Role of bank in the economy

Banks are one of the inventions that have revolutionized the economic life of the people.  From time immemorial, banks have been playing a special role in increasing productivity through capital formation and lending, creating employment, improving living standards through increasing national income and per capita income. In this age of globalization, the role of banks in today's world is multifaceted.  The role of a bank in the economic development of a country is mentioned below:

1. Capital formation: The first and foremost contribution of the banking system to the economy is the formation of capital. The mechanization of the production system in today's world requires a large amount of capital to set up any type of industry. It is not possible for one or a few individuals to provide this huge amount of capital. Banks collect their surplus money from the people as deposits but also form large capital and provide it as loans to various individuals, businesses and industries.

2. Industrial & agricultural development: The contribution of industry to the sustainable economic development of a country is undeniable. Banks contribute to the industrial development of the country. Banks assist industrial owners through long-term capital and working capital resources. Moreover, in agrarian developing countries where overnight industrialization is not possible, there is a need for development of agriculture and development of small and cottage industries. Banks, especially agricultural banks, provide financing facilities to farmers in the agricultural sector with agricultural equipment, fertilizers and pesticides. In addition to providing capital to agro-based industries and small and cottage industries, it also provides training to entrepreneurs in professional development in many cases.

3. Expansion of internal & international trade: Commercial banks directly and indirectly assist in the expansion of domestic and foreign trade.  The bank assists traders in internal trade through lending, consulting, remittance payments, etc. Similarly, in foreign trade, banks provide various assistance such as issuance of certificates, lending, payment, factoring and forfeiting - financing, providing information and advice, raising foreign exchange and acting as intermediaries for importers and exporters.

4. Development of mode of payment / exchange: In this age of specialization, no human being produces all the goods he needs. Each person produces one or more goods and services and sells his surplus to others in exchange for other products and services he needs. As a result, each person has to perform a large number of transactions. Specialization is not effective if transaction execution is costly. The banking system creates efficient means of exchange such as checks, bill of exchange, bank drafts, pay orders etc. Such an arrangement makes the exchange more dynamic. Skilled exchange mediums indirectly contribute to specialization and skill enhancement.

5. Risk amelioration: A person's limited funds can often be insufficient to set up or buy a firm.  Because at present most of the firms are large, with huge amount of resources and capital. As a result, the person is deprived of the opportunity to invest his surplus money. Again, to diversify the investment, it is necessary to invest in multiple ferns or projects. But in this case the limited funds of one person may be insufficient to invest in different ferns. As a result, investors invest in one or two firms. This does not guarantee diversification of investment. But the bank raises surplus money from various individuals and organizations to form large funds. The fund can invest in various firms and projects in the light of its foresight and expertise.  This achieves diversification and reduces risk, which indirectly encourages increased investment.

6. Making efficient investment decision: Collection and processing of information about the firm or project is required for investment decision making. Otherwise there is a risk of losing the invested funds due to wrong investment decision. Commercial banks are skilled and experienced in data collection and processing. As a result, it is possible for commercial banks to make ideal investment decisions. Which in many cases is impossible for a single person. So the bank helps the depositors to ensure the ideal investment of money.

7. Infrastructural development: Infrastructure is very important in the economic development of any country. Infrastructure refers to roads, railways, sea and river ports, airports, electricity systems, water supply systems, etc. A huge amount of money is required to invest in infrastructural development. Banks lend in all these sectors and in many cases the banks themselves invest. As a result infrastructural development is achieved.

8. Transfer of funds: Money has to be transferred regularly for performing transactions in the country and abroad for various trades, trades, etc. Through the banking system, money can be lost in a very short period of time. Moreover, workers working abroad also cooperate with the banking system in sending remittances. This makes it easier to conduct transactions in different parts of the country and abroad.

9. Entrepreneurship development: Back directly or indirectly contributes to the creation of entrepreneurs and the development of their skills. Banks provide capital to entrepreneurs to implement new ventures, which indirectly encourages them to take initiatives. In addition, the bank often provides training to the entrepreneurs, processes it, provides it to the entrepreneurs and provides advice on various issues which improve their professionalism. As a result, they can manage their business efficiently and prudently.

10. Financing government: Banks provide loans to the government for the implementation of its development activities. Moreover, the bank pays tax to the government from its income which increases the government revenue income. This makes it easier for the government to implement more developmental activities.

