Role Of Financial System In

Economic Development Of
Pakistan
Introduction

 Financial system of any country consists of a vast number of institutions and

mechanism for the mobilization, transfer and allocation of financial
resources between their suppliers and users.
 Since financial resources represent command over real goods and services
at a price level prevailing in the economy in any time period, therefore,
mobilization, transfer and allocation occurs with regard to real resources of
an economy.
 Typically, suppliers of financial resources are households as savers, while
users are mainly investors, businesses and firms whose activities lead to
economic growth, depending on how successful they are in their ventures
in the first place, and how efficient financial system is in helping them to do
so in the second place.
Types of Financial System

 There are two major structures within a financial system and both are of
strategic significance.
 One structure is devoted to the system of indirect finance conducted
through commercial banks and non-bank financial institutions (NBFIs), all
engaged in financial intermediation between users of financial resources,
namely the borrowers, whether operating in public sector or private sector,
and suppliers of financial resources, the savers, mainly households.
 The second structure of financial system is direct finance through operations
of securities markets where investors purchase debt instruments like bills and
bonds issued by government or corporations; or stocks of listed companies,
thus providing equity finance.
Role of Financial System in Economic
Development in Pakistan
 Financial system of an economy in its simplest form is manifest image of real
economy; real in the sense that whatever transpires in productive sectors,
gets captured through financial transactions at one stage or another.
 Hence, real macroeconomic magnitudes such as real GDP, real
production, real wages and so forth have their counterparts known as
macro financial variables and are derived by deflating the nominal values
of these macroeconomic aggregates
Role of Financial System in Economic
Development in Pakistan (contd)
 Economic development is partially dependent on the financial system to help mediate the
transfer of money to areas of the economy that need it most. The financial system has a
number of key functions, which help facilitate these shifts in money that are important for
sustainable economic growth
 1.Savings The financial system allows you to place your excess money into a savings
account in a bank of your choice. Keeping your money in a bank safeguards your savings,
and the bank pays you interest based on the amount you keep in your account.
 2.Loans Money in deposit accounts, like savings accounts, is used to provide loans for a
wide range of projects to people and businesses. Mortgages, car loans and student loans
are financed largely by deposits in banks, savings institutions and credit unions.
 3.Investments The financial system also facilitates the transfer of money from investors to
businesses. When businesses raise capital, they sell stock to investors. Investors give their
money to the company in exchange for ownership in the company.