Banking (Meaning and Roles)

Banking 

Meaning of bank

A bank is a financial institution that deals with money and credit. It accepts deposits from the public in a different account and provides loans to needy persons. The bank is a bridge which fills the gap between the surplus and the deficit amount of money. It is the manufacturer as well as the trader of money.

According to the World Bank, “ Banks are financial institutions that accept funds in the form of deposits repayable on demand or short notice.”

According to Crowther,” A banker is a dealer in debts the banker’s business is to take the debts of other people to offer his own in exchange and theory to create money.”

Roles or importance of the banking system

1. Mobility of saving

One of the major roles of the banking system is to collect saving from the general public and mobilize them in business sectors. The collected money is lent to productive sectors. It is called the mobilization of saving.

2.Mobilization of the economy

There was no use of money in barter system to accelerate trade and commerce, first of all, monetization of the economy is essential. People maintain their savings in banks and withdraw it when they need it. This helps in mobilization of the economy.

3.Capital formation
The process of capital formation begins with saving. People save in the bank, productive sectors demand it and use to purchase capital equipment, to produce goods and services are thereby to create income.

4. Creation of employment opportunity

Establishment of banks and financial institutions creates direct and indirect employment opportunities. The bank needs employees who create direct employment. Banks provide loan to the business sector which needs regular manpower to run it. So, banks create indirect employment.

5. To manage foreign trade and payments

Due to the introduction of foreign trade, businessmen can import and export goods and services in the global market. Financial transactions related to import and export are managed through banks.

6. Remittance of money

The development of the banking system also facilitates for the remittance of money. People send and receive money from different parts of the world only because of a good banking system.

7. To meet government expenditures

In developing countries like Nepal, the development expenditure of the government is more than the revenue collected. So, the excess amount borrowed from various sources and the bank is one of them.

8.Poverty alleviation

Banks create different types of direct and indirect employment. They also facilitate credit to invest in production. This helps in poverty reduction in the country.