Financial Development in Bangladesh

Abstract

Financial development takes place through a process of evolution of financial activities. It is implicit that evolution of financial activities, along the path of time, progress towards better direction. This progress is measurable. The economists have identified some indicators through which financial development can be measured. Before going into the depth of the concept of financial development, the meaning of 'finance' should be made clear because the word 'financial' is the adjective of the word 'finance'. According to the Oxford Dictionary of Business the word finance means: (1) the practice of manipulating and managing money; (2) the capital involved in a project, especially the capital that has to be raised to start a new business; (3) a loan of money for a particular purpose, especially by finance house. Financial development may mean the evolution of the above three procedures. In the Encyclopedia Britannica 19682, a summarized but consolidated picture of finance has been depicted. According to that, finance is the process of raising funds or capital for any kind of expenditure. Consumers, business firms, and governments often do not have the funds available to make expenditures, pay their debts, or complete other transactions and need to borrow or sell equity to obtain the money they need to conduct their operations. Savers and investors, on the other hand, accumulate funds which could earn interest or dividends if put to productive use. These savings may accumulate in the form of savings deposits, savings and loan shares, or pension and insurance claims; when loaned out at interest or invested in equity shares, they provide a source of investment funds. Finance is the process of channeling these funds in the form of credit, loans, or invested capital to those economic entities that need them or can put them to productive use. The institutions that channel funds from savers to users are called financial intermediaries. They include commercial banks, savings banks, savings and loan associations, and such non-bank institutions as credit unions, insurance companies, pension funds, investment companies, and finance companies. Three broad areas in finance have developed specialized institutions, procedures, standards, and goals: business finance, personal finance, and public finance. In developed countries, elaborate structure of financial markets and institutions exist to serve the needs of these areas jointly and separately. Business finance is a form of applied economics that uses the quantitative data provided by accounting, the tools of statistics, and economic theory in an effort to optimize the goals of a corporation or other business entity. The basic financial decisions involve an estimate of future asset requirements and the optimum combination of funds needed to obtain those assets. Business finance makes use of short-term credit in the form of trade credit, bank loans, and commercial paper. Long-term funds are obtained by the sale of securities (stocks and bonds) to a variety of financial institutions and individuals through the operations of national and international capital markets. Personal finance deals primarily with family budgets, the investment of personal savings, and the use of consumer credit. Individuals typically obtain mortgages from commercial banks and savings and loan associations to purchase their homes, while financing for the purchase of consumer durable goods (automobiles, appliances) can be obtained from banks and finance companies. Charge accounts and credit cards are other important means by which banks and businesses extend short-term credit to consumers. If individuals need to consolidate their debts or borrow cash in an emergency, small cash loans can be obtained at banks, credit unions, or finance companies. The level and importance of public or government finance has increased sharply in Western countries since the Great Depression of the 1930s. As a result, taxation, public expenditures, and the nature of the public debt now typically exert a much greater effect on a nation's economy than previously. Governments finance their expenditures through a number of different methods, by far the most important of which is taxes. Government budgets seldom balance, and in order to finance their deficits governments need to borrow, which in turn creates public debt. Most public debt consists of marketable securities issued by a government, which must make specified payments at designated times to the holders of its securities. From the above description of finance it can be realized, how vast and diversified the area of finance is! Now days in financial activities, different types of financial intermediaries and instruments are involved. The diversification among all these is amazing. The innovation of all these have been arisen out of necessities. According to the economic reality and needs, all these have been innovated. The more a country is economically developed, the more diversified are its financial institutions, intermediaries and instruments. And the maturity of all these depend on the strength of the economy. Through financial development, economic growth can be achieved. There exists a correlation between development and growth. Bangladesh is one of the least developed countries. After independence, it passed more than thirty years. This is not at all very short period for social and economic development. Through this period, the economy of Bangladesh progressed in different sectors. Side by side, there also occurred the financial development. At the time of independence, the financial environment of Bangladesh was underdeveloped. Since then, how financial environment has been progressing is a matter of common curiosity. Industrialization is the main vehicle through which economic growth takes place. However, for industrialization capital formation is necessary, and capital formation occurs out of savings generation. In a country where financial institutions, financial intermediaries and instruments are strong, the economy is also strong. In fact, without modern financial activities, no country can survive, and those are the artery of economic activities………………………………….