MBA notes on Economic growth, Capital formation - process - saving, mobilizing, investment, Problems of capital formation, Role of financial institutions - mediator, catalyst, promoter, counselor
This document discusses saving, investment, and resource mobilization for economic planning in India. It covers:
1) The definitions and importance of saving and investment for economic growth. High saving and investment rates can help break out of the "vicious cycle" of poverty, while low rates trap economies.
2) Trends showing India's saving and investment rates have been relatively low, along with factors contributing to this like population growth and consumerism. Suggestions to increase rates include expanding banking and reducing non-development spending.
3) The various sources and components of financing India's Five-Year Plans, including budgetary resources, deficit financing, and external financing from abroad. Maintaining a balance between development
Capital Accumulation and Economic Growth in Nigeria “Endogenous Growth Approach”iosrjce
The paper adopts a simple endogenous growth model to evaluate the short and long-run impact of
Gross Fixed capital formation, human capital formation, savings and population growth rate on economic
growth in Nigeria. The Autoregressive Distributed Lag model indicates no short and long-run impact of these
variables on economic growth. Also using Pesaran Bound Test and Wald Coefficient Diagnostic Test, we found
no long-run impact of Gross Fixed capital formation, human capital formation, national saving, and population
growth rate on growth. Beside, the error term (et) is rightly signed but not significant and the speed of
adjustment towards equilibrium is very poor at 23.99percent. it is very clear that none of the independent
variables contributed greatly to the variations in the economic growth rate in both short-run and long run
because the impulse they emitted for the both periods fluctuated all through the periods under review with small
percentage impacts. For example the gross fixed capital formation produced 6.12 percent positive shocks for
the ten periods and -4.38 percent negative shocks on economic growth, while human capital formation produced
more negative shocks (-12.48)percent than positive (6.51) for the ten periods. Like-wise national savings and
population- emitted more negative impulse (-6.55, -7.72) than positive (5.89, 6.52) on growth respectively .we
recommend that government should provide an enabling environment that will encourage both domestic and
foreign investment and in addition human capital development through education and in-job training should be
encouraged
This document discusses capital accumulation and economic growth in Somaliland. It begins with introducing capital accumulation as the growth of wealth through investments and profits. It then discusses the relevance of capital formation, including increasing productivity, national income, employment, and technological progress. Some reasons for low capital formation in developing countries are also examined, such as low incomes, lack of demand and supply of capital, and small market sizes. The sources of capital formation include savings, taxation, borrowing, and foreign investment. The document notes that capital formation in Somaliland is low compared to other countries due to constraints on the private sector like access to finance and infrastructure. It concludes by thanking the reader.
Presentation on capital fromation in agricultureMukund Kulkarni
This document discusses capital formation in agriculture in Gulbarga District. It defines capital formation as additions to capital stock like equipment and buildings. Capital formation consists of tangible and intangible goods and human capital. The study aims to analyze investment patterns, identify capital sources, assess variability between progressive and less progressive areas, and identify influencing factors. A key finding is that population growth is the main factor influencing capital formation levels.
Capital formation is the process of increasing a country's capital assets through investing in productive infrastructure and equipment. This promotes economic development by raising productivity, technological progress, and standards of living. In developing countries, capital formation relies on both domestic and external resources. Domestically, capital comes from voluntary savings, involuntary savings (e.g. taxes), government borrowing, and utilizing idle resources. Externally, foreign economic assistance such as loans and grants are important sources of capital that help bridge savings gaps, increase employment and productivity, and provide access to new technologies. While necessary, capital alone is not sufficient for development - other factors like education, government effectiveness, and social attitudes also significantly influence economic progress.
This document discusses trends in savings and investment in India and their impact on the economy. It notes that savings and investment are important for economic growth. India has seen impressive economic growth over the past 30 years, partly due to rising savings and investment. Household savings in India have increased significantly as a percentage of GDP. However, increased savings do not always correspond to increased investment, which can lead to recession rather than growth. The document also examines factors influencing investment levels and discusses challenges around increasing household investment in financial markets in India.
This document discusses factors affecting economic growth and development and the vicious circle of poverty. It defines economic growth as an increase in real GDP per capita over time, while economic development brings both quantitative and qualitative changes through initiatives like infrastructure, health, education, etc. Key factors influencing growth are discussed as capital formation, natural resources, trade, and economic systems. Non-economic factors include human capital, technology, political freedom, social organization, and corruption. The vicious circle of poverty is then examined in terms of how low capital, labor, and technology can perpetuate poverty through mechanisms like low savings, child labor, and lack of infrastructure and innovation.
Role of entrepreneurship in EconomicDevelopmentAmit Gupta
This document compares the role of entrepreneurship in the economic growth of India and China. It finds that both countries have experienced rapid economic development since liberalizing their economies in 1978 (China) and 1991 (India). This growth has been closely linked to rising entrepreneurial activity, as evidenced by the Global Entrepreneurship Monitor. While political and historical factors have shaped entrepreneurship differently in each country, the ability of institutions to adapt to a changing global business environment will be important for continued growth. China has transitioned from a centralized to market economy since joining the WTO, while India's democracy has a long history of entrepreneurship in certain communities that is now spreading more broadly.
This document discusses saving, investment, and resource mobilization for economic planning in India. It covers:
1) The definitions and importance of saving and investment for economic growth. High saving and investment rates can help break out of the "vicious cycle" of poverty, while low rates trap economies.
2) Trends showing India's saving and investment rates have been relatively low, along with factors contributing to this like population growth and consumerism. Suggestions to increase rates include expanding banking and reducing non-development spending.
