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Introduction
By distributing funds from investors to companies in the form of loans, deposits, and investments, a financial institution is responsible for the market’s money supply. Even big financial institutions such as JP Morgan Chase, HSBC, Goldman Sachs, and Morgan Stanley may influence the flow of money in an economy.
Among the most popular types of financial institutions are commercial banks, investment banks, brokerage firms, insurance companies, and asset management funds. Additionally, there are credit unions and financial institutions. Financial institutions are regulated to restrict the market’s money supply and protect clients.
Financial Institutions
Financial institutions are businesses that provide a variety of financial services to clients. They distribute the cash donated by their clients to individuals and businesses in need. Thus, they facilitate transactions in the financial market by connecting savers and spenders. For instance, these businesses make it possible for borrowers to get loans with funds made available by savers.
Additionally, these organisations aid customers with fund-raising and financial investing. This includes facilitating the buying and selling of stocks and bonds, among other instruments. In addition to supporting clients with financial management, several financial institutions also assist them with asset preservation. Some insurance policies, for instance, protect against the financial loss of houses or automobiles. Moreover, financial institutions can buy and sell foreign currencies.
Retail banks and credit unions are the most prominent forms of financial institutions. These institutions provide customers to open checking and savings accounts for the secure and convenient keeping of funds. Then, banks and credit unions employ deposits from consumers to give loans and credit to other customers, generating money through interest charges. You may also manage a variety of extra responsibilities through these organisations, such as cashing checks, exchanging currencies, investing in retirement plans, and paying bills.
The function of financial institutions
Financial institutions exist to make money available to individuals and businesses in need. Without these organisations and a standardised structure, linking people with extra assets to those in need of loans would be impossible and risky. For instance, you would likely need to find many individuals willing to lend you the funds for a significant purchase, and they would need to bear the risk that you would not return them.
Financial institutions provide effective financial transactions for people, therefore contributing to the economy’s overall efficiency.
IIFCL
IIFCL is a government-owned company that was established in 2006 to provide long-term financial assistance to viable infrastructure projects through the Scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure Finance Company Ltd (IIFCL), also known as SIFTI. IIFCL has been registered with the Reserve Bank of India (RBI) as an NBFC-ND-IFC since September 2013 and adheres to all applicable prudential regulations. As of December 31, 2020, the company’s authorised and paid-in capital was at Rs 10,000 Crore and Rs 9,999.92 Crore, respectively.
EXIM BANK
The Government of India founded Exim Bank in 1981 under the Export-Import Bank of India Act as a provider of export finance, similar to worldwide Export Credit Agencies. Exim Bank works as an engine of growth for businesses and SMBs by providing a vast array of goods and services. Exim Bank works as an engine of growth for businesses and SMBs by providing a vast array of goods and services. This covers the import of technology and the creation of export products, export production, export marketing, pre-and post-shipment, and foreign investment.
SIDBI
Small Industries Development Bank of India (SIDBI) is India’s primary licensing and regulating organisation for micro, small, and medium enterprise financial firms. It falls under the authority of the Ministry of Finance, Government of India, with headquarters in Lucknow and offices throughout India. Its mission is to provide refinancing facilities to banks and financial institutions, participate in term lending and provide working capital credit to industries, and is the leading financial institution in the Micro, Small, and Medium-Sized Enterprises (MSME) sector. Additionally, SIDBI coordinates the functioning of institutions involved in comparable endeavours. It was formed on April 2, 1990, by a Congressional Act. The Reserve Bank of India regulates and supervises four All India Financial Institutions; the others are India Exim Bank, NABARD, and NHB. Recently, however, the government took control of NHB by acquiring a share of more than 51 per cent. They serve the long-term financing requirements of the industrial sector and play a mandated role in the financial markets through credit extension and refinancing operation operations.
Through the SIDBI Foundation for Micro Credit, SIDBI is involved in the creation of Microfinance Institutions and aids in the extension of microfinance via the Micro Finance Institution (MFI) method.
Its promotion & development programme focuses on rural business promotion and entrepreneurship development.
The Institutional Finance programme is a refinancing programme designed to expand and support the money supply in the MSE sector. Under this programme, SIDBI provides Banks, Small Finance Banks, and Non-Banking Financial Companies with Term Loans. In addition to its refinancing activities, SIDBI lends directly to MSMEs.
Conclusion
Financial institutions are vital because they provide a market for money and assets, allowing capital to be allocated to the most productive regions. For example, a bank receives deposits from consumers and lends the proceeds to borrowers. Without the bank as an intermediary, it is unlikely that an individual will be able to select an eligible borrower or comprehend how to repay the loan. Therefore, the person who deposits funds can receive interest from the bank. Similarly, investment banks identify potential investors to whom a company might sell its stocks or bonds.
