Financial Institutions

Meaning: The government has set up a number of financial institutions across the country — established by both the central and state governments — to provide finance to business organisations. They supply both owned capital and loan capital for long- and medium-term requirements, and they supplement traditional agencies like commercial banks. Because they aim to promote a country's industrial development, they are also called "development banks".

Beyond money: In addition to finance, these institutions also conduct market surveys and provide technical assistance and managerial services to those who run enterprises. This source is considered suitable when large funds are needed for a long duration — for the expansion, reorganisation and modernisation of an enterprise.

Merits

• Provide long-term finance.
• Offer not just funds but also financial, managerial and technical advice and consultancy.
• A loan from them increases the borrowing company's goodwill in the capital market, so it can raise funds more easily from other sources too.
• Repayment in easy instalments means the loan is not a heavy burden on the business.
• Funds are made available even during a depression, when other sources dry up.

Limitations …