Fostering economic growth through financial sector development.

Byline: UROOJ AIJAZ

A country's total economic progress is significantly influenced by its financial sector. The financial industry fosters economic growth in a number of ways. Nowadays few prominent networks have received a lot of attention including the capacity of the financial industry to:

Pool risk so that it is reduced in financial transactions and reducing risk factors.

Reduce the cost of financial intermediation by making use of advantages the benefits of economies of size and scope.

Mobilise savings and direct these funds

Optimise the distribution of the economy's resources into investment activities.

Since the late 1980s, Pakistan has been pursuing financial sector liberalisation, which has the potential to increase financial sector efficiency by allowing more room for market forces to determine intra- and intertemporal pricing in the financial markets and the distribution of financial system credit. The country's economic development in general and financial intermediation, in particular, were the main goals of the financial sector reforms.

Pakistan has a wide variety of financial institutions, including corporate brokerage firms, leasing companies, discount houses, Islamic banks, commercial banks, specialised banks, national savings schemes, insurance firms, development finance institutions, investment banks, stock exchanges, and investment banks. They provide a wide variety of goods and services, including loans for homes, farms, and automobiles.

The financial sector, according to the Global Financial Development (FD) report (World Bank Report 2013), is the collection of organisations, tools, markets and legal and regulatory frameworks that allow transactions to be carried out using credit. The development of the financial industry is fundamentally about reducing "costs" associated with the financial system.

Financial contracts, markets, and intermediaries emerged as a result of this process of lowering the costs of gathering knowledge, upholding agreements, and carrying out transactions. Different financial contracts, markets, and intermediaries have been driven by various kinds and combinations of information and transaction costs as well as by various legal, regulatory, and tax regimes throughout history.

A substantial body of research suggests that the growth of the financial sector has a significant impact on economic development, according to a 2013 World Bank report. By raising the savings rate, mobilising and pooling...