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Role of Commercial Banks in The Economic Development of A Country
Role of Commercial Banks in The Economic Development of A Country
1. Banks promote capital formation: Commercial banks accept deposits from individuals and
businesses, these deposits are then made available to the businesses which make use of them for
productive purposes in the country. The banks are, therefore, not only the store houses of the country’s
wealth, but also provide financial resources necessary for economic development.
2. Investment in new enterprises: Businessmen normally hesitate to invest their money in risky
enterprises. The commercial banks generally provide short and medium term loans to entrepreneurs to
invest in new enterprises and adopt new methods of production.
The provision of timely credit increases the productive capacity of the economy.
3. Promotion of trade and industry: With the growth of commercial banking, there is vast expansion in
trade and industry. The use of bank draft, check, bill of exchange, credit cards and letters of credit etc
has revolutionized both national and international trade.
4. Development of agriculture:
The commercial banks particularly in developing countries are now providing credit for development of
agriculture and small scale industries in rural areas.
The provision of credit to agriculture sector has greatly helped in raising agriculture productivity and
income of the farmers.