his savings under a few alternatives, including the small savings schemes introduced by the government from time to time and in bank deposits in the form of savings accounts, recurring deposits and time deposits. Another option is to invest in the stocks or mutual funds.

9- Availability of Financial services to households & individuals

Individuals have a major impact on the environment through their activities and consumption of goods and services, and in some cases their impact is proving more intractable than commercial impacts. Financial institutions can have a major impact on the activities of individuals by the provision of suitable financial arrangements - for instance, access to cheap mortgage finance is a prerequisite of widespread home ownership, and car ownership has been greatly increased by the availability of car loans and hire purchase. In the absence of suitable financing arrangements, products or goods may struggle to achieve sales, particularly if they have high capital costs.

10- Capital mobilization

Capital mobilization is generally one of the most necessary conditions for development. The role played by FIs in the process of financial integration in developing countries is very vital. With the help of this channel benefit of integration materialized. With the help of capital mobilization capacity building, good governance & economic reforms can easily be achieved.

11- Trade Facilitation Programme

The Trade Facilitation Programme (TFP) aims to foster trade in the countries of operations, both intra‑regional and global. Through the programme, institutions provides guarantees to confirming banks, taking the political and commercial payment risk of international trade transactions undertaken by banks in the countries of operations. This pioneering programme remains a vital source of trade finance in many of countries of operations.

12- Insurance and financial services

The institutions are supporting a broad range of financial services to help expand local capital markets and develop local financial infrastructure. In 2002-08 there was a strong focus on leasing transactions and investment with new commitments made to insurance companies; a pension funds etc I Pakistan. The Bank also participated in a number of structured finance transactions, encouraging the use of capital market products in the region. Growth in this sector will continue as demand for more varied financial services increases and as improved legislation provides the necessary infrastructure for financial sector development.

13- Achievement of Growth

Well developed financial systems allow economies to reach their potential since they allow firms which have successfully identified profitable opportunities to exploit these opportunities as intermediaries by channelling investment funds from those in the economy who are willing to defer their consumption plans into the future. Achievement of growth in country becomes easy with introduction of financial institutions. Different stages of financial development require adequate institutional processes to be in place.

14- Financial Innovation

Development of FIs helps in focusing on the improvements in technology and its impact on how financial products are delivered. Funds are transferred directly from ultimate savers to ultimate borrowers. With reduction of trust deficit financial innovation is possible on better grounds. We know the flow of short-term funds is facilitated by money markets & the flow of long-term funds is facilitated by capital markets. These activities also help in financial innovations.

15- Managing Risk in Financial Institutions

Risk factor is one of the most critical factors while dealing with finance. The facilitation of issuance of new securities e.g., the sale of new corporate stock or new Treasury securities or facilitation of trading of existing securities e.g., the sale of existing stock etc involve factor of risk. We are not confident either the securities traded in secondary markets are liquid or not. Focusing on risk management in the financial institution is very necessary.

CONCLUSION

We need a framework which enhances the ability to react quickly, effectively and more advisedly to prevent from adverse shocks that might impact the financial sector. The above discussion on the role of institutions will contribute to ensuring continued confidence and ultimately to improving the stability of the financial system. Well functioning financial markets, such as the bond market, Stock Market, and foreign exchange market, are key factors in producing high economic growth. The increased availability of financial instruments reduces transaction and information costs and helps to achieve economic growth.

Answer 2

RRBs provide financial help,loan,kcc in rural area.

They focus on Agriculture and small industries.

They provide personal banking services as banking,loan,edu.loan,housing loan,

Answer 3

the role of financial institution in rura economy?

Answer 4

supply of money and develop economics returns