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and Medium Enterprises (SMEs) constitute the backbone of an economy. They not only provide employment and therefore income opportunities to a large number of people, but are also at the forefront of technological innovation and export diversification.
prerequisites for SMEs development such as legislative, marketing and research requirements. Lack of finance represents a major obstacle to SMEs growth and development. It is undeniable that in both developed and developing countries, SMEs traditionally lacked access to formal credit, particularly long-term finance
Cont..
This is because SMEs are considered of high risk
due to insufficient assets, low capitalization, and lack of collateral as well as high vulnerability to market conditions.
1. Banks promote capital formation 2. Investment in new enterprises 3. Promotion of trade and industry 4. Development of agriculture business 5. Balanced development of different regions 6. Influencing economy activity 7. Export promotion cells
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 countrys wealth, but also provide financial resources necessary for economic development.
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.
expansion in trade and industry. The use of bank draft, bill of exchange, credit cards and letters of credit etc has revolutionized both national and international trade.
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.
achieving balanced development in different regions of the country. They help in transferring surplus capital from developed regions to the less developed regions. The traders, industrialist etc of less developed regions are able to get adequate capital for meeting their business needs. This in turn increases investment, trade and production in the economy.
country through its influence on a. Availability of credit b. The rate of interest If the commercial banks are able to increase the amount of money in circulation through credit creation or by lowering the rate of interest, it directly affects economic development. A low rate of interest can encourage investment. The credit creation activity can raise aggregate demand which leads to more production in the economy.
the commercial banks have established export promotion cells. They provide information about general trade and economic conditions both inside and outside the country to its customers. The banks are therefore, making positive contribution in the process of economic development.
(3) very small loans, or bank overdraft facilities are also appropriate for meeting the day to-day financial requirements of small businesses (4) factoring and invoice discounting, asset finance (including commercial mortgages), and equity finance, all being within the framework of a customer-friendly approach
of ownership, financial disclosure, and capital adequacy that help them ensure prudent risk management. (2) Physical Infrastructure, including a large network of branches, which enables them to reach a substantial number of small and medium sized clients
(3) Well-Established Internal Controls, Administrative and Accounting Systems which facilitate keeping track of a large number of transactions (4) Ownership Structures Increasingly Dominated by Private Sector which tends to encourage sound governance practices, seeking costeffectiveness and profitability.
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