FINANCIAL SERVICES

MEANING OF FINANCIAL SERVICESAll types of financial activities are considered financial servicesMobilizing of and allocating savings into investible channelsTransformation of savings into investment.Very important for industrial developmentsFunds mobilized from savers used by corporate customersFinancial service = Financial intermediation

Different service providersFinancial service providers are only intermediary. Financial institutionsCommercial banksMerchant or investment bankBrokerage houseAdvisors

Classification of financial services

Financial intermediariesCapital market intermediaries - Lending institutions , Investing intuitions Long term funds Money market intermediaries Commercial banks, Co-operative banks short term funds

Non-Banking financial institutionsSpecialized financial services to industry, society, tradersHousing finance Leasing : An attractive source of long-term financeMutual fund helps investment in primary, secondary and debt market.Venture capital Depositories = bank for securities, electronic data form.Factoring : purchase of book debts of clientsFortfaiting : exporter surrenders export receivables to forfaiting agency. French word meaning surrender of rights.

Scope of Financial ServicesTraditional activitiesFinancial intermediaries rendering services of capital and money market activitiesFund based and Non fund based activities

Modern ActivitiesFinancial intermediaries rendering various activities

Fund based activitiesDealing in foreign exchange marketsDealing in primary market, investment in shares, bonds, debentures etcDealing in secondary market activitiesParticipating in money market instruments like commercial paper, certificate of deposits , treasury bills, discounting of billsDealing in equipment leasing, hire purchase, venture capital, seed capital

Non Fund based activitiesArranging funds for clients project cost or for working capital. placement of capital and debt instruments with investment institutionsManaging capital issues ( post and pre issues)Assistance in getting government and other clearances

Modern ActivitiesManaging portfolio of large public sector companiesPlanning for mergers and acquisitions smoothlyProject advisory service - starting the project, preparing reports, raising funds, getting government approvalCapital restructuring for corporate customersRestructuring management structure and management style to achieve better resultsUndertaking services : clearing services, registration and transfers, safe-custody of securities, collection of income on securitiesUndertaking risk management services , insurance services, buy back options etc.

Factors affecting financial servicesGender issuesAge factorLegal identity Limited literacyPlace of livingSocial and cultural barriersLevel of incomeTypes of occupationCumbersome proceduresWrongful assessmentLack of opportunitiesAttractiveness of the productBias of financial institutionsEmployment barriersOwning assets

Financial IntermediariesInstitution, collects savings and uses the funds to purchase ownership and debt claims.Higher degree of Safety and liquidityBasic function is to satisfy the portfolio of lenders and borrowersAllocating scarce savings among most productive investment

Categories of Financial IntermediariesBanking ( central bank, commercial banks, co-operative banks, savings bank)Depository organisation ( mutual funds, credit unionsInsurance organisation ( Life insurance, general insurance, postal insurance, pension funds, provident fundsDevelopment banksNon banking finace companiesFinancial marketsOther financial intermediaries

Different service providers classified into five groups