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MGT604 - Management of Financial Institutions - Lecture Handout 21

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ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR

Microfinance in its broadest terms can be defined as provision of a range of financial services such as deposits, loans, payment services, money transfers and insurance to poor and low income households, and their micro enterprises (Source: Asian Development bank report on microfinance development strategy). While a commercial bank is a financial institution that offers a broad range of deposit accounts, including checking, savings, and time deposits, and extends loans to individuals and businesses.

The decision as to whether the commercial banks be involved in microfinance is a sensitive and debatable issue which requires a deep analysis of many factors.

Primarily, the microfinance customers are large in number, scattered in far-flung areas with very minute transaction sizes. Only government or state bank alone cannot reach out to millions of potential Microfinance beneficiaries; a whole well knitted network with almost doorstep reach is required, which is only possible when the commercial banks will be involved in microfinance. In Pakistan it is estimated that as many as 5.6 million households need microfinance services but these services reach only to less than 1 percent, most probably because of the absence of commercial banks from the microfinance sector. (Source: Pakistan microfinance Network PMN) This way a poor person just need to visit his local commercial bank to get access to microfinance benefits, which will help reduce many economic problems.
One criticism over involving the commercial banks in microfinance is that commercial banks will charge higher interest rates, further lower the standard of living and will exploit the public. The ground realities are totally different; empirical evidence has demonstrated that participants in microfinance programs have improved their living standards at both the

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MGT604 - Management of Financial Institutions - Lecture Handout 20

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BRANCH BANKING IN PAKISTAN

A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face to face service to its customers.

Remittances:

Demand Draft

It’s a written order, drawn by one branch of a bank upon another branch of the same bank, upon other bank under special arrangement to pay a certain sum of money to or to the order of a specified person.”

Parties Involved

  1. Purchaser
  2. Issuing Branch
  3. Drawee Branch
  4. Payee/ Beneficiary

Pay Order

A Pay Order is a written authorization for Pmt, Made in a receipt from issued & Payable by the bank, to the person named & addressed therein on his giving a proper discharge thereon.

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