Role of financial institutions in the economy from "summary" of Oswaal NCERT One For All for UPSC & State PSC's Indian Economy Classes-9 to 12 (Old & New NCERT Edition) (For 2023 Exam) by Oswaal Editorial Board
Financial institutions play a crucial role in the economy by providing various financial services that are essential for the functioning and growth of businesses and individuals. These institutions include banks, insurance companies, mutual funds, and other entities that deal with financial transactions and services. One of the primary functions of financial institutions is to mobilize savings from individuals and channel them into productive investments. Banks, for example, collect deposits from savers and lend them to borrowers, such as businesses and households, who need capital to finance their operations or purchase goods and services. Financial institutions also play a key role in facilitating the smooth functioning of the payment system. They provide various payment services, such as electronic fund transfers, credit and debit card transactions, and online banking, which enable individuals and businesses to make payments and transfer funds quickly and efficiently. Moreover, financial institutions help in the allocation of resources by providing credit to businesses and individuals for investment purposes. By offering loans and other financial products, these institutions enable businesses to expand their operations, create jobs, and stimulate economic growth. In addition to providing financial services, financial institutions also help in managing risk by offering insurance products that protect individuals and businesses against unforeseen events, such as accidents, natural disasters, or financial losses. Insurance companies, for instance, provide policies that cover health, life, property, and other risks, giving customers peace of mind and financial security.- Financial institutions play a vital role in the economy by mobilizing savings, facilitating payments, allocating resources, and managing risk. Without these institutions, the economy would struggle to function effectively, and businesses and individuals would face difficulties in accessing the financial services they need to thrive and prosper.
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