3) The various sources and components of financing India's Five-Year Plans, including budgetary resources, deficit financing, and external financing from abroad. Maintaining a balance between development
Capital Accumulation and Economic Growth in Nigeria “Endogenous Growth Approach”iosrjce
The paper adopts a simple endogenous growth model to evaluate the short and long-run impact of
Gross Fixed capital formation, human capital formation, savings and population growth rate on economic
growth in Nigeria. The Autoregressive Distributed Lag model indicates no short and long-run impact of these
variables on economic growth. Also using Pesaran Bound Test and Wald Coefficient Diagnostic Test, we found
no long-run impact of Gross Fixed capital formation, human capital formation, national saving, and population
growth rate on growth. Beside, the error term (et) is rightly signed but not significant and the speed of
adjustment towards equilibrium is very poor at 23.99percent. it is very clear that none of the independent
variables contributed greatly to the variations in the economic growth rate in both short-run and long run
because the impulse they emitted for the both periods fluctuated all through the periods under review with small
percentage impacts. For example the gross fixed capital formation produced 6.12 percent positive shocks for
the ten periods and -4.38 percent negative shocks on economic growth, while human capital formation produced
more negative shocks (-12.48)percent than positive (6.51) for the ten periods. Like-wise national savings and
population- emitted more negative impulse (-6.55, -7.72) than positive (5.89, 6.52) on growth respectively .we
recommend that government should provide an enabling environment that will encourage both domestic and
foreign investment and in addition human capital development through education and in-job training should be
encouraged
This document discusses capital accumulation and economic growth in Somaliland. It begins with introducing capital accumulation as the growth of wealth through investments and profits. It then discusses the relevance of capital formation, including increasing productivity, national income, employment, and technological progress. Some reasons for low capital formation in developing countries are also examined, such as low incomes, lack of demand and supply of capital, and small market sizes. The sources of capital formation include savings, taxation, borrowing, and foreign investment. The document notes that capital formation in Somaliland is low compared to other countries due to constraints on the private sector like access to finance and infrastructure. It concludes by thanking the reader.
Presentation on capital fromation in agricultureMukund Kulkarni
This document discusses capital formation in agriculture in Gulbarga District. It defines capital formation as additions to capital stock like equipment and buildings. Capital formation consists of tangible and intangible goods and human capital. The study aims to analyze investment patterns, identify capital sources, assess variability between progressive and less progressive areas, and identify influencing factors. A key finding is that population growth is the main factor influencing capital formation levels.
Capital formation is the process of increasing a country's capital assets through investing in productive infrastructure and equipment. This promotes economic development by raising productivity, technological progress, and standards of living. In developing countries, capital formation relies on both domestic and external resources. Domestically, capital comes from voluntary savings, involuntary savings (e.g. taxes), government borrowing, and utilizing idle resources. Externally, foreign economic assistance such as loans and grants are important sources of capital that help bridge savings gaps, increase employment and productivity, and provide access to new technologies. While necessary, capital alone is not sufficient for development - other factors like education, government effectiveness, and social attitudes also significantly influence economic progress.
This document discusses trends in savings and investment in India and their impact on the economy. It notes that savings and investment are important for economic growth. India has seen impressive economic growth over the past 30 years, partly due to rising savings and investment. Household savings in India have increased significantly as a percentage of GDP. However, increased savings do not always correspond to increased investment, which can lead to recession rather than growth. The document also examines factors influencing investment levels and discusses challenges around increasing household investment in financial markets in India.
This document discusses factors affecting economic growth and development and the vicious circle of poverty. It defines economic growth as an increase in real GDP per capita over time, while economic development brings both quantitative and qualitative changes through initiatives like infrastructure, health, education, etc. Key factors influencing growth are discussed as capital formation, natural resources, trade, and economic systems. Non-economic factors include human capital, technology, political freedom, social organization, and corruption. The vicious circle of poverty is then examined in terms of how low capital, labor, and technology can perpetuate poverty through mechanisms like low savings, child labor, and lack of infrastructure and innovation.
Role of entrepreneurship in EconomicDevelopmentAmit Gupta
This document compares the role of entrepreneurship in the economic growth of India and China. It finds that both countries have experienced rapid economic development since liberalizing their economies in 1978 (China) and 1991 (India). This growth has been closely linked to rising entrepreneurial activity, as evidenced by the Global Entrepreneurship Monitor. While political and historical factors have shaped entrepreneurship differently in each country, the ability of institutions to adapt to a changing global business environment will be important for continued growth. China has transitioned from a centralized to market economy since joining the WTO, while India's democracy has a long history of entrepreneurship in certain communities that is now spreading more broadly.
This document provides an introduction to economics and the characteristics of developing economies. It discusses how developing countries often face issues like poverty, low living standards, population growth, and underutilized resources. This can lead to a "vicious circle of poverty" where poverty leads to low savings, investment, production and more poverty. Other common problems in developing economies include illiteracy, unemployment, poor technology, political instability, inefficient administration and corruption. The document concludes that achieving political stability and effective economic planning can help stabilize developing economies by boosting areas like employment, exports, and industrial development.
The document discusses the impact of disinvestments on the Indian economy. It defines disinvestment as the sale of government assets to reduce fiscal burden and raise funds. The objectives of disinvestment include reducing fiscal deficit, improving public finances, and encouraging private ownership. Disinvestment is compared to privatization, which transfers majority control to the private sector. The importance of disinvestment is discussed in utilizing funds for infrastructure, debt repayment, and social programs. Analysis shows disinvestments lead to improved return on capital and management. At a macro level, countries that successfully used disinvestment achieved new economic heights. At a micro level, disinvestment increases competition and efficiency.
Entrepreneurs play a vital role in the economic development of a country. They mobilize capital from households to form capital goods for production. This leads to capital formation. Entrepreneurs also generate employment opportunities by setting up new business concerns, especially in labor-oriented industries. This improves living standards. Entrepreneurs encourage effective utilization of idle funds and natural resources in a country and promote balanced regional development by establishing businesses where resources and labor are available.
This document discusses income distribution, inequality, and poverty. It defines income distribution as how a country's total GDP is distributed among its population. Income inequality refers to the unequal distribution of income across members of an economy. The document lists factors that contribute to income inequality such as education, competition for talent, stagnant wages, and demand for high-skilled workers. It defines poverty as the inability to earn enough income for basic needs. Main causes of poverty in India include heavy population pressure, unemployment, underdeveloped economy, and lack of infrastructure. The document also discusses capital formation, describing it as the accumulation of capital stock over time through the processes of saving, mobilizing savings, and investing savings into capital goods.
The document discusses several issues weighing down the Indian economy, including financial discipline, the financial sector, resource utilization, corruption, overambitious government schemes, the need for sustained and inclusive growth, agricultural development, poverty eradication, and unemployment. It analyzes factors like the fiscal deficit, inflation, government spending, and financial inclusion that are slowing economic growth. It argues for reforms like increasing foreign investment, improving tax systems, utilizing natural resources, strengthening anti-corruption laws, and focusing on long-term and sustainable development.
