Development Bank and Functions of Development Bank in Financial Intermediaries
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Financial Intermediaries
A financial intermediary or intermediator is a financial institution.
It may be a bank, building society, insurance company, investment bank or pension fund.
A financial intermediary offers a service to help an individual or firm to save or borrow money.
A financial intermediary helps to satisfy different needs of lenders and borrowers.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
For example, if you need $/₹/Rs 5,00,000 to borrow, you should try to find out an individual who wants to lend this amount
But, this will be very time consuming and you will find it very difficult.
Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a bank (a financial intermediary) to borrow money.
The bank raises funds from people looking to deposit money.
It lends out to those individuals who need it.
Bank takes security deposit to provide loan.
Bank charges service charge and interest on loan.
Role and function of financial institutions in financial market
The main functions of the financial institutions are as follows:
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Financial institutions accumulate the savings from several small investors and invest the same in the security. |
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They offer margin lending opportunity to the prospective customers to purchase new securities from the market. |
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They bring funds suppliers and fund borrowers together in single platform. |
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They play vital role in transferring fund from one entity to another entity through financial market. |
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Financial institutions like commercial bank, development bank and some finance company accept deposit from savers. |
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Allocating saving in to investment. |
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g. |
Providing financial services. |
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Ensuring satisfaction, return and minimizing the risk of loss. |
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Helping business raising funds. |
Financial Intermediaries
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Depository institutions |
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Non-depository institutions |
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Commercial banks |
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Insurance companies |
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Development banks |
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Pension fund |
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Finance companies |
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Mutual fund |
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Saving and loan cooperatives |
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Development Bank
Development banks are those financial institutions engaged in the development of specific sector of economy.
They provide financial, technical and the managerial assistance to different sectors.
These sectors are industry, agriculture, tourism, hydropower etc.
According to Bank and Financial Institutions Act (BAFIA) 2063, development banks are graded ‘B’ level financial institutions except Agriculture Development Bank.”
Development banks can do better business when they have better financial strength, technical expertise and the managerial skill like commercial bank.
Development bank creates the proper environment in the country for the development of rural, industrial and agricultural area of the country.
There are 20 development banks on mid July 2020 licensed by NRB.
Out of them, some development banks are:
Definition
According to A.G. Kheradjou, “A development bank is like a living organism that reacts to the social-economic environment and its success depends on reacting most aptly to that environment”.
In this view, a development bank aims to provide financial and promotional facilities for the overall development of a country.
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Account: Class 11 |
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Adjustment In Final Account |
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Capital and Revenue |
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Single Entry System |
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Non-Profit Organization (Non-Trading Concern) |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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Functions of Development Bank
The main functions of development bank are given below:
Specific sector
Development banks are established for the development of specific sectors.
They contribute financial and technical support for the growth of industries, agricultures, hydropower, tourism and other infrastructural sectors of the country.
Small scale industries
Development banks play an important role in the promotion and development of the small-scale industries.
They provide medium and long-term loans and other necessary support to small scale industries.
Regional development
Development banks facilitate rural and regional development.
They provide finance for starting companies in backward areas.
They also help the companies in project management in such less-developed areas.
It helps to get the balanced economic development of the country.
Contribution to capital markets
Development banks contribute the growth of capital market.
They invest in equity shares and debentures of various companies.
They also invest in mutual funds and facilitate the growth of capital markets.
Accept the deposit
The main function or work of commercial bank is to accept the deposit from public or customers.
Bank is the safe place to deposit the money.
There are two types of deposits.
They are interest bearing and non-interest bearing.
Fixed deposit account and saving deposit account are interest bearing accounts.
Current deposit account is non-interest bearing.
Provide loan
After accepting deposit from depositors, bank invests these deposits as loan.
This process is also called lending.
To provide loan, bank takes security; fixed asset is taken as security.
Loans are business loan, personal loans, vehicle loans, home loans etc.
When customer cannot pay loan amount, security is sold to recover loan amount; thus, it is secured loan.
Remittance
Commercial banks provide facility of remittance (fund transfer) from foreign countries.
They also help in transferring funds within the country and deal with foreign exchange.
These works are performed according to permission of the central bank.
Agency services
Agency service is related with other financial institutions, business firms and service centers. Bank works as agent of customers. The main features of agency service are given below:
Collection and payment of the cheques, draft and bills of other bank.
Payment of telephone, mobile, internet, water, electricity bill.
Payment of insurance premium.
Payment of installment, interest, income tax.
Purchase and sales of securities like shares and debentures on behalf of customer.
Remittance works (receive and send cash from one place to other).
General services
General services are related within bank. It is also related to any branch banking service (ABBS).
Some of these facilities are free and some others are provided by taking certain charges.
The main general services are given below:
Locker facility for safe custodian of diamond, gold and legal documents.
Facility of cheque book and statement on demand.
Debit card, credit card, automated teller machine card (ATM card).
Internet and SMS banking.
Keep in Mind (KIM)
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According to international rule: |
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Development bank does not accept deposits from the public like commercial banks and other financial institutions who entirely depend upon saving mobilization. |
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But, in Nepal it accepts deposits from the public. |
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