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The financial system in Pakistan has emerged over the years in response to government planning
processes and economic growth for the development of the country. This system, being headed
by the Central Bank (State Bank of Pakistan (SBP), iscomposed of Commercial Banks and a mix
of Non-Bank Financial Institutions (NBFIs) including Development Financial Institutions
(DFIs), Investment banks, housing finance companies, leasing companies, modarabas and mutual
funds, brokerage houses and insurance companies. Three Stock Exchanges at Karachi, Lahore
and Islamabad are also a part of Financial System in Pakistan. State Bank of Pakistan being
responsible for the monetary policy also regulates Commercial banks and DFIs. Rests of the
institutions are being supervised by Securities and Exchange Commission of Pakistan (SECP).

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Banks play an important role in financial system of any country there are some specific functions
that banks perform in a financial system. These are;

?Y °






The banks taking money from the lenders regularly monitor the borrowers to ensure if he/she is
investing that loan properly, because if banks do not monitor the borrowers, they are unable then
to pay the fixed returns to lenders.

?Y Œ ! 



Banks play an important in growth of economy in such a way that there is always the availability
of loans in banks for industries and when this loan is used for industries, it benefits the country.
In other words, we can say with the banking system, a country becomes more industrialized if
the loan is being used properly.
 ?Y  !



 


The banks provide inter-temporal smoothing of risk that cannot be diversified at a given point in
time as well as insurance to depositors against unexpected consumption shocks. Because of the
maturity mismatch between their assets and liabilities, however, banks are subject to the
possibility of runs and systemic risk.

?Y 


  


Financial shocks at lower extend that affect specific areas may spread through the interlinkages
of other financial institution to the whole financial system and finally results in a larger
economic Crises.

?Y 
 
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This role of Banks has dual impact. If on the one hand, close and durable relationships provide
better access to firms and ameliorate some of the information problems characterizing lending
relationships, on the other hand, they also involve inefficiencies related to the hold-up and the
soft-budget-constraint problems.

?Y 
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Financial Markets in Pakistan consists of two markets.

?Y $It provides short term funds 

?Y $ Makes long term funds available to businesses and industries

The Financial markets are further classified into;

?Y $In this new shares or bonds are issued and,

?Y °$In this securities previously issued are traded such as Shares,

Bonds, Commercial Papers, Options and Mutual Fund.

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The financial intermediary sector of Pakistan is composed of the money market and capital
markets, with primary and secondary dealers.Financial intermediaries of Pakistan include:

?Y Commercial Banks
?Y Deposit institutions
?Y Credit unions
?Y Financial advisor or broker
?Y Pension funds
?Y Insurance companies
Y