Does Bank Credit Have Any Impact on Nigeria’s Domestic Investment?iosrjce
There is an extensive literature on the role of the bank lending and credit facilities in Nigeria but
most of these literature concentrate on its impact on the gross domestic product. This study focuses on the
impact of Nigeria’s banking sector on domestic investment from 1980 to 2012 bearing in mind that funding is
one of the major challenges of domestic entrepreneurs in Nigeria. A domestic investment model was adopted
and the unit root test was first applied to the data set. All the data are stationary and the ordinary least square
method was used to identify the impact of capital market activities on domestic investment in Nigeria using the
cointegration technique. Findings reveal that bank credit negatively though significantly impacted on domestic
investment in the long run while its short run impact is both positive and significant. This is an indication that
financial intermediation (captured by bank credit to private sector) is a strong driver of domestic investment in
Nigeria only in the short run. The study thus recommends amongst others, the strengthening of Nigeria’s
banking system with more funds and supervisions as well as the encouragement of both foreign and domestic
investments through government’s creation of a more conducive political and economic climate.
The document summarizes discussions from a Japan Growth Finance Forum on increasing risk capital flows to support economic growth. In the keynote speech, the CEO of Innovation Network Corporation of Japan argued that increasing the supply of risk capital from financial institutions is important. He outlined four points needed to boost risk money supply: behavioral changes in financial institutions; diversified investments by pension funds; major corporations providing technology and intellectual property; and effective government entrepreneurship support. The panels discussed the roles and outlook of different financial actors in industry finance and challenges in regional economies. Overall, the forum highlighted the importance of cooperation between industries and financial institutions to develop new financing and investment vehicles to support business growth.
The document discusses opportunities for investors in South Africa and Africa given the current economic environment. It notes that SA has a world-class asset management industry that can play a bigger role in driving economic growth, such as through public-private partnerships to fund infrastructure projects. While near-term equity returns may be pressured, diversifying investments across asset classes and markets both locally and throughout Africa can help investors achieve their goals in today's globally connected world.
The document discusses the role of the state in development. It outlines several key responsibilities of the state, including establishing financial institutions, creating long term development plans, encouraging efficient use of natural resources, attracting foreign investors, reducing poverty and unemployment, managing different sectors effectively, and increasing exports while decreasing reliance on imports. The state also needs to ensure political and economic stability, improve law and order, encourage youth participation, control inflation, promote free trade, and allocate adequate budgets to education and healthcare.
This document provides an overview of opportunities for doing business in India. It discusses India's large population and growing consumer market as positive factors. Several industries with potential for growth are highlighted, including food and beverages, healthcare, education, and infrastructure. Key details about India's transportation networks like railways and roadways are also mentioned. Overall, the document promotes India as a country with great business potential due to its large size, diversity, and increasing economic power.
Development of small and medium enterprises in a developing country indnesian...Kacung Abdullah
This document discusses small and medium enterprises (SMEs) in Indonesia. It finds that SMEs make up over 99% of businesses and employ over 96% of the workforce. However, they face significant constraints, especially lack of access to financing. While women entrepreneurs are increasing, they still only represent about 29% of SMEs due to factors like education levels, household responsibilities, and cultural norms. SMEs also have low innovation capabilities due to challenges such as lack of skills and capital. The development of SMEs in Indonesia is important but continues to be hampered by barriers.
Since the mid-1980s, sustainable development has been generally used but got predominance
when it became progressively fashionable to use it as a way of reacting to global environmental concerns,
biophysical issues, fairness, equity and distribution. The issue of sustainable development has been a growing
concern to both the government
The big push theory argues that economic development requires a minimum level of comprehensive investment in mutually supporting industries to take advantage of economies of scale and externalities. It identifies three types of indivisibilities - in production, demand, and savings - that must be overcome through a large investment package rather than gradual increases. Social overhead capital, like infrastructure, requires huge initial investments but leads to lower costs and indirect contributions to development over the long term. Underdeveloped countries face challenges achieving the necessary savings levels for a big push and must rely on outside sources.
Small and medium Enterprises (SMEs) play an important role in the modern economy; the research aims to identify the role of small and medium enterprises in the economic development in the Arab Republic of Egypt and identify the most important problems and obstacles facing these projects , The results show that, Egypt has 2.5 million small, medium and micro enterprises, representing 99% of the total non-agricultural projects, about 78% of these projects did not receive any banking facilities, The performance SMEs is very weak in terms of export to foreign markets. SMEs can contribute in the process of accelerating development because it does not require huge investments at the same time, and is able to increase employment and mobilize small individual savings, as well as help in the preparation of technical cadres. It also enables the development of exports, including the acquisition of foreign currency and thus improving the balance of payments of developing countries, in addition to their contribution to the formation of a balanced industrial sector that serves the national economy, However Small and medium enterprises in Egypt face many problems that limit the ability to develop them. This sector is still suffering from basic obstacles such as difficulty obtaining finance and guarantees, and many other difficulties related to the inappropriate business environment, laws and regulations, poor infrastructure and banking so that Egyptian government must put a clear approach and specific objectives for the development of these projects.
Descriptive Analysis of Inflation and Unemployment in Indian EcononmyAnu Damodaran
This document provides an overview of a term paper on trends of inflation and unemployment in the Indian economy from 2002-2012. The paper was submitted by Ms. Anu Damodaran to her faculty guide, Mr. Rajneesh Mishra, at Amity University in Dubai in partial completion of her MBA program. The 67-page paper includes sections on inflation, unemployment, data analysis of inflation and unemployment rates in India, and conclusions on the relationship between inflation and unemployment.
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
The Role of Governments as Relationship Mediation Between Social Capital and ...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This document discusses entrepreneurs as the creative force in the economy and how governments can help or hinder them. It defines entrepreneurship and notes that entrepreneurs drive innovation and economic growth. However, they face challenges from business environment factors like government policies. The document examines how the Nigerian government has implemented programs to support entrepreneurs through training and loans to foster job creation and economic development, but still presents hindrances such as high interest rates and lack of basic infrastructure. It concludes that while support is given, more must be done to reduce barriers facing entrepreneurs.
There are four key factors that influence a country's economic growth: investment in human capital through education and training; investment in capital goods like factories and machinery; availability of natural resources; and level of entrepreneurship. A country's gross domestic product, which measures the total value of goods and services produced domestically in a year, is used to determine its economic growth and standard of living. For a nation to continue growing its GDP, it must effectively develop and utilize its human, physical, and natural resources through investments in these factors of production.
