Topic 7: THE ROLE OF

THE BANKING SYSTEM

IN EXPORT
DEVELOPMENT AND
INTERNATIONAL
FINANCIAL
Banks in many
developing
countries
A. Banks in many
developing
countries
Banks in many developing
countries play a relatively
limited role in the national
trade promotion effort. They
often consider that it is the
business of the government
and of exporters to work out
strategies for developing and
promoting exports.
 Banks in many
developing countries
-In cases where the banking system does
provide a certain degree of support to the
export drive, these financial institutions
frequently operate within narrow limits and
may work according to conservative or
traditional procedures. As a result,
exporters in those countries do not have
the banking services that are taken for
granted by exporters in most developed
countries.
 Banks in many
developing countries
-There are, however, some exceptions. In
certain developing countries the financial
institutions have become active partners in
the export process, working jointly with
other trade promotion institutions.
Exporters in these countries can approach
their banks for assistance and be assured of
receiving the required help.
 Developing Countries with
successful export
performance
India Argentina

Hong Yugoslavi
Kong a
Brazil Singapore
 Role of
Central bank
 - Central banks have a dominant
role to play in export financing. Yet
in many developing countries their
export financing functions have
been passive. Many of them have
no special schemes for developing
and promoting exports.
 - Some central banks do not take an
active part in assisting the export
sector on the grounds that such a role
is not strictly a legitimate central
banking functions. In a developing
economy, however, a central bank
should formulate its policies and gear
its operations so as to find solutions to
the country’s overall economic
problems.
- From the central bank's point of
view. In certain developed and
developing countries central
banks have followed such
positive policies to the
advantage of the export
community, as well as to the
country as a whole.
 In the interest of trade promotion, a
central bank should consider undertaking
the following types of activities:

Study the commercial banks’ export credit policies on a

product-by-product basis, since export financing
problems vary from one item to another.

Discuss the results of these studies with commercial banks and

assist them to formulate special schemes for granting adequate
financing to exporters at the pre- and post-shipment stages, at
concessional rates of interest.
 Role of
Commercial
bank
 - Besides performing the usual
commercial banking functions,
banks in developing countries play
an effective role in their economic
development. The majority of
people in such countries are poor,
unemployed and engaged in
traditional agriculture.
 - There is acute shortage of
capital. People lack initiative and
enterprise. Means of transport are
undeveloped. Industry is
depressed. The commercial banks
help in overcoming these
obstacles and promoting
economic development.
 The role of a commercial bank in a
developing country
*Mobilising Saving for Capital Formation
*Financing Industry
*Financing Trade
*Financing Agriculture
*Financing Consumer Activities
*Financing Employment Generating
Activities
* Help in Monetary Policy
 Mobilising Saving for Capital
Formation:

-The commercial banks help in mobilising savings through

network of branch banking. People in developing
countries have low incomes but the banks induce them to
save by introducing variety of deposit schemes to suit
the needs of individual depositors.
 Financing Industry:

- The commercial banks finance the industrial sector in a

number of ways. They provide short-term, medium-term
and long-term loans to industry. In India they provide
short-term loans. Income of the Latin American countries
like Guatemala, they advance medium-term loans for one
to three years. But in Korea, the commercial banks also
advance long-term loans to industry.
 Financing Trade:
- The commercial banks help in financing both internal
and external trade. The banks provide loans to retailers
and wholesalers to stock goods in which they deal. They
also help in the movement of goods from one place to
another by providing all types of facilities such as
discounting and accepting bills of exchange, providing
overdraft facilities, issuing drafts, etc. Moreover, they
finance both exports and imports of developing countries
by providing foreign exchange facilities to importers and
exporters of goods.
 Financing Agriculture:
- The commercial banks help the large agricultural sector
in developing countries in a number of ways. They
provide loans to traders in agricultural commodities. They
open a network of branches in rural areas to provide
agricultural credit. They provide finance directly to
agriculturists for the marketing of their produce, for the
modernisation and mechanisation of their farms, for
providing irrigation facilities, for developing land, etc.
 Financing Consumer Activities:

- People in underdeveloped countries being poor and

having low incomes do not possess sufficient financial
resources to buy durable consumer goods. The
commercial banks advance loans to consumers for the
purchase of such items as houses, scooters, fans,
refrigerators, etc.
 Financing Employment Generating
Activities:
- They provide loans for the education of young person’s
studying in engineering, medical and other vocational
institutes of higher learning. They advance loans to
young entrepreneurs, medical and engineering
graduates, and other technically trained persons in
establishing their own business. Such loan facilities are
being provided by a number of commercial banks in
India.
 Help in Monetary Policy:
- The commercial banks help the economic development
of a country by faithfully following the monetary policy of
the central bank. In fact, the central bank depends upon
the commercial banks for the success of its policy of
monetary management in keeping with requirements of a
developing economy.
Financial
Services
 Importance of
Financial services

