This document discusses the role of financial institutions in motivating and developing the financial sector. It outlines how financial institutions generate profits, increase investment, and motivate better performance. The document also discusses how financial institutions develop niche strategies, finance small scale sectors, introduce tailor-made schemes, provide development support services, offer microfinance credit, mobilize capital, facilitate trade, provide insurance and other financial services, enable the achievement of growth, drive financial innovation, and manage risks. Overall, the document emphasizes that financial institutions play a vital role in developing the financial system and economy of a country.

1. 1- Motivating the Financial Sector
In general Financial Institutions will only use
their resources for the benefit of their interest -
i.e. help to generate profits, either directly or
indirectly. The considerations are important
because with the help of growth of institutions
there is increase in the investment business in
the country. With existence of more institutions
there will be motivation in the financial sector to
perform better and take steps for the
strengthening of country. This will leads
towards the prosperty in the country by
eliminating the risk.
2- Development & Introduction of Niche
strategies
With the development & introduction of FIs we
can see the strategies for different sector
especially for the niche sector of the country.
The institutions develop & spread knowledge
about financial products to assist the efficiency
for the achievement of sustainable economic
growth. In 2003 union bank introduce the

2. 'RAAS Financing Scheme' for the small
community of Gujranwala division engaged in
surgical industry. For this approach to offer
attractive opportunities for the financial help for
growing & profitable market segment. SME
bank introduced Express loan scheme for niche
sector as well in 2004-05.
3- Financing the Small Scale Sector
Credit is the prime input for sustained growth of
small scale sector and its availability is thus a
matter of great importance. The provision of
short term credit/working capital to small
enterprises for its day to day requirement for
purchasing raw material and other inputs like
electricity, water, etc. and for payment of wages
and salaries; and long term credit for creation of
fixed assets like land, building, plant and
machinery help the SME sector to perform
better.
4- Tailor made schemes
With the help of different institutions several
tailor made schemes for the betterment of

3. economic sector of the country are available at
door steps. Introduction of country wide
schemes cannot give expected growth. As
discussed earlier RAAS Financing Scheme,
Express loan, Green tractor scheme, Yellow
Cap Scheme etc showed extensive results for
the betterment of growth in the country.
5- Development and Support Services
With the existence of different institutions
development and support services in the form
of loans and grants to different agencies
working for the promotion and development of
industries like associations, chambers are
available. The main example of import of
thermo bonded machines for the production of
thermo bonded footballs is possible with the
help of banks in Sialkot. Other support was
observed in rural industrialization, human
resource development, technology up-gradation
and marketing & promotion in the country.
6- Micro finance Credit
With the development of different institutions

4. like KHUSHHALI Bank, First Microfinance
Bank, Tameer Micro finance etc Micro Credit is
available to the most poorest sector of country.
This proactive step to facilitate growth of the
micro finance sector in country is very
commendable. It is envisaged to emerge as the
apex community by providing a complete range
of financial and non-financial services such as
loan funds, grant support, equity and institution
building support.
7- Introduction of more Institutions
Banking system and the Financial Institutions
play very significant role in the economy. First
and foremost is in the form of catering to the
need of credit for all the sections of society. The
modern economies in the world have developed
primarily by making best use of the credit
availability in their systems. An efficient banking
system must cater to the needs of high end
investors by making available high amounts of
capital for big projects in the industrial,
infrastructure and service sectors. At the same

5. time, the medium and small ventures must also
have credit available to them for new
investment and expansion of the existing units.
Rural sector in a country like Pakistan, India
can grow only if cheaper credit is available to
the farmers for their short and medium term
needs. This expected potential help the
investors for the introduction of more FIs in the
country.
8- Mopping up Savings
The banks and the financial institutions also
cater to another important need of the society
i.e. mopping up small savings at reasonable
rates with several options. The common man
has the option to park his savings under a few
alternatives, including the small savings
schemes introduced by the government from
time to time and in bank deposits in the form of
savings accounts, recurring deposits and time
deposits. Another option is to invest in the
stocks or mutual funds.

6. 9- Availability of Financial services to
households & individuals
Individuals have a major impact on the
environment through their activities and
consumption of goods and services, and in
some cases their impact is proving more
intractable than commercial impacts. Financial
institutions can have a major impact on the
activities of individuals by the provision of
suitable financial arrangements - for instance,
access to cheap mortgage finance is a
prerequisite of widespread home ownership,
and car ownership has been greatly increased
by the availability of car loans and hire
purchase. In the absence of suitable financing
arrangements, products or goods may struggle
to achieve sales, particularly if they have high
capital costs.
10- Capital mobilization
Capital mobilization is generally one of the most
necessary conditions for development. The role
played by FIs in the process of financial

7. integration in developing countries is very vital.
With the help of this channel benefit of
integration materialized. With the help of capital
mobilization capacity building, good governance
& economic reforms can easily be achieved.
11- Trade Facilitation Programme
The Trade Facilitation Programme (TFP) aims
to foster trade in the countries of operations,
both intra-regional and global. Through the
programme, institutions provides guarantees to
confirming banks, taking the political and
commercial payment risk of international trade
transactions undertaken by banks in the
countries of operations. This pioneering
programme remains a vital source of trade
finance in many of countries of operations.
12- Insurance and financial services
The institutions are supporting a broad range of
financial services to help expand local capital
markets and develop local financial
infrastructure. In 2002-08 there was a strong
focus on leasing transactions and investment

8. with new commitments made to insurance
companies; a pension funds etc I Pakistan. The
Bank also participated in a number of structured
finance transactions, encouraging the use of
capital market products in the region. Growth in
this sector will continue as demand for more
varied financial services increases and as
improved legislation provides the necessary
infrastructure for financial sector development.
13- Achievement of Growth
Well developed financial systems allow
economies to reach their potential since they
allow firms which have successfully identified
profitable opportunities to exploit these
opportunities as intermediaries by channelling
investment funds from those in the economy
who are willing to defer their consumption plans
into the future. Achievement of growth in
country becomes easy with introduction of
financial institutions. Different stages of
financial development require adequate
institutional processes to be in place.

9. 14- Financial Innovation
Development of FIs helps in focusing on the
improvements in technology and its impact on
how financial products are delivered. Funds are
transferred directly from ultimate savers to
ultimate borrowers. With reduction of trust
deficit financial innovation is possible on better
grounds. We know the flow of short-term funds
is facilitated by money markets & the flow of
long-term funds is facilitated by capital
markets. These activities also help in financial
innovations.
15- Managing Risk in Financial Institutions
Risk factor is one of the most critical factors
while dealing with finance. The facilitation of
issuance of new securities e.g., the sale of new
corporate stock or new Treasury securities or
facilitation of trading of existing securities e.g.,
the sale of existing stock etc involve factor of
risk. We are not confident either the securities
traded in secondary markets are liquid or

10. not. Focusing on risk management in the
financial institution is very necessary.