This document provides an overview of macroeconomics and the financial system. It discusses key concepts such as financial institutions that help match savers and investors, including banks, bond and stock markets, and mutual funds. It explains how saving and investment are incorporated into national income accounts and the relationship between the supply and demand of loanable funds in the market. Government policies aimed at incentivizing saving and investment and managing budget deficits and surpluses are also summarized.
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.
This document provides an introduction to economics and the characteristics of developing economies. It discusses how developing countries often face issues like poverty, low living standards, population growth, and underutilized resources. This can lead to a "vicious circle of poverty" where poverty leads to low savings, investment, production and more poverty. Other common problems in developing economies include illiteracy, unemployment, poor technology, political instability, inefficient administration and corruption. The document concludes that achieving political stability and effective economic planning can help stabilize developing economies by boosting areas like employment, exports, and industrial development.
The document discusses the impact of disinvestments on the Indian economy. It defines disinvestment as the sale of government assets to reduce fiscal burden and raise funds. The objectives of disinvestment include reducing fiscal deficit, improving public finances, and encouraging private ownership. Disinvestment is compared to privatization, which transfers majority control to the private sector. The importance of disinvestment is discussed in utilizing funds for infrastructure, debt repayment, and social programs. Analysis shows disinvestments lead to improved return on capital and management. At a macro level, countries that successfully used disinvestment achieved new economic heights. At a micro level, disinvestment increases competition and efficiency.
Entrepreneurs play a vital role in the economic development of a country. They mobilize capital from households to form capital goods for production. This leads to capital formation. Entrepreneurs also generate employment opportunities by setting up new business concerns, especially in labor-oriented industries. This improves living standards. Entrepreneurs encourage effective utilization of idle funds and natural resources in a country and promote balanced regional development by establishing businesses where resources and labor are available.
This document discusses income distribution, inequality, and poverty. It defines income distribution as how a country's total GDP is distributed among its population. Income inequality refers to the unequal distribution of income across members of an economy. The document lists factors that contribute to income inequality such as education, competition for talent, stagnant wages, and demand for high-skilled workers. It defines poverty as the inability to earn enough income for basic needs. Main causes of poverty in India include heavy population pressure, unemployment, underdeveloped economy, and lack of infrastructure. The document also discusses capital formation, describing it as the accumulation of capital stock over time through the processes of saving, mobilizing savings, and investing savings into capital goods.
The document discusses several issues weighing down the Indian economy, including financial discipline, the financial sector, resource utilization, corruption, overambitious government schemes, the need for sustained and inclusive growth, agricultural development, poverty eradication, and unemployment. It analyzes factors like the fiscal deficit, inflation, government spending, and financial inclusion that are slowing economic growth. It argues for reforms like increasing foreign investment, improving tax systems, utilizing natural resources, strengthening anti-corruption laws, and focusing on long-term and sustainable development.
Does Bank Credit Have Any Impact on Nigeria’s Domestic Investment?iosrjce
There is an extensive literature on the role of the bank lending and credit facilities in Nigeria but
most of these literature concentrate on its impact on the gross domestic product. This study focuses on the
impact of Nigeria’s banking sector on domestic investment from 1980 to 2012 bearing in mind that funding is
one of the major challenges of domestic entrepreneurs in Nigeria. A domestic investment model was adopted
and the unit root test was first applied to the data set. All the data are stationary and the ordinary least square
method was used to identify the impact of capital market activities on domestic investment in Nigeria using the
cointegration technique. Findings reveal that bank credit negatively though significantly impacted on domestic
investment in the long run while its short run impact is both positive and significant. This is an indication that
financial intermediation (captured by bank credit to private sector) is a strong driver of domestic investment in
Nigeria only in the short run. The study thus recommends amongst others, the strengthening of Nigeria’s
banking system with more funds and supervisions as well as the encouragement of both foreign and domestic
investments through government’s creation of a more conducive political and economic climate.
The document summarizes discussions from a Japan Growth Finance Forum on increasing risk capital flows to support economic growth. In the keynote speech, the CEO of Innovation Network Corporation of Japan argued that increasing the supply of risk capital from financial institutions is important. He outlined four points needed to boost risk money supply: behavioral changes in financial institutions; diversified investments by pension funds; major corporations providing technology and intellectual property; and effective government entrepreneurship support. The panels discussed the roles and outlook of different financial actors in industry finance and challenges in regional economies. Overall, the forum highlighted the importance of cooperation between industries and financial institutions to develop new financing and investment vehicles to support business growth.
The document discusses opportunities for investors in South Africa and Africa given the current economic environment. It notes that SA has a world-class asset management industry that can play a bigger role in driving economic growth, such as through public-private partnerships to fund infrastructure projects. While near-term equity returns may be pressured, diversifying investments across asset classes and markets both locally and throughout Africa can help investors achieve their goals in today's globally connected world.
The document discusses the role of the state in development. It outlines several key responsibilities of the state, including establishing financial institutions, creating long term development plans, encouraging efficient use of natural resources, attracting foreign investors, reducing poverty and unemployment, managing different sectors effectively, and increasing exports while decreasing reliance on imports. The state also needs to ensure political and economic stability, improve law and order, encourage youth participation, control inflation, promote free trade, and allocate adequate budgets to education and healthcare.
This document provides an overview of opportunities for doing business in India. It discusses India's large population and growing consumer market as positive factors. Several industries with potential for growth are highlighted, including food and beverages, healthcare, education, and infrastructure. Key details about India's transportation networks like railways and roadways are also mentioned. Overall, the document promotes India as a country with great business potential due to its large size, diversity, and increasing economic power.
Development of small and medium enterprises in a developing country indnesian...Kacung Abdullah
This document discusses small and medium enterprises (SMEs) in Indonesia. It finds that SMEs make up over 99% of businesses and employ over 96% of the workforce. However, they face significant constraints, especially lack of access to financing. While women entrepreneurs are increasing, they still only represent about 29% of SMEs due to factors like education levels, household responsibilities, and cultural norms. SMEs also have low innovation capabilities due to challenges such as lack of skills and capital. The development of SMEs in Indonesia is important but continues to be hampered by barriers.
Since the mid-1980s, sustainable development has been generally used but got predominance
when it became progressively fashionable to use it as a way of reacting to global environmental concerns,
biophysical issues, fairness, equity and distribution. The issue of sustainable development has been a growing
concern to both the government
The big push theory argues that economic development requires a minimum level of comprehensive investment in mutually supporting industries to take advantage of economies of scale and externalities. It identifies three types of indivisibilities - in production, demand, and savings - that must be overcome through a large investment package rather than gradual increases. Social overhead capital, like infrastructure, requires huge initial investments but leads to lower costs and indirect contributions to development over the long term. Underdeveloped countries face challenges achieving the necessary savings levels for a big push and must rely on outside sources.
