Role of banks and financial institutions in economic growth
Answers
There are many determinants of growth which helps to decide whether a country is growing or not.
The determinant of economic growth are its Consumption, Investment, Governmental expenditure and net exports i.e. imports less exports.
People usually associate growth with rising GDP, i.e. the Gross Domestic Product, however that is not inflation adjusted. So its better for people to look at GNP, Gross National product.
Banks and financial institutions, help in growth. They are the main institutions which handle the loans and monetary values. They are the ones which generate money, which at the end of the day, is supplied in the market, which is then determining the rate of exchange in the economy. For example, monetary supply of inflation also exists. This is related to growth, inflation effects growth.
Financial institutions like World Bank, International Monetary Fund exist which give out loans to countries, which suffer from loss. So that helps to give the crumbling economies a chance to rise.
They generate the currency. They give a rate of return on investments, fixed deposits, etc.
They are the main sources of getting loans for new start up businesses which add to the GDP of the country.