Role of commercial banks in development

Some of the major important role of commercial banks in a developing country are as follows: Besides performing the usual commercial banking functions, banks in developing countries play an effective role in their economic development. The majority of people in such countries are poor, unemployed and engaged in traditional agriculture. There is acute shortage of capital.

Role of commercial banks in development

The primary role of commercial banks in the developed world is to offer business bank accounts with standard options, such as deposits, withdrawals and loans.

A secondary role of commercial banks is supporting the development of the local economy.


The banks take care of funds that were deposited by clients into their business bank accounts. They use the profits to provide financial resources for clients, to help businesses that benefit the community and, in some cases, to fund social responsibility programs.

Investing in new businesses is a major aspect of commercial banking. Acting as lendersthe banks offer start-up loans and financing for capital equipment purchases. They promote trade and industry through credit card processing, international banking services and foreign currency exchange for export and import companies.

In addition, most financial institutions offer their clients business advice, act as an intermediary for the purchase of insurance coverage and take an active interest in the financial affairs and management of the company. Ad New businesses struggle to get started without available credit, and retail or personal banks might be reluctant to fund business ventures without some form of collateral.

The role of commercial banks in these situations is to provide credit facilities that are customized to the needs of the clients.

This can help new ventures to purchase inventory or outfit their premises. The larger the commercial bankthe greater the role it plays in the economy.

Role of commercial banks in development

When a very large bank fails, the ripple effect that it can have on the local or national economy can be staggering. Businesses that have deposited funds into a bank that collapses can be wiped out in many cases.

Role of commercial banks in development

In spite of strict government regulation on how banks can use assets, the government might be unable to predict or prevent the losses incurred by these banks. Most countries have regulatory bodies to manage the role of commercial banks, to oversee their activities and to provide recourse for business clients if they are dissatisfied.The role of the bank is to provide a safe place to keep your money and sometimes the opportunity to earn interest on your deposits.

Rapid Economic Development — The banks make available. The following points highlight the role of commercial banks in developing the economy. The roles are: 1. Accelerating the Rate of Savings and Capital Formation 2. Mobilisation of Resources and Granting of Adequate Credit for Deve­lopment 3.

Credit for the Priority Sectors 4. . Role of Commercial Banks in Rural Development. Although, our economy is mainly agrarian, banks plays an important part in the development of our rural areas. The rural branches of banks provide various services to farmers, rural farmers, businessmen and disadvantaged groups and help them to develop themselves thereby.

Commercial Banks have always played an important position in the country’s economy. They play a decisive role in the development of the industry and trade. They are acting not only as the custodian of the wealth of the country but also as resources of the country, which are necessary for the economic development of a nation.

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If you continue browsing the site, you agree to the use of . Commercial banks can contribute to a country’s economic development in the following ways: Accelerating the Rate of Capital Formation Capital formation is the most important determinant of economic development.

Top 8 Roles of Commercial Banks in a Developing Country