It is the presence of financial

services that enables a country
to improve its economic
condition whereby there is more
production in all the sectors
leading to economic growth.
 Importance of
Financial services

The benefit of economic growth is reflected on

the people in the form of economic prosperity
wherein the individual enjoys higher standard of
living. It is here the financial services enable an
individual to acquire or obtain various consumer
products through hire purchase. In the process,
there are a number of financial institutions
which also earn profits. The presence of these
financial institutions promote investment,
production, saving etc.
 Role of
developmen
t banks
 development
banks
- Development banks are
specialized financial institutions.
They provide medium and long-
term finance to the industrial
and agricultural sector. They do
term lending, investment in
securities and other activities
 Role of development bank
Development of Housing
PROVIDING FUNDS
Sector
AGRICULTURE AND RURAL
PROMOTIONAL ACTIVITIES
DEVELOPMENT

ASSISTANCE OF BACKWARD UNITS IMPROVE FOREIGN TRADE

EMPLOYMENT GENERATION REVIVAL OF SICK UNITS

Accelerating Industrialization Contribution to Capital Markets

 Role of development bank
PROVIDING FUNDS
- The persons who have the capability of starting a
business but does not have requisite help approach to
financial institutions for help.
PROMOTIONAL ACTIVITIES
- They create a new class of entrepreneurs and help the
weaker sections of society to be a part of industrial
culture.
ASSISTANCE OF BACKWARD UNITS
- The development bank encourages rustic and
provincial development. They give money to beginning
organizations in reverse zones.
 Role of development bank
EMPLOYMENT GENERATION
- These institutions help in creating employment by
financing new and existing industrial units.

ACCELERATING INDUSTRIALIZATION
-The setting up of more industrial units will generate
direct and indirect employment, make available goods
and services in the country and help in increasing the
standard of living.
DEVELOPMENT OF HOUSING SECTOR
- DB provide funding and credit for the development of
the housing sector. It promotes and develops housing and
financial institutions.
 Role of development bank
AGRICULTURE AND RURAL DEVELOPMENT
- It organizes the working of all monetary
establishments that give credit to farming and rural
development. Development banks like the National
Bank for Agriculture and Rural Development (NABARD)
which give credit to the agriculture and furthermore for
country advancement exercises.
IMPROVE FOREIGN TRADE
- It gives Overseas Buyers Credit to purchase Indian
capital merchandise. Likewise, urges abroad banks to
give account to the purchasers in their nation to
purchase capital products from India.
 Role of development bank
THE REVIVAL OF SICK UNITS
- Development banks help to resuscitate (fix) wiped out
units. It encourages modernization, rebuilding, and
broadening of wiped out units by giving credit and
different administrations.

CONTRIBUTION TO CAPITAL MARKETS

- The development bank helps in the growth of capital
markets. They invest in equity shares and debentures
and mutual funds of several companies.
 SUPPORTING
MEASURES by
the government
Provides perspective on the roles of government
and industry, largely related to formal rules that
help to shape the financial market system.
Governments have increasingly embraced
financial inclusion as a policy objective,
recognizing its potential for economic growth
and poverty alleviation, and acknowledging
supply-side barriers, demand-side barriers, and
poor regulatory frameworks as three primary
challenges.
The government can potentially play an
important role in promoting savings and
catalyzing volumes by moving its social
transfers, wages, and pension payments
onto electronic channels and ensuring
that these channels are linked to easily
accessible, basic transaction accounts.
The government has traditionally played a
strong role in ensuring that infrastructure,
including nonfinancial infrastructure, is working
and providing oversight, and in ensuring that
financial institutions do not undermine
consumer protection by intentionally
capitalizing on their advantages in information,
knowledge, and power. The role of industry in
financial inclusion calls for better outreach,
appropriate products and services, and
consumer trust.
THE WORLD
BANK
What is
World
bank?
G.
 Voting power In
World Bank

The President of the World Bank Group

serves as Chairman of the Board, and is
selected by the Executive Directors. The
President is the presiding officer, and
ordinarily has no vote except a deciding vote
in case of an equally divided Board
 Voting power In
World Bank

President World Bank Group

Ajay Banga
Senior Managing Director
Axel van Trotsenburg
 OBJECTIVES OF WORLD
BANK
1) Immediate goals
-it aims that there should be no more thann 3% people
who are earning less than 1.90 dollars in the world by
2030.