Small and medium Enterprises (SMEs) play an important role in the modern economy; the research aims to identify the role of small and medium enterprises in the economic development in the Arab Republic of Egypt and identify the most important problems and obstacles facing these projects , The results show that, Egypt has 2.5 million small, medium and micro enterprises, representing 99% of the total non-agricultural projects, about 78% of these projects did not receive any banking facilities, The performance SMEs is very weak in terms of export to foreign markets. SMEs can contribute in the process of accelerating development because it does not require huge investments at the same time, and is able to increase employment and mobilize small individual savings, as well as help in the preparation of technical cadres. It also enables the development of exports, including the acquisition of foreign currency and thus improving the balance of payments of developing countries, in addition to their contribution to the formation of a balanced industrial sector that serves the national economy, However Small and medium enterprises in Egypt face many problems that limit the ability to develop them. This sector is still suffering from basic obstacles such as difficulty obtaining finance and guarantees, and many other difficulties related to the inappropriate business environment, laws and regulations, poor infrastructure and banking so that Egyptian government must put a clear approach and specific objectives for the development of these projects.
Descriptive Analysis of Inflation and Unemployment in Indian EcononmyAnu Damodaran
This document provides an overview of a term paper on trends of inflation and unemployment in the Indian economy from 2002-2012. The paper was submitted by Ms. Anu Damodaran to her faculty guide, Mr. Rajneesh Mishra, at Amity University in Dubai in partial completion of her MBA program. The 67-page paper includes sections on inflation, unemployment, data analysis of inflation and unemployment rates in India, and conclusions on the relationship between inflation and unemployment.
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
The Role of Governments as Relationship Mediation Between Social Capital and ...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This document discusses entrepreneurs as the creative force in the economy and how governments can help or hinder them. It defines entrepreneurship and notes that entrepreneurs drive innovation and economic growth. However, they face challenges from business environment factors like government policies. The document examines how the Nigerian government has implemented programs to support entrepreneurs through training and loans to foster job creation and economic development, but still presents hindrances such as high interest rates and lack of basic infrastructure. It concludes that while support is given, more must be done to reduce barriers facing entrepreneurs.
There are four key factors that influence a country's economic growth: investment in human capital through education and training; investment in capital goods like factories and machinery; availability of natural resources; and level of entrepreneurship. A country's gross domestic product, which measures the total value of goods and services produced domestically in a year, is used to determine its economic growth and standard of living. For a nation to continue growing its GDP, it must effectively develop and utilize its human, physical, and natural resources through investments in these factors of production.
This document provides an overview of macroeconomics and the financial system. It discusses key concepts such as financial institutions that help match savers and investors, including banks, bond and stock markets, and mutual funds. It explains how saving and investment are incorporated into national income accounts and the relationship between the supply and demand of loanable funds in the market. Government policies aimed at incentivizing saving and investment and managing budget deficits and surpluses are also summarized.
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.
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Capital formation is a key determinant of economic development according to the document. Higher capital formation leads to greater productive capacity and higher national income. Capital formation depends on income, savings, and investment. Natural resources also play an important role if they are utilized fully. Other factors discussed include marketable agricultural surplus, conditions of foreign trade, economic systems, human capital formation, technical know-how, education, infrastructure, political stability, and reduction of corruption.
The document discusses the challenges Ethiopian microfinance institutions face in mobilizing local savings. It finds that while MFIs have expanded branches, commercial banks still dominate deposits. Product development is often top-down without customer research, and marketing focuses on borrowers rather than potential net savers. Field research identified opportunities to design demand-based products and strengthen customer consultation, but most MFIs lack detailed marketing plans and materials to confidently promote savings. Addressing these challenges could help MFIs better mobilize the savings needed to fund local lending and achieve development goals.
The document discusses sustainable development goals and financing development. It explains that development can be financed through various sources like grants, loans, equity investments, and guarantees. Low-income countries rely more on grants and concessional loans while middle-income countries use regular loans. Domestic resource mobilization is raising funds domestically through taxation and savings but Ghana faces issues like tax evasion and corruption that hinder development financing. Improving tax administration through computerized online systems could help address these issues and boost development funding.
India has many hidden strengths that are not fully reflected in economic reports and statistics. These include having the largest number of entrepreneurs and small startups in the world, especially in trading and retail. It is also easy to start a business in India where only local licenses are required. Despite high interest rates, many small businesses are very profitable. India also has a high savings rate, money multiplier effect, and assets held by the government, PSUs, banks, and individuals. Tapping into these hidden strengths could help India realize its full economic potential and regain its former status as a leading global economy.
India has many hidden strengths that are not fully reflected in economic reports and statistics. These include having the largest number of entrepreneurs and small startups in the world, especially in trading and retail. It is also easy to start a business in India where only local licenses are required. Despite high interest rates, many small businesses are very profitable. India also has a high savings rate, money multiplier effect, and assets held by the government, PSUs, banks, and individuals. Tapping into these hidden strengths could help India realize its full economic potential and regain its former status as a leading global economy.
The document discusses various investment alternatives and the investment process. It begins by defining investment and differentiating investment from speculation. It then discusses factors that make investments important like retirement planning, taxation, and inflation. The document outlines popular investment avenues in India like shares, bonds, mutual funds, insurance policies, and real estate. It also describes the stages of the investment process as developing an investment policy, analyzing investments, valuing securities, and constructing an investment portfolio. Key features of investment programs discussed include safety, liquidity, income stability, and appreciation.
The document discusses domestic resource mobilization as a financing solution for sustainable development in Zambia. Zambia faces challenges raising funds for infrastructure projects due to weak tax collection systems. The proposed solution, adding, pooling and enabling, would help Zambia increase financial flows through effective taxation of individuals, businesses, and mining investors. This includes ensuring all pay appropriate taxes and build infrastructure. Creating an enabling environment and policy guidance can strengthen domestic policy and mobilize more resources to support development goals.
