ECONOMIC DEVELOPMENT AND BANKING SYSTEM
Banking system in every country plays a vital role in economic development for substantial reasons of funds and savings which is given by the banking system and government regulation and policy. Generally speaking the banking system in other country contributes to a large framework of success among various government projects through the use of lending, micro-financing, capital investment and government funding. The banking system generates not just employment but economic stability and International trade through the use of foreign exchange. The banking system approach may vary from country to country accordingly or as directed by their government.
In Malaysia the banking system plays an important role being an intermediary as well as performing short term and long term economic growth. Their gross domestic product (GDP) is measured by domestic credit which benefits the small and medium industry through the help of public and private banking institutions. The economic growth through lending and borrowing shows that the banking system in this country has been a determinant contributor in nation building and development. Therefore in most developing countries likes Malaysia these banking system ensure resource allocation for their economic growth.
In African countries like Nigeria, Kenya, Botswana and Senegal the banks played a major role in sustainability and social rejuvenation providing finances and better access to financial services through achievement of short term and long term goal as their common objectives. Most funds and resources are attributed directly to Small and Medium Enterprise and individuals practicing agricultural reform which is their common sources of income.
In Morocco the banking system is strong over the past 20 years; however the government restriction implication is to limit the relation of some chosen or favored industries. Until recently some other banks started to channel their credit distribution to tourism, agriculture and housing projects. The financial system will grow even stronger if specialized banks do not limit themselves from government regulatory body. Not much indication of economic progress has been shown in this country with the help of banking sector. The government limits the capability of the banks in lending industry, while the high implication deficit of tax indebted them heavily by the government sectors. Such tax rates can reduce returns of investment by the bank. Because of this limited fund utilization these banks have a very limited return over the country’s economic development.
Most of the time banking industry helps promote the economic stability of a country however governments control should not hamper its extreme privilege to dominate institution; the worst thing could happen is the misleading funds that cannot penetrate the market resource distribution that could results in heavily indebtedness to international banking industry like World Bank or International Monetary Fund (IMF). Since the role of Banking Industry is to uplift the economic standard of a country, Government should takes advantage of the following Banking System Objectives and its importance:
1. Promoting Capital through the use of funds and loans - Public, private and individual organization deposit their money in the bank so this bank in return can provide funding by distributing financial resources necessary to economic development.
2. Agricultural Development- Banks can provide credits for individuals especially in agricultural production in rural areas of developing countries
3. Influence economic activity through average interest rate
4. Bank helps provide pricing stability and promote economic growth.
5. Invest in new enterprise – People can borrow loan to invest in new enterprise to create their own new business and become independent if they have succeed. Most banks including Micro-financing organization do this. This provision helps many industries in many economic developing countries in Asia and in Africa.
6. Promotion of International trade and Industry – With the help of foreign exchange, bonds, bank drafts, credit cards Virtual banking like ATM online payments Mobile payments and credit cards and other financial instrument this can help largely in developing worldwide economic growth.
7. Helping small and medium industries through export integration among various institution and help them find partners in participating countries worldwide through information and development research.
Bank is the lifeblood of a business, as long as the blood is in circulation the life of the nation is sound and healthy. If the blood is not supplied within the body the person may become useless. A country should take advantage of its function in order to establish a well rounded banking system to achieve economic stability.
Credit:ivythesis.typepad.com
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