Acknowledgement

I am immensely grateful to Principal Khamba Singh Basnet and

Teacher Aashish Giri for their unwavering support and guidance
during my project on "Financial Institutions." Their belief in me,
provision of resources, and mentorship have been instrumental
in the successful completion of my work. I want to express my
sincere appreciation to Principal Basnet for granting me
permission and Teacher Giri for their expertise and valuable
feedback. Their contributions have significantly enriched my
understanding of the subject, and I am truly thankful for their
assistance.
Introduction.................................................................................................................................................2
Types of Financial Institutions.....................................................................................................................3
1. Depository Financial Institutions..........................................................................................................3
2. Non-Depository Financial Institutions..................................................................................................3
Banks...........................................................................................................................................................4
Functions of Banks...................................................................................................................................4
Types of Banks.............................................................................................................................................8
1.Central Bank.........................................................................................................................................8
1.1 Functions of Central Bank..................................................................................................................9
2. Bank and Financial Institution............................................................................................................11
2.1 Class A: Commercial Banks...........................................................................................................12
2.2 Class B: Development Banks........................................................................................................12
2.3 Class C: Finance Companies.........................................................................................................12
2.4 Class D: Micro Finances................................................................................................................12
Cheque......................................................................................................................................................13
3. Parties involved in Cheque.................................................................................................................13
4.Types of Cheque.................................................................................................................................14
4.1 Bearer Cheque.............................................................................................................................14
4.2 Order Cheque...............................................................................................................................14
4.3 Crossed Cheque...........................................................................................................................14
Payment of Cheque through Computer System........................................................................................15
Financial Institutions (Finance Companies)...............................................................................................16
Functions of Finance Companies...........................................................................................................17
Financial Co-operatives..............................................................................................................................18
5. Functions of Financial Co-operative...................................................................................................19
Insurance...................................................................................................................................................20
6. Functions of Insurance......................................................................................................................21
6.1. Primary Functions.......................................................................................................................21
Types of Insurance.....................................................................................................................................22
7.1 Life Insurance...................................................................................................................................22
 7.2 Non-Life Insurance...........................................................................................................................23
Employee Provident Fund..........................................................................................................................23
8. Functions of Employee Provident Fund.............................................................................................24
Citizen Investment Trust............................................................................................................................25
9. Functions of Citizen Investment Trust................................................................................................26
Introduction

Financial institutions are organizations that provide crucial

financial services to people, companies, and governments. They
include banks, credit unions, investment businesses, insurance
companies, and brokerage firms, all of which play critical roles
in facilitating monetary transactions, risk management, and
economic development.

Banks collect deposits, lend money, and provide payment

services, but credit unions prioritize their members' interests
through cooperative ownership. Investment businesses
specialize in the management of investment portfolios and the
provision of financial advice. Insurance companies protect
against financial losses, and brokerage firms enable securities
trading. To promote stability and fair practices, these
institutions operate inside regulatory frameworks. Financial
institutions contribute greatly to economic stability and growth
by