Classification of Financial Services Industry
Classification of Financial Services Industry
Classification of Financial Services Industry
Meaning:
All types of activities which are of a financial nature could be brought under
the term financial services.
The term Financial Services in a broad sense means mobilizing and
allocating savings. Thus, it includes all activities involved in the
transformation of saving into investment.
The financial service can also be called financial intermediation.
Financial intermediation is a process by which funds are mobilized from a
large number of savers and make them available to all those who are in need of
it and particularly to corporate customers.
Classification of financial services industry
The financial intermediaries in India can be traditionally classified into two:
i. Capital market intermediaries
ii. Money market intermediaries
bank called lead manager for a borrower who is usually a large corporate
customer or a government department. The other banks who are willing to
lend can participate in the loan by contributing a amount suitable to their own
lending policies. Since a single bank cannot provide such a huge sum as loan, a
number of banks join together and form a syndicate. It also enables the
members of the syndicate to share the credit risk associated with a particular
loan among themselves.
3. Leasing
A lease is an agreement under which a company or a firm, acquires a right to
make use of a capital asset like machinery, on acquire any ownership to the
asset, but he can use it and have full control over it. He is expected to pay for
all maintenance charges and repairing and operating costs.
4. Mutual Funds
A mutual fund refers to a fund raised by a financial services company by
pooling the savings of the public. It is invested in a diversified portfolio with a
view to spreading and minimizing risk. The fund provides Investment Avenue
for small investors who cannot participate in the equities of big companies. It
ensures low risks, steady returns, high liquidity and better capital appreciation
the long run.
5. Factoring
Factoring refers to the process of managing the sales ledger of a client by a
financial service company. In other words, it is an arrangement under which a
financial intermediary assumes the credit risk in the collection of book debts
for its clients. The entire responsibility of collecting the book debts passes on
to the factor. His services can be compared to a del credre agent who
undertakes to collect debts. But, a factor provides credit information, collects
debts, monitors the sales ledger and provides finance against debts. Thus, he
provides a number of services apart from financing.
6. Forfaiting
Forfaiting is a technique by which a forfaitor (financing agency) discounts an
export bill and pay ready cash to the exporter who can concentrate on the
export front without bothering about collection of export bills. The forfeiter
does so without any recourse to the exporter and the exporter is protected
against the risk of non-payment of debts by the importers.
7. Venture capital
A venture capital is another method of financing in the form of equity