Question

Provide a short history of financial institutions and their contributions to society, with brief examples

Answer 1

Financial institutions are corporations that provide services as intermediaries of financial markets. They engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers.

The history of financial institutions is different from economic history and history of money. In Europe, it started with first commodity exchange, the Bruges Bourse (in 1309) and the first financiers and banks in 15th – 17th centuries in central and Western Europe. The first global financiers the Fuggers in 1487 in Germany, the first foreign exchange market (The Royal Exchange 1566, England), the first stock exchange (The Amsterdam stock exchange).

Milestone in the history of financial institutions are Gold Standard, the founding of International Monetary Fund, abolishment of fixed exchange rates and many more.

Over the years Financial institutions have contributed a lot towards the society. They are conceptually recognized as an important factor in economic development and growth as they plays a critical role for society at large, serving individuals, families, businesses, governments and civic institutions. The financial sector performs indispensable functions such as enabling saving and investment, providing protection from risks and supporting the creation of new jobs and enterprises. It is critical that the sector operates to provide these functions for society in a stable, sustainable way.

There are many private financial institutions, that have come to serve the broad range of needs in emerging markets, delivering responsible, affordable lending to help low-income, low-wealth, and other disadvantaged people and communities. One of the example of such financial is Community development financial institutions (CDFIs). CDFI are private financial institutions that provide services by financing community businesses—including small businesses, micro enterprises, non profit organizations, commercial real estate, and affordable housing. CDFIs spark job growth and retention in hard-to serve markets across the nation.

Thus broadly saying, Financial institutions are of great importance for the society as they make a contribution towards the prosperity and stability.