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Introduction
Financial institutions, be it banks or any non-banking institutions, are the important factor that pushes the country’s economy. The economy and planning of the various sectors is a process by which the key economic decisions are made and are influenced by the central government of the country. The role of the state in this field however remains preponderant and thereby improves the economic performance. Economic planning provides a guide for action and also boosts up the resources and their utilization providing them motivation. Apart from these, it sets out the performance standards and keeps the flexibility to find the alternatives in case they are needed.
Discussion
What do you mean by Financial Reform?
Financial reforms refer to the main reforms that are undertaken in the financial sector that includes policy measures that are designed to deregulate the financial system along with the transformation in the structure of the view. It also aims to achieve a liberalized market-oriented system within an appropriate framework. Development in the financial reforms can bring out a change in the society and strengthen the economic balance of the country. The Financial reforms focus on creating an efficient, competitive and stable financial sector that can contribute to the growth of the country. However, the major issues that are being faced by this sector include the mismatch of assets and liabilities.
The financial sector of the economy contains the economy that is made up of firms as well as institutions that provide financial services to the customers and the retailers. The financial sector mainly consisted of banks, insurance and investment companies as well as real estate firms. The main goal of the financial reform is to improve the efficiency of the market, providing integration with the national markets and preventing unfair services like trade. It also helps in increasing transparency along with a package of reforms to liberalize, liberate, regulate and develop the capital market. Financial reforms also assist in bridging the financial gaps of the country and thus promote growth and technological progress by increasing the rate of savings and mobilizing it.
Financial reform in the non banking system
Financial reforms in both banking and non-banking systems create transparency creating stability in the economy of the country. However, the financial reforms in the non banking sectors improve the overall efficiency and maintain confidence in the financial sectors of the country. It also functions to ensure soundness and efficiency and ensures financial stability. Financial reforms in the non-banking sector efficiently improve the financial system that protects the confidentiality of the financial system ensuring financial stability.
Non banking system or non-bank financial institution does not relate to the bank or any banking system. It is not licensed as a bank and provides financial services like money transfers or loans that are usually provided by the banks. These institutions include currency exchanges, venture capitalists, insurance firms and pawn shops. These financial institutions provide services that are suited to banks and give tough competition to them. However, the major difference between banking and non banking financial institutions is that, unlike the banks, non-banking cannot issue self-drawn cheques and demand drafts. It also could not take part in the payment mechanism of the country and was not involved in such transactions.
Non banking financial institutions are not considered full-scale banks as they do not offer lending and services to deposit. These financial institutions are engaged in the business of loans and advances along with the issues of security by the government or local authorities. These institutions increase the market share and make money using research, development, accounting and legal services.
Classification of financial reforms
Financial reforms are the measures that are designed to deregulate the financial structure with the transformation of its structure. The structure is transformed to achieve a market oriented system with an appropriate regulatory framework. The classification of the financial reforms of the country is classified into two units, namely micro reform and macro reform. The micro reform abolishes the barrier to entry increasing the competition in the banking sector whereas the micro reform lowers the restrictions in the capital and thereby decreases the reserve requirements. Moreover, the financial reform transforms the structure to achieve an appropriate regulatory framework.
The main reforms in the financial sector are to remove the existing financial repression and thereby create an efficient, productive and profitable financial sector. It also enables the process of price discovery and the way in which the market determines the rate of interest. It also functions to improve and allocate the efficiency of the resources. Both the micro and macro sectors of the financial institution provide soundness and efficiency to create an economic balance in the ecosystem.
Conclusion
Economic planning caters to the need to provide good financial stability to the country providing subsequent economic actions through certain measures in the policy. These actions are followed in the future to predetermine the economic activities and work on its objectives. The banking and non-banking financial sectors make an improvement in sustaining the prosperity within the country’s economy. The non-banking financial institutions do not accept demands and are not incorporated under any banking system, yet providing a pillar to the country’s economic condition. These Institutions are necessary to boost the economy of any country as it facilitates alternative financial services like brokering and money transmitting. It also assists in economic development as an intermediate process and mobilizes funds of various means that are open and available for investment.
