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Role Of Commercial Banks In The Economic Development Of

Banks play an important role in the economic development of a country. It the banking system is
unorganized and inefficient, it creates maladjustments and impediments in the process of development. In
Pakistan, the banking system is very well organized. The State Bank of Pakistan established on July 1,
1948 stands at the apex and is responsible for the operation of the banking system in Pakistan. The other
banks which form the banking structure in Pakistan are playing an active role in the economic
development of the Country.
The role of the commercial banks in the growth and development of sound and healthy economy of the
country is briefly discussed as under:
1.Saving mobilization. The commercial banks namely National Bank of Pakistan, Habib Bank, Allied
Bank, United Bank and Muslim Commercial Bank have opened up branches in urban and rural areas to
mobilize savings of the people.
2. Financing development project. The banks and other development finance institutions like IDBP,
Zarai Taraqiati Bank Limited, PICIC etc. advance short and medium term loans for financing of the
development projects both in the private and public sectors and thus help in accelerating the rate of
economic development in the country.
3. Facilitating trade activities. The credit institutions collect the savings of the people arid make them
available for facilitating trade activities both inside and outside the country.
4. Creating climate for capital formation. A developed banking system is a stimulant to growth and is
creating favourable climate for capital formation in the country.
5. Helping SBP in achieving monetary policies. The commercial banks under the supervision and
guidance of the State Bank of Pakistan help in implementing and achieving the objectives of the monetary
policy which vary from time to time.
6. Assisting in the development. The commercial banks are profit seeking enterprises. In order to
maximize the profits, they have the incentive to maximize the loans. An organized banking system keeps
a balance between liquidity and profitability and thus assists in the planned development of the economy.
7. Provision of agency services. The commercial banks provide agency services to the clients. They
receive and pay cheques. They collect dividends and pay interest and premium on behalf of the clients.
They keep their valuables in safe custody. They help in the mobility of capital and thus stimulate capital in
the country.
8. Making capital available for investment. The organized banking system helps in directing physical
resources into productive channels. It also keeps a balance between the availability and requirements of
the capital in the country.
9. Less reliance on foreign capital. A planned banking system by launching a vigorous campaign of
mobilizing idle saving in the country can meet the capital development requirements from within the
country. The country will thus have to rely less on foreign capital for financing the development projects.

3. Qarz-e-Hasna Scheme has been prepared and launched by Pakistan Banking Council through nationalized commercial banks. The banks have now introduced interest free banking in Pakistan. The banks which can provide speedy. 12. Loans are provided for pursuing studies both Within and outside Pakistan. deregulation environment. Provision of Qarze Hasna. loans etc. accurate and standard service in the delivery of products. conversion to Islamic Banking. The new banks in the private sector will have to develop a sound funding base. The commercial banks receive surplus balances of households and business and pay interest on the deposits of the clients. providing high quality service to the customers to meet the new challenges in the banking sector. 11. to the customers will be a success. The Profit and Loss Sharing (PLS) arrangement which is an alternative to interest under an Islamic Economic System is now operating in Pakistan. The banks shall have to work within a regulatory frame work that protects the interest of the depositors and ensures the provision of capital to the customers. large scale privatization of state enterprises.. Consumer banking. The basic needs of the consumers such as housing. The main competition challenges faced by commercial banking in Pakistan are as under.owned enterprises. opening of new banks in the private sector. . 5. Change in market needs. The depositors instead of having a fixed return on the deposits will share in the profit and loss of the banks. etc. have brought about radical changes in the banking sector. Due to privatization of state . The traditional role of providing trade finance only is now relegated to the background. etc. 2. sharing scheme. 1. Challenge to new banks in private sector. Service to customers.10. Profit. The liberalization of exchange control. deregulation of credit controls. Under the Qarz-e-Hasria Scheme.. The banks which solve the customer’s problems for enlarging the sale of the product will receive higher reward. The others will be chipped away. and other durable are not adequately financed by the banks. Regulatory challenge. 4. transportation. in Pakistan. the banks have established Export Promotion Cell for the information and guidance of the exporters Challenges Faced By Commercial Banking In Pakistan There is a mini revolution in the financial sector of the economy. free capital flow in and out of the banks are now to focus greater attention on meeting the market needs of the customers. Export promotion cell. In order to boost the exports of the country. There is a challenge to the banking sector as to how the finance could be provided to the consumers so that they could also benefit from the advances in technology and banking. financial assistance is provided to the students of in sufficient means and of outstanding calibre who are unable to pursue their studies due to financial difficulties. attracting high quality management. The banks are rapidly equipping themselves for the new role to be played in meeting the challenges faced by commercial banking.