Financial services are those companies and organizations that provide individuals and businesses with a wide variety of investment, savings and credit options. They also offer insurance coverage to help people protect their property, income and assets from unforeseen events. Many people think of banks, brokers and mortgage lenders when they hear the term “financial services,” but this industry is much broader than that. It includes not only these entities, but also credit card companies, insurance agencies, stock brokerage firms and more. The financial services industry is incredibly important because it allows people and businesses to make large purchases by providing them with the means to borrow money. The strength of this industry is crucial to the health of a country’s economy.
The first category of financial services is depository services. These include banking institutions, which act as intermediaries between savers and borrowers. They collect deposits from the public, pool them together and then lend them out to individuals and businesses. These institutions also evaluate the creditworthiness of borrowers and determine interest rates.
Another type of financial service is investment services, which are offered by securities firms and independent investment advisory companies. These services help investors diversify their portfolios by purchasing stocks, bonds and mutual funds. They also offer advice on investing and risk management.
Savings and credit facilities are provided by financial services providers to enable the poorer sections of the population to enhance their livelihood. For instance, by providing them with loans to build houses or buy livestock, they can raise their standards of living. Moreover, these facilities allow them to purchase household appliances and other consumer durables on credit. The tertiary sector of the economy grows due to this and employment opportunities are created.
Many countries face the challenge of ensuring financial inclusion of their citizens. For example, only a fifth of families in developing nations use financial services to keep their money safe. Rather than store cash under their floorboards or in a container on the side of the road, many families invest their money in jewelry and livestock – an expensive and inflexible way to accrue and access savings. Financial services help these families by providing them with the opportunity to save in a trusted financial institution and use credit to buy necessities or grow their small businesses.
The emergence of new financial services is essential to the economic development of any nation. However, the financial services industry is extremely complex and requires a great deal of regulation to ensure that it is functioning properly. With a strong and robust financial services industry, consumers spend more money, which boosts the economy, and businesses of all sizes benefit. A weak financial services industry, on the other hand, can lead to a recession and even depression. This is why it’s so important for governments to regulate this industry and keep it healthy.