You may think of a bank as the place people keep their money, but banks contribute greatly to the economic development of a country. They do so in many ways and we shall look at some of them:
- They provide development loans. Imagine if there was no one to lend to all the regular people who want to start a business, or even the big companies that occasionally find themselves needing cash. It would mean that a lot of the production that takes place through these businesses to boost the economy would not exist.
- Banks are the way to mop up savings and circulate them in a country to keep the economy going. This is why you will find bank branches in spread out areas their job is to take in savings which they can then on-lend. Without them, people would be forced to hang onto their currency and this is not safe.
- Banks help keep currency in circulation by taking deposits and lending. You may have heard of economies that have a cash shortage because banking has collapsed. Its because there is no one to issue new mint.
- Banks create financial regulation. Imagine, for example, if there were no banks and the only places people could get money were private, unregulated vendors, otherwise called loan sharks. Interest rates would soar and the lending market would be destabilized. Because banks are regulated by a central body, the central bank of a country, they cannot move interest rates beyond a certain ceiling.
- Banks provide employment, in fact some of the most lucrative jobs in any country. See what happens when a bank decides to downsize thousands of people are left without work.
- They are the best place for individuals to keep their extra cash. There are investments and other financial institutions, but people who cannot access these will do quite well keeping their money in a bank.
- Banks also do a lot to develop and support the communities in which they are located. They make donations to help poor students go through school, they build amenities, they contribute to funds and they also help the very poor.
A country that has few or no banks is denying itself the opportunity for economic development. Some countries have plenty of banks, but these are controlled by the government and thus autonomy is lost the government can arm-twist them into activities that are not necessarily developmental. Its important that a bank remain independent of the government if it is going to make be effective.
About the Author:
This guest post was brought to you by Chris. Having worked in the finance and business industries for many years, Chris has learnt many interesting things when it comes to managing and growing a business. He was written many articles related to business and banking. He is also a content writer for banks.com.au.