-World Bank is committed to promote shared prosperity

by increasing 40% growthof every country by 2030.
 OBJECTIVES OF WORLD
BANK
2) Major investments
-World Bank is currently investing in
various sectors worldwide including
education, Health, public
administration, infrastructure,
agriculture, environment,and natural
resources etc .
 OBJECTIVES OF WORLD
BANK
3) Advices and Trainings
-Whenever world bank gives loan to any
country it gives advices as well as proper
training to private and public sector of the
particular country.

-These advices are mandatory for the

borrower country to follow.
 OBJECTIVES OF WORLD
BANK
4) Main areas of focus
-Overcoming poverty by enhancing growth
,helping countries who recently face war or
war like situations, providing cutomize
solution to help,focusing on climate
change, working with Arab leangue,sharing
its expertise maintaining database.
Internationa
l Monetary
Fund (IMF)
The
(MIF)
 Father of
(MIF)
Harry Dexter White was one
of the two great intellectual
founders of the IMF and the
World Bank. As the chief
international economist at
the U.S. Treasury in 1942–44,
he drafted the U.S. blueprint
for the IMF that competed
with the plan drafted for the
British Treasury by Keynes.
 Who can be the
member of (MIF)
The prospective member must be a country in control of its own
foreign affairs, and it must be willing and able to meet the obliga-
tions of membership contained in the IMF's Articles of Agreement—
its charter.

The IMF is governed by and accountable to 190

countries that make up its near-global membership.
 Board of Governors
of (MIF)

The Board of Governors is the highest decision-making

body of the IMF.

Managing Director chairs the IMF's Executive Board and

heads the IMF staff. The Managing Director is appointed
by the Executive Board for a renewable five-year term.
 Board of Governors
of (MIF)

The Executive Board (the Board) is responsible for

conducting the day-to-day business of the IMF. It is
composed of 24 Directors, who are elected by member
countries or by groups of countries, and the
Managing Director, who serves as its Chairman. The
Board usually meets several times each week.
 Board of Governors
of (MIF)
Each member country appoints its
two governors
to represent the country in the
IMF.The governors meets atlest once
a year.
 Board of Governors
of (MIF)

Kristalina Georgieva
The current managing director (MD) and chairwoman of
the IMF is Bulgarian economist Kristalina Georgieva,
who has held the post since October 1, 2019.

The International Monetary Fund (IMF) is a major financial

agency of the United Nations and headquarters located at

Washington,D.C.
 Countries that are
not member of (MIF)

The countries that are not a part of the IMF are Cuba, North Korea, Monaco, Taiwan, Vatican City, and East
Timor Liechtenstein.

unequal voting shares based on the set quota

 Objectives of
International monetary
fund
 International
Monetary Fund
promote exchange stability,
to maintain orderly
exchange arrangements
among members, and to
avoid competitive
exchange depreciation
 THE
SPECIAL
DRAWING
RIGHTS
WHAT IS SDR?
• The SDR’s is an international reserved assets,created by the
International Monetary Fund(IMF) in 1969.
• SDR’s are allocated to member countries in proportion to their
International Monetary Fund(IMF) quotas.
• Also called paper gold,as it is not backed by any currency or
precious metal.
• Used only among governments of member countries and
International Monetary Fund(IMF) for balance of payments
settlements.
WHY WAS SPECIAL DRAWING RIGHTS(SDR)
CREATED?
• To support the Bretton Woods fixed exchange rate system.
• The dominant constituents of international reserves are:
• Government or central bank holdings of gold
• Widely accepted foreign currencies United States
Dollar(USD).
• Inadequacy of these two key reserved assets,led to creation
of a new international reserved assets under the auspices of
the IMF.
USES OF SPECIAL DRAWING RIGHTS
(SDR):
• For balance of payments settlements among the
members.
• Used for transaction with fund for e..g…By paying the
reserve tranche.
• SDR denominated bank deposits and loans have been
offered in private financial markets.
THE ASIAN
DEVELOPME
NT BANK
J.ASIAN DEVELOPMENT BANK:
• The Asian Development Bank (ADB) was established as a
financial instituition that would foster economic growth and
cooperation in the Asia Pacific Region.It assist its members
and partners by providing loans,technical
assistance,grants,and equity investments to promote social
and economic development.
• ADB is a multilateral development finance instituition
dedicated to reducing poverty in Asia and Pacific.
• Established in 1996,they are now owned by 63
members,mostly from the region.
• Headquarters is in Manila,Philippines.
• ADB is owned by 63 members:
• 45 from the asia and the pacific and 18 from the
other parts of the world.
• When it was formed,ADB had 31 members.
• The largest borrower in 2003 was India at
$1.532 billion(25% of the total)followed by china
$1.488 billion (24%) Pakistan $871 million
(14%) Bangladesh $532 million (9%) and the Sri
Lanka $275 million (5%)
THE END