11. Employment generation: The banking system directly and indirectly creates employment opportunities. Banks expand agriculture, industry, trade and commerce, creating a lot of employment opportunities at every level. It helps reduce unemployment. Moreover, manpower is required at every level of the banking system, there are also a large number of employment opportunities.

12. Enhancement of income: Increases employment opportunities with the help of banks. Moreover, the expansion of industrial trade also increased the income of traders.  Which contributes to the growth of national income including per capita income. Increased income inevitably plays a role in improving the overall quality of life.

13. Materialization of monetary policy: Monetary policy affects every variable of macro economy such as gross domestic product (GDP), overall interest rate, employment, inflation, etc. For the economic discipline and development of the country, it is necessary to formulate and implement efficient monetary policy. The central bank formulates monetary policy and implements it with the help of the overall banking system of the country.

14. Fulfillment of socio-economic objectives: As the banking system plays a role in the economic development of the country, it also contributes to the achievement of various social, humanitarian, moral and ideological objectives. Loans to farmers on easy terms, giving advice, misrepresentation of education - providing financial assistance to the college; Providing educational opportunities to poor meritorious students through scholarships; The income of the society contributes to the achievement of various social and humanitarian objectives including elimination of inequality.

At the end of the above discussion, it can be said that the economic development of all the developed and underdeveloped countries of the world is especially dependent on the banking system.  Although capital formation and lending are the main functions of the bank, it contributes directly and indirectly to almost all aspects of the overall economy of the country.

The bank has made people's economic activities much easier through its functions. Modern economics cannot be imagined without a bank.  Therefore, the role of banks in the economic development of any country is immense.

The bank also plays an important role in the economic development of Bangladesh. The role of the bank in the economic development of Bangladesh is discussed below:

1. Agricultural development: Bangladesh is a major agricultural country. And for the development of this agriculture, banks work in many ways. Bangladesh Agriculture Bank and Rajshahi agriculture development Bank provide loans to farmers for fertilizer, seed and animal husbandry. State-owned commercial banks also provide loans to farmers.

2. Industrial development: Industrial development is the mirror of a country's economy. But Bangladesh is one of the countries lagging behind in industry.

In order to build small and large scale industries, specialized and commercial banks of this country have been conducting lending, advising and representation activities for different periods. For example, Bangladesh Development Bank is working in various ways for the development of industry.

3. Development of small and cottage industries: Small and cottage industries are widely known as areas for generating more employment. Bangladesh has a lot of potential in this field of industry and a lot of people are coming forward in this profession. But their main problem is capital.

The Bangladesh Small and Cottage Industries Corporation (BSCIC) provides credit facilities and advice to small entrepreneurs for the overall development of small and cottage industries in the country.

4. Employment: Banks in Bangladesh have been arranging employment by employing a lot of people directly in their offices. Many people in our country consider bank jobs honourable.

In addition, numerous industries and businesses have developed and are expanding through bank lending. This has created huge employment opportunities.

5. Achievement of economic growth: A hassle-free and environment-friendly environment is one of the supporting elements of economic growth. As a result of the financial support of the bank, production increases, savings increase, capital is formed, trade and commerce are much more risk free and the overall economic growth of the country is accelerated.

6. Increase government revenue: Banks help increase government revenue. With the help of the bank, the income of the business organization increases and a certain part of it is received by the government as tax.

The depositor pays back the gold on the deposit money. The government also collects tax on that interest.  Moreover, the government gets huge amount of tax from the amount of profit earned by the banks every year.

7. Credit to government: In order to meet the needs of the government and to solve the financial problems of the government, the banks of Bangladesh provide large loans to the government on easy terms. As a result, the government is able to successfully serve the people.

Moreover, the Banks of Bangladesh help the government to raise the necessary funds by selling government bonds, government savings certificates etc.

8. Implementation of government monetary policy: The government implements its monetary policy with the direct help of the country's banks. It is not possible to implement the monetary policy of the government without the help of banks. Banks directly cooperate in the implementation of government lending policy, interest rate policy, deposit rate policy, investment policy.

9. Development of standard of living: Banks of Bangladesh play a leading role in improving the quality of life of the people of the country.

Bank lending creates income opportunities for people, increases productivity, increases consumption, increases savings and increases the tendency to use high quality products. As a result, the standard of living of the people of Bangladesh is improving.

In conclusion, the banks of Bangladesh have been making a significant contribution to economic development by fulfilling the above roles. And so the economic development of Bangladesh and the role of the bank are intertwined because it is impossible to think of economic development without the bank.