The economy consists of different sectors including the agriculture sector, health care sector, communications sector, real estate sector, and many more, but the most significant sector of all is the Financial Services sector.
Financial Services is the most influential sector out of all sectors because economic development is widely dependent on the same. With the disruption caused by the Global Financial Crisis (2007-2009) followed by the ultimate Covid-19 pandemic which led to world lockdown, the importance of an efficient financial services sector in the economy has increased incredibly. The strength of the Financial Services sector is equivalent to the prosperity of the country’s population.
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What is the Financial Services sector
What is the Financial Services sector?
According to the International Monetary Fund (IMF), the Financial Sector provides financial services to people and organizations. It comprises a wide range of products, including banking, investing, insurance, tax and accounting, leading the world in terms of earnings and equity market capitalization. The financial instruments include, bills, cheques, promissory notes, debt instruments, letters of credit, bonds, certificate of deposits, etc.
Managing risks and enabling opportunities for the commoner is essential to maintaining the credibility and trust in the financial services sector. The financial services sector generates a good portion of its lending and mortgage income in a setting where interest rates go down. When the interest rates are low, the economic conditions open the door for more spending and capital projects. The financial sector gains in such a scenario, which ultimately means more economic growth. Since Covid-19, India has seen a drastic change in the financial sector involving rapid expansion, strong growth of existing financial services and new entities entering the market.
Role of Financial Services sector
The Financial Services sector is considered to be the primary driver of the economy as it provides a free flow of capital and liquidity along with protection against risk and enabling opportunities for investors, savers, and borrowers in the market. It directly leads to the development of the economy as the standard of living increases simultaneously.
The two major roles of the financial services sector are to promote investment in the form of stock market, mutual funds and savings in the form of banking accounts along with other roles such as:
- Providing financial assistance to individuals, public and private organizations.
- Promoting issuance of debentures, shares, short-term loans, etc.
- Playing a vital role in the growth of entrepreneurship in the country.
- Other roles include:
- Value Exchange : a way of making payments
- Intermediation : a way of transferring resources between savers and borrowers
- Risk Transfer : a means for pricing and allocating certain risks
- Liquidity : a means of converting assets into cash without undue loss of any value
Importance of Financial Services sector
The benefit of an efficient financial services sector is reflected on the economy and its people in the form of the standard of living. Without the Financial Services sector individuals with money would not be able to find the right source of channel for investing and the borrowers would not be able to enjoy the benefit of growing funds or other assets.
The Financial services sector plays a vital role by reducing the transactional cost, facilitating investments, and making capital available for investments in better technologies, infrastructure, health care, increasing productivity and efficiently optimizing the utilization of the existing resources in the market . The government handles overseeing the provision of many financial services for the development of the economy.
Characteristics of Financial Services sector
- Customer-centric : The main purpose of the Financial Services sector is to satisfy the financial needs of the customers. Various elements like cost, maturity limit, loans, etc are made according to the suitability of the customer and the market requirement.
- Intangibility : The Financial Services Sector is intangible in nature. The brand image plays a vital role for the development of a particular organization.
- Perishable in nature : The Financial Services sector is perishable in nature as the services cannot be stored in advance. Financial services are produced and supplied according to the requirements of the customers.
- Information based : The Financial Services sector is the information based sector as it educates the customer of the financial requirements and needs for the better outcome.
- Dynamic in nature : The Financial Services Sector changes with changes made in the amendments and laws. Hence, it is dynamic in nature.
Conclusion
The Financial Services sector has a greater impact on the development of the economy as it facilitates transactions, ensures liquidity, mobilizes savings, ensures risk minimization, allocates capital funds, and generates employment. In any worst case scenario, if the financial sector fails, it will impact the country's economy drastically resulting in a recession. India is predicted to become the 4th largest finance market by 2028. To achieve this goal, there is a need for proper financial planning for different sectors of the country. consumers for these financial services in India.