IMPLEMENTATION OF THE ALLOCATION OF INCOME PORTFOLIO MERCHANT AND FISHERMAN I...IAEME Publication
This study aims to determine the understanding of merchant-fisherman financial
literacy on income allocation for savings, investment portfolios. The target of this
study is 41 traders and 46 fishermen who work more than 5 years. Wonokromo
market location, Keputran, Kenjeran, Bulak, Sukolilo markets in Surabaya, East Java,
Indonesia. Research methods use an exploratory method with a closed interview
qualitative approach. The results showed that both traders and fishermen had little
understanding of financial literacy, especially regarding income allocation for
savings, investment portfolios. Both financial products, financial institutions and
various investment instruments. Fishermen only understand gold, land and home
investments. Do not understand investments in financial assets such as deposits,
bonds, stocks, mutual funds, as well as pension funds. Trader's monthly gross income
is greater than fishermen's income. Fishermen are only 2-3 million rupiah per month.
While the average trader is above 10 million rupiah and above, there are even 30-50
million rupiah per month. More prosperous traders. But in terms of group
cooperation, fishermen are more compact, while traders are more individualized. In
terms of education, traders are relatively better. There are a small number of scholars
who are even masters. Whereas fishermen, the last education is only upper/first level
schools, elementary schools, even some who do not go to school. Although the
education traders are higher, but about financial literacy is the same as fishermen
who have a minimal understanding of the financial investment portfolio
1. The document discusses the meaning, need, and factors affecting entrepreneurship. It defines entrepreneurship as the process of designing, launching, and running a new business to generate profit, while bearing risks.
2. The need for entrepreneurship includes job creation, innovation, community development, integration of outsiders, and enhancing standards of living. Economic factors like capital, labor, raw materials, market, and infrastructure influence entrepreneurial development.
3. Social factors such as caste, family system, and values & beliefs also impact entrepreneurship by shaping people's basic norms and behaviors.
Role played by entrepreneurship in economic development in India Raman Dhiman
The document discusses the major role of entrepreneurship in the economic development of India. It notes that entrepreneurs locate and exploit opportunities, converting idle resources into national income and wealth through goods and services. This promotes capital formation, creates large-scale employment, encourages balanced regional development, reduces concentration of economic power, stimulates wealth creation and distribution, and increases gross national product and per capita income - all of which are essential to a country's economic development.
1. Growth refers to the rise in goods and services an economy produces, while productivity is the output per unit of input.
2. Key sources of economic growth include investment and capital accumulation, available resources, compatible institutions, technological advances, and entrepreneurship.
3. Modern growth theories emphasize the role of technological progress rather than capital accumulation, highlighting how technology can overcome diminishing returns through mechanisms like learning by doing.
Investment is defining as asset or item that is
purchased with the hope that it will generate income or
appreciate in the future. In an economic sense, an investment is
the purchase of goods that are not consumed today but are
used in the future to create with. In finance an investment is a
monetary asset purchased with the idea that the asset will
provide income in the future or appreciate and be sold at a
higher price. The purpose of this paper is to investigate the
impact of investment (public and private) on economic growth
in Sudan during the period 1999-2011. Date were collected
from central bureau of statistics. Using these data ordinary
least squares method was applied to the linear form of the
model. The obtained results showed that: investment has
positive impact on economic growth measured by nominal
gross domestic product, real gross domestic product and
growth rate of gross domestic product. This is similar to what
mentioned in economic theory.
The document discusses the issue of stalled capital formation in India and its negative impact on economic growth. It notes that gross capital formation, which indicates new investment in factories, infrastructure, etc., has grown much more slowly than GDP in recent years. In particular, capital formation in the manufacturing sector has declined sharply. This collapse in new investments is the root cause of the economic slowdown, as it reduces job creation, incomes, and consumption over time. The document argues that GDP growth cannot recover without addressing the problems that have caused capital formation to stall, such as high non-performing assets of banks that have restricted new lending.
This document discusses financial intelligence and entrepreneurship in Nigeria. It defines financial intelligence as compiling financial information about entities to understand their capabilities and predict future actions. It states that financial intelligence is crucial for entrepreneurial growth and sustainability in Nigeria. Entrepreneurs need management knowledge of finances to avoid failures even when businesses are profitable. The document then examines concepts of entrepreneurship and its relationship to economic growth and development. It outlines prospects and challenges of entrepreneurship in Nigeria and the role financial intelligence can play in enabling entrepreneurial growth in the country.
Capital Inflows and Economic Growth A Comperative Studyiosrjce
This study examines the impact of capital inflows on economic growth of developing* economies; the
case of Nigeria Ghana and India from 1986-2012. This is necessitated by the doubts being raised as whether the
huge inflows of foreign capita! in developing economies over the years have transmitted to real economic
growth. Augmented Dickey Fuller unit root test was employed to evaluate the stationarity of the data, while
Johansen Co-integration was used to estimate the long-run equilibrium relationship among the variables. The
casual relationship was tested using Granger Causality, and Ordinary Least Square method was used to
estimate the model. The finding reveals that capital inflows have significant impact on the economic growth of
the three countries. In Nigeria and Ghana, foreign direct and portfolio investment and foreign borrowings have
significant and positive impact on economic growth. Workers' remittances significantly and positively related to
the economic growth of the three countries. The enabling environment should be created in the Developing
Countries to encourage more inflow of foreign investments and workers remittances while India specifically
should channel their foreign aids to productive ends. This will help in dosing the savings-investment gap and
encourage economic growth in these countries. The study signifies that capital inflows is indispensable in
dosing the savings-investment gap required for economic growth of developing countries.
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Management of Financial Institutions - Unit I-converted.pdf
1. Dr. R. Sudha, MKU College, Madurai
Semester IV
MANAGEMENT OF FINANCIAL INSTITUTIONS - PMRJT4E
Unit I
Economic growth and Financial information – Meaning – Capital formation – Process of capital
formation – Saving, Investment and Finance – Problems of capital formulation – Role of
Financial institutions – Role as a Financial intermediary, Catalytic agent – Creator of money –
Promoter - Counsellor
CAPITAL FORMATION
Meaning
Capital formation means increasing the stock of real capital in a country. In other words, capital
formation involves making of more capital goods such as machines, tools, factories, transport
equipment, materials, electricity, etc., which are all used for future production of goods.
For making additions to the stock of Capital, saving and investment are essential.
Process of Capital Formation
In order to accumulate capital goods some current consumption has to be sacrificed. The
greater the extent to which the people are willing to abstain from present consumption, the
greater the extent that society will devote resources to new capital formation. If society
consumes all that it produces and saves nothing, future productive capacity of the economy will
fall as the present capital equipment wears out.
