The Role Of Financial Intermediation In Developing The Economy

1. Financial Intermediation

2. The Role Of Financial Intermediation In Developing The Economy • Have you heard of a financial intermediary before and wondered what they are? • They are financial firms and organizations that play the role of a middle person in an economic context between a service provider and a consumer.  • Even though many people do not realize the importance of financial intermediation, the fact remains that it plays a significant role in maintaining an economy.

3. Facilitates self-employment • One of the most potent drivers of economic development is employment. • Financial Intermediation helps individuals access finances from savers, thus promoting self-employment initiatives. • Self-employment, in turn, generates more income in the country, thus boosting the economy. 

4. Promotes entrepreneurship • Different banks have effectively dispatched innovative Development programs. • At first, through Lead Bank Scheme, banks were creating business openings at the local level. • There are so many people with underlying business ideas that could possibly blow out if ta all financed. • So with the aid of financial intermediation, entrepreneurs have managed to push their business ideas into the market hence promoting entrepreneurship.

5. Risk Sharing • Where there is an investment, risks are expected. Risks involve the various uncertainties that negatively affect the expected returns from invested assets.  • In this case, financial intermediation comes in to reduce the probability of risks affecting investors through a process referred to as risk-sharing. • Essentially, intermediation encourages investors to invest in multiple assets.

6. Reduces transaction cost • Transaction costs involve costs identified with the time and cash spent on conveying financial deals. • These expenses can harm the whole economy, however, chiefly little savers and borrowers. • Indeed, if exchange costs are excessively high, it turns out to be practically unthinkable for them to approach monetary business sectors.

7. Supports rural development scheme • Under this plan, financial mediators finance socially and financially discouraged individuals by giving loans to them to different financial exercises. • 33% of the credit will be an appropriation, while 66% of the loan will convey a slower pace of revenue under the premium sponsorship plan of RBI. • Along these lines, different monetary projects pointed toward improving rural financial conditions are implemented.a

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