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    MFI Unit 01

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    Shreejan Pandey
    This document discusses the nature and role of financial institutions in the economy. It defines financial institutions and describes their key functions, including financial intermediation and transferring funds from savers to borrowers. It also outlines the global financial system and economic flows, different types of financial institutions like banks, credit unions, insurance companies, and investment funds. Furthermore, it provides examples of regulatory bodies and classifications of financial institutions in Nepal.

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    MFI Unit 01

    Uploaded by

    Shreejan Pandey
    282 views13 pages
    This document discusses the nature and role of financial institutions in the economy. It defines financial institutions and describes their key functions, including financial intermediation and transferring funds from savers to borrowers. It also outlines the global financial system and economic flows, different types of financial institutions like banks, credit unions, insurance companies, and investment funds. Furthermore, it provides examples of regulatory bodies and classifications of financial institutions in Nepal.

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    Management of finanical Institutions

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    MFI Unit 01.ppt

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    This document discusses the nature and role of financial institutions in the economy. It defines financial institutions and describes their key functions, including financial intermediation and transferring funds from savers to borrowers. It also outlines the global financial system and economic flows, different types of financial institutions like banks, credit unions, insurance companies, and investment funds. Furthermore, it provides examples of regulatory bodies and classifications of financial institutions in Nepal.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    282 views13 pages

    MFI Unit 01

    Uploaded by

    Shreejan Pandey
    This document discusses the nature and role of financial institutions in the economy. It defines financial institutions and describes their key functions, including financial intermediation and transferring funds from savers to borrowers. It also outlines the global financial system and economic flows, different types of financial institutions like banks, credit unions, insurance companies, and investment funds. Furthermore, it provides examples of regulatory bodies and classifications of financial institutions in Nepal.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 13

    Unit 1: Nature and Role of Financial Institutions in the Economy Nature of financial institutions Global economy and financial

    al system Structure of financial institutions Functions of financial system Methods of moving loanable funds Types of financial intermediaries

    Nature of Financial Institutions


    Financial institution is the business firm whose principal assets are financial assets or claims (such as stocks bonds, loans) instead of real assets such as buildings, equipment, and raw materials.
    Financial institutions provide financial services for its clients and most important financial services, probably, is financial intermediation, transferring funds from savers (investors) to users in need of those funds. Usually, household sectors are savers of funds and businesses and governments are demander of funds in financial system. Financial institutions also offer other variety of financial services ranging from insurance protection, selling retirement plans, safeguarding of valuables, mechanism of payment services, etc.

    The intermediation and diversification are the key performed by financial institutions in financial system.

    roles

    Financial institutions are vital to economic well-being and future growth of a market-oriented economy.

    Role of Financial Institutions


    Transfer funds Funds

    Surplus Generating Units


    (Small amounts, Highly Liquid, low level of risk)

    Financial Intermediaries
    Direct claims Direct claims Direct claims

    Deficit Facing Unit


    (Large amount, less liquid, High level of risk)

    Stock & bondholders in intermediary

    Funds

    Global Economy and Financial System

    The economic system functions to allocate scarce resources: land, labor, management skill and capital equipment to produce goods and services needed by the society. The economic activities affect the payment behavior of the people as growing economy results in a rise in personal income. It functions to combine the various inputs to produce goods and services as output. The global economic system generates a flow of production in return for a flow of payments. The circular flow of production and income is interdependent and never ending.

    The Economic System

    Land and other natural resources

    Flow of production

    Labor and management skills


    Capital equipment
    Input

    Flow of payments

    Goods and services

    Output

    The flow of payments and production within the economic

    system is a circular flow between producing units and the consuming units.

    Circular Flow between Consuming and Producing Unit

    Producing units
    (mainly business firms and governments)

    Consuming units
    (mainly households)

    The global economic system generates a flow of production in return for a flow of payments. The circular flow of production and income is interdependent and never ending process.

    Financial System
    The financial system is the collection of markets, institutions, laws, regulations, and techniques through which bonds, stocks, and other securities are traded, interest rates are determined, and financial services are produced and delivered around the world. The primary task of the financial system is to move scarce loanable funds from those who save to those who borrow to buy goods and services. It is essential to make investments in new equipment and facilities. Financial system helps to grow the global economy and thus

    to increase the standard of living.


    Economic system emphasizes economic growth and stability and financial system emphasizes the financial stability

    Structure of Financial Institutions


    Financial institutions are the group of firms that channel the savings of individuals, businesses, and government units into

    loans and investment.

    Classification of Financial Institutions Financial Intermediaries Other Financial Institutions Investment Bankers Security Dealers & Brokers

    Financial Intermediaries

    1. Depository Institutions
    1.1 Commercial banks 1.2 Thrift institutions 1.2.1 Credit Unions

    2. Non-depository Institutions 2.1 Contractual institutions Insurance companies Pension funds

    1.2.2 Savings Institutions


    Savings & Loan Associations (S&Ls) Savings banks

    2.2 Investment institutions


    Investment companies Finance companies

    Financial intermediaries are the specialized financial firm that facilitates the transfer of funds from savers to demanders of capital. Such intermediaries can be categorized into three forms:
    Depository Institutions Contractual Institutions Investment Institution

    Depository institutions derive bulk of their loanable funds by


    selling deposit accounts to the public. Commercial banks, saving & loan association, savings banks, and credit unions fall under this heading. The contractual institutions collect the funds by offering legal contracts such as selling insurance policy or pension plan to the saver to protect against risk. Insurance companies and pension funds can be taken as an example of such institution. Investment institutions are the institutions like investment companies, money market fund, finance companies, etc. that

    sell shares to the public and use the proceeds to buy various types of financial assets such as stocks, bonds, and other short term debt instruments that are issued by other forms.

    Depository Institutions in Nepal


    Depository Institutions 1980 CB DB FC MFDB S&CC NGOs Total 4 5 7 44 2 2 1985 3 2 1990 5 2 1995 10 3 21 4 6 Mid-July 2000 13 7 45 7 19 7 98 2005 17 26 60 11 20 47 181 2006 18 28 70 11 19 47 193 2007 20 38 74 12 17 47 208 2008 25 58 78 12 16 46 235 2009 26 63 77 15 16 45 242 MidJan 2010 26 73 78 17 16 45 254

    Source: Banking and Financial Statistics, 2010, NRB

    CB = Commercial Banks, DB = Development Banks, FC = Finance Companies, MFDB = Micro-finance Development Banks, S&CC = Savings & Credit Co-operatives (limited banking activities), NGOs = Non Governmental Organizations (Financial Intermediaries)

    Nepalese Financial Institutions Regulatory Bodies


    S. No. 1 2 3 4 5 6 7 8 9 10 11 12 Financial Institutions Commercial Banks Development Banks Finance Companies Micro-Credit Development Saving and Credit Cooperatives Non-Governmental Organizations Co-operatives (Licensed under Nepal Government Government Postal Saving Banks Insurance Companies Investment Companies (Mutual Funds) Nepal Stock Exchange Security Businesspersons (Brokers, Dealers, Merchant Bankers) Employee Provident Funds Regulator NRB NRB NRB NRB NRB NRB Department of Co-operative Ministry of Finance Insurance Board SEBON SEBON SEBON Class A B C D Non-Classified Non-Classified Non-Classified Non-Classified Non-Classified Non-Classified Non-Classified Non-Classified

    13

    Ministry of Finance

    Non-Classified

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