In other words, if whole of the current productive activity is used to produce consumer goods
and no new capital goods are made, production of consumer goods in the future will greatly
decline. To cut down some of the present consumption and wait for more consumption in the
future require far-sightedness on the part of the people. There is an old Chinese proverb, “He
who cannot see beyond the dawn will have much good wine to drink at noon, much green wine
to cure his headache at dark, and only rain water to drink for the rest of his days.”
Three Stages in Capital Formation:
Although saving is essential for capital formation, but in a monetized economy, saving may not
directly and automatically result in the production of capital goods. Savings must be invested in
order to have capital goods. In a modern economy, where saving and investment are done
mainly by two different classes of people, there must be certain means or mechanism whereby
the savings of the people are obtained and mobilized in order to give them to the businessmen
or entrepreneurs to invest in capital.
(a) Creation of Savings:
An increase in the volume of real savings so that resources, that would have been devoted to
the production of consumption goods, should be released for purposes of capital formation.
(b) Mobilization of Savings:
A finance and credit mechanism, so that the available resources are obtained by private
investors or government for capital formation.
2. Dr. R. Sudha, MKU College, Madurai
(c) Investment of Savings:
The act of investment itself so that resources are actually used for the production of capital
goods.
We shall now explain these three stages:
Creation of Savings:
Savings are done by individuals or households. They save by not spending all their incomes on
consumer goods. When individuals or households save, they release resources from the
production of consumer goods. Workers, natural resources, materials, etc., thus released are
made available for the production of capital goods.
The level of savings in a country depends upon the power to save and the will to save. The
power to save or saving capacity of an economy mainly depends upon the average level of
income and the distribution of national income. The higher the level of income, the greater will
be the amount of savings.
The countries having higher levels of income are able to save more. That is why the rate of
savings in the U.S.A. and Western European countries is much higher than that in the under-
developed and poor countries like India. Further, the greater the inequalities of income, the
greater will be the amount of savings in the economy. Apart from the power to save, the total
amount of savings depends upon the will to save. Various personal, family, and national
considerations induce the people to save.
People save in order to provide against old age and unforeseen emergencies. Some people
desire to save a large sum to start new business or to expand the existing business. Moreover,
people want to make provision for education, marriage and to give a good start in business for
their children.
Further, it may be noted that savings may be either voluntary or forced. Voluntary savings are
those savings which people do of their own free will. As explained above, voluntary savings
depend upon the power to save and the will to save of the people. On the other hand, taxes by
the Government represent forced savings.
Moreover, savings may be done not only by households but also by business enterprises” and
government. Business enterprises save when they do not distribute the whole of their profits,
but retain a part of them in the form of undistributed profits. They then use these undistributed
profits for investment in real capital.
The third source of savings is government. The government savings constitute the money
collected as taxes and the profits of public undertakings. The greater the amount of taxes
collected and profits made, the greater will be the government savings. The savings so made
can be used by the government for building up new capital goods like factories, machines,
roads, etc., or it can lend them to private enterprise to invest in capital goods.
3. Dr. R. Sudha, MKU College, Madurai
Mobilization of Savings:
The next step in the process of capital formation is that the savings of the households must be
mobilized and transferred to businessmen or entrepreneurs who require them for investment.
In the capital market, funds are supplied by the individual investors (who may buy securities or
shares issued by companies), banks, investment trusts, insurance companies, finance
corporations, governments, etc.
If the rate of capital formation is to be stepped up, the development of capital market is very
necessary. A well- developed capital market will ensure that the savings of the society-will be
mobilized and transferred to the entrepreneurs or businessmen who require them.
Investment of Savings in Real Capital:
For savings to result in capital formation, they must be invested. In order that the investment of
savings should take place, there must be a good number of honest and dynamic entrepreneurs
in the country who are able to take risks and bear uncertainty of production.
Given that a country has got a good number of venturesome entrepreneurs, investment will be
made by them only if there is sufficient inducement to invest. Inducement to invest depends on
the marginal efficiency of capital (i.e., the prospective rate of profit) on the one hand and the
rate of interest, on the other. But of the two determinants of inducement to invest-the
marginal efficiency of capital and the rate of interest—it is the former which is of greater
importance. Marginal efficiency of capital depends upon the cost or supply prices of capital as
well as the expectations of profits.
Fluctuations in investment are mainly due to changes in expectations regarding profits. But it is
the size of the market which provides scope for profitable investment. Thus, the primary factor
which determines the level of investment or capital formation, in any economy, is the size of
the market for goods.
CAPITAL FORMATION – PROBLEMS
Reason # 1. Low Level of National Income and Per Capita Income:
The root cause of capital deficiency in under-developed countries is low level of real national
and per capita income which limits to the motives of savings and investments.
Due to lack of desired investments, capital formation has no increase. Hence, due to low
production, there is low national and per capita income and, in turn, this forces to low capital
formation.
This situation tends to perpetuate itself and the poor countries continue to be poor. The low
rate of capital formation is a partial link in a vicious circle in such countries. Unless, the vicious
circle of poverty is broken, the rate of capital formation cannot be raised.
Reason # 2. Lack in Demand of Capital:
Another cause of low rate of capital formation in under-developed countries in lack of demand
of capital. In the words of Prof. Nurkse, “Low productivity in under-developed countries, people
4. Dr. R. Sudha, MKU College, Madurai
have low real income and, thus, purchasing power is low and so due to low demand,
investment has effect which again reduces national income and productivity and rate of capital
formation remains low”.
Reason # 3. Lack in Supply of Capital:
Like demand of capital, lack of supply of capital is responsible for low capital formation.
However, due to lack of necessary supply of capital in under-developed countries, the process
of capital formation is not boosted up. As a result, capital formation remains at low level.
Therefore, in the opinion of Prof. Nurkse, Due to low rate of real income per capita in under-
developed countries, there is low saving capability, hence, there is less capital. Due to lack of
capital, there cannot be established basic business and industries so the production falls down.
Reason # 4. Small Size of Market:
Due to small size of domestic market, investment is not encouraged in poor countries. It does
not expand the work of economic development and modern machines cannot be used as extra
quantity produced has no market access.
Reason # 5. Lack of Economic and Social Overheads:
Basic overheads like roads, buildings, communication, education, water, health etc. are
generally lacked in under-developed countries which react as improper atmosphere for the
capital formation and slow process of capital formation.
