Financial Institutions

A Financial Institution is a banking or non-banking institution

established under the certain act to contribute for the economic
development by collecting the funds and investing in various
productive sectors.

It acts as a mediator between savers and users of money. It collects

funds from individuals and organization by offering various deposits
schemes and invests it into various profitable sectors.
 Banks

“Bank is an institution which collects money from those who have it

to spare and who are saving it out of their income and lends this
money out to those who require it.”
 Functions of Banks

Capital formation
The bank accepts deposits of spare money from its customers. The deposits are utilized for
formation of capital in the productive sectors like industry, trade and service areas of the
country.

Granting loan
The bank grants loan to individual as well as an organization against the security placed.
It grants the loan in productive sectors like industry, trade and service areas, which
enhances the economic development of the country.

Encouraging Saving
The bank provides full security for the money deposited and allows interest on such
deposits. It thus, encourages people to save as much as possible which supports capital
formation.
 Functions of Banks
Issuing notes
The Central Bank issues coins and paper notes which help for exchanging goods and
services. Such coins and notes make easier for measuring the value of goods and services.

Exchanging Foreign Currencies

The bank exchanges foreign currency as per the direction of the central bank. It fulfills
the requirement of foreign currencies, which promotes foreign trade.

Promoting trade and industry

The bank provides different types of financial as well as technical services to the trader
and manufacturer, which encourage and improve the quality of industry and trade. It
supports the development and expansion of industrial and trading activities.

Assisting the Government

The bank provides necessary financial data and information to the government, which
facilitate for preparing monetary, tax and fiscal policies of the country.
 Commercial Banks

A commercial bank is a type of Financial Institution that accepts deposits; offers

checking account services; makes business, personal and mortgage loans; and offers
basic financial products like certificates of deposit (CDs) and savings accounts to
individuals and small businesses.
1. Accepting Deposits
Demand Deposits (Current account)
Fixed Deposits (Time Deposits)
Saving Account
2. Giving Loans: (Over Draft (Secured & Clean), Running Finance)
3. Letter of Credit
4. Discounting Bills
5. Remitting Funds
6. Safe Custody
7. Agency Functions (Standing Order)
8. References
9. Check-in facilities
Account Opening Assignment – Physical Visit
 Central Bank

A central bank is an independent national authority that

conducts monetary policy, regulates banks, and provides financial
services including economic research. Its goals are to stabilize the
nation's currency, keep unemployment low, and prevent inflation.
 Investment Banks

An investment bank is a financial intermediary that specializes

primarily in selling securities and underwriting the issuance of
new equity shares to raise capital funds.
This is different from a commercial bank, which specializes
in deposits and commercial loans.,
Functions:
 Stock Trading
 Investment in Commodities
 M & A Advisor
 Corporate Affairs (IPO, Underwriting)
 Standard Product – Designing of new Product
 Micro Finance Banks

For the purpose of poverty reduction program, such kind of banks

are working in the different countries.

Examples:
Akhuwat, Dr. Amjad Saqib

Grameen Bank, M. Yunus

 Islamic Banks

Islamic banking refers to a system of banking or banking activity

that is consistent with Islamic law (Sharia) principles and guided by
Islamic economics. In particular, Islamic law prohibits usury, the
collection and payment of interest, also commonly called riba in
Islamic discourse.
 Specialized Banks

1. ZTBL
– The Zarai Taraqiati Bank Limited It is also known as Agricultural
Development Bank of Pakistan (ADBP).
– It is the premier financial institution geared towards the
development of the agricultural sector through the provision of
financial services and technical know-how.
 2. IDBP

Industrial Development Bank of Pakistan is one of Pakistan's oldest

development financing institution created with the primary objective
of extending term finance for investment in the manufacturing sector
and SME Sector of the economy
 3. SME Bank
• Promote the business.
• Financing of projects.
SME finance is the funding of small and medium-sized enterprises,
and represents a major function of the general business finance
market – in which capital for different types of firms are supplied.

According to the Organization for Economic Cooperation and

Development, most countries define a small business as one with 50
or fewer employees, and a mid-size business as one with between 50
and 250 employees.
 Leasing Companies

• A lease or tenancy is the right to use or occupy personal property

or real property given by a lessor to another person (usually called
the lessee or tenant) for a fixed or indefinite period of time, whereby
the lessee obtains exclusive possession of the property in return for
paying the lessor a fixed or determinable consideration (payment).
Like Operating Lease & Finance Lease
 Insurances Companies

• Insurance companies may be classified as

1. Life insurance companies, which sell life insurance, annuities and
pensions products.
2. Non-life or general insurance companies, which sell other types of
Insurance. Like insurance in transits, fire Insurance
 Mutual Fund

An investment which is comprised of a pool of funds collected from

many investors for the purpose of investing in securities such as
stocks, bonds, money market securities and similar assets.

Mutual funds are operated by money mangers, who invest the fund's
capital and attempt to produce capital gains and income for the
fund's investors. A mutual fund's portfolio is structured and
maintained to match the investment objectives stated in its
prospectus
 Brokerage Houses

Brokerage is a FI that facilitates the buying and selling of financial

securities between Buyer and the Seller.

Like Stock Exchange Brokers