Reason # 6. Lack of Skilled Entrepreneurs:
Able and efficient entrepreneurs are not available in under-developed countries. It is the only
reason for low rate of capital formation. Due to absence of risk-taking entrepreneurs,
establishment of industries and expansion is quite limited and industrial diversification is not
carried out and no balanced development of economy is possible.
Reason # 7. Immobility of Savings:
Immobility of saving also causes low rate of capital formation. Due to lack of banking and other
credit institutions, poor countries have limited financial activities. Whatever, these financial
institutions exist, they are of small size and unable to collect the savings from distant places,
thus, resulting in no enthusiasm to savings in a society. This creates the problem of hoarding
and saving is used for non-productive purposes.
Reason # 8. Backwardness of Technology:
Under-developed countries also face the problem of technical knowledge. Production is carried
on old and less productive techniques. As a result, these countries have low productivity and
per capita production and income’s low quantity, lowers the standard of the rate of capital
formation.
Reason # 9. Demonstration Effect:
Demonstration effect also stands in the path of capital formation. Prof. Nurkse has cited the
reason of low rate of capital formation, “due to demonstration patterns of people come into
contact with best goods or superior patterns of consumption in which old demands are fulfilled
by new goods and new plans, then, they after some time fell unrest and discontent. In this way,
their knowledge grows their imagination is stimulated, new desires are awakened. By this their
5. Dr. R. Sudha, MKU College, Madurai
propensity to consume becomes high”.
Besides, there is tendency among people of these countries to follow the higher consumption
standard of developed countries. In fact, all these actions occur due to demonstration effect
which increases the tendency of consumption based on new ways and goods which limit the
desire and capability to save in the society.
Reason # 10. Lack of Effective Fiscal Policy:
Lack of effective fiscal policy or financial policy in under-developed countries also retard capital
formation to some extent. Burden of taxation is too much which is out of people’s capacity to
bear as their income is quite low. Besides, inflationary circumstances accrue and prices soar
extremely high.
This leads to increase in cost price of capitalized goods and not consumption goods by which
exported goods in internal market do not hold in external market in competition to best and
cheap goods. This creates the problem of unfavourable balance of trade and payment. Thus,
these countries have very low rate of economic development and capital formation.
Reason # 11. Lack of Investment Incentives:
Still another cause of the low rate of capital formation is the lack of investment incentives in
most of the under-developed countries. This leads to low rate of productivity which, in turn
restricts capital formation.
Reason # 12. Deficit Financing:
In modern times, deficit financing is considered a major resource of capital formation. But, if it
crosses its limits, then it tends to low rate of capital formation. Whenever, deficit financing is
made in the country, it leads to rise in prices and as a result, all commodities become costly.
Under this situation, it becomes hard to save as the entire amount is spent. This results in the
saving and low rate of capital formation.
Reason # 13. Unequal Distribution of Income and Wealth:
Since there is extreme unequal distribution of income and wealth in most of the under-
developed and backward countries which keep the rate of capital formation relatively low. In
fact, it restricts real investment in the economy which greatly effects the capital formation.
Reason # 14. Demographic Reasons:
In under-developed countries, the growth rate of population is very high which keeps the rate
of capital formation at a low level. It is because most part of their income is spent on bringing
up the additional numbers. Thus, there is little scope of saving and as a result, it aggravates the
growth of capital formation.
6. Dr. R. Sudha, MKU College, Madurai
1. Role as financial intermediary: Financial institutions play this role by providing the means and
mechanism of transferring command over resources from those who have an excess of income over
expenditure to those who can make use of the same with view of adding to the volume of productive
capital. They provide a convenient and effective link between savings and investment.
In an underdeveloped economy, the role of these institutions as mobilizers of savings become more
pronounced in view of the fact that there are large numbers of savers, each with small amount of
savings. These savers are generally reluctant to invest their surplus income because of their lack of
adequate knowledge about complicated investment affairs. Moreover their resources are small. So they
are exposed to great risk which constrains them from investing their savings. Financial institutions take
care of these problems. The investment policies of these institutions focus on diversification of these
investments in terms of securities, units, industries etc. Thus the total investments portfolio of the
institution will probably have lower risk element than if thousands of individuals invested their limited
funds in one or few business firms.
2. Role as a catalytic agent: Financial institutions play the role of catalytic agent bringing about the
economic and social change in a country through dynamism ad innovativeness in their operations.
Sensing well established fact that development of physical and social infrastructure is essential pre-
requisite for rapid economic advancement and burgeoning funds required to execute infrastructural
projects, financial institutions extend support to the government to finance the projects of national
importance. In fact rate of growth of an economy depends upon the speed with which financial
institutions respond to the infrastructural demand of the country. Besides, financial institutions can
catalyze the social change which is imperative for all around economic growth of a developing country.
Through introduction of special assistance schemes for weaker and helpless sections and relatively
isolated segments of society, financial institutions play a crucial role in vanishing poverty and improving
the standard of living of the people.
3. Role as a creator of money: financial institutions apart from playing the role of intermediary and
catalyst agent create money and thus act as a catalyst in the process of money supplier. Through
7. Dr. R. Sudha, MKU College, Madurai
acceptance of public deposits and lending money against it for funding transactions they create further
deposits.
4. Role as a promoter: entrepreneurship is one of the important sinews of economic growth of a
country. One of the serious bottlenecks in an underdeveloped country is dearth of entrepreneurship. So
to accelerate the pace of growth of such country, it is imperative to assess growth potentialities of
various regions of the country in the light of natural resources, and infrastructural facilities, identify
specific project ideas, evaluate these ideas so as to determine their feasibility in financial and non
financial terms. The above task requires considerable skill, knowledge and experience and substantial
amount of finance which is beyond the means and competence of entrepreneurs in underdeveloped
countries. As such, financial institutions play the role of a promoter to foster the economic growth in the
country. As a promoter, these institutions under take comprehensive growth potential surveys of the
existing industrial structure of the various parts of the country, analyze the demand and supply position
of the various projects, and identify industrial ventures which can be established in the different regions
in the near future. In order to ensure that these projects are implemented properly, financial institutions
take the responsibility of identifying individuals with entrepreneurial traits and motivate them to an
entrepreneurial career by providing training facilities and dispensing financial, technical and managerial
support so that the latter may set up the industries.
5. Role as a counselor: financial institutions also play significant role, though indirectly in accelerating
the pace of growth, by advising the corporate enterprises on when to exit a business and how to better
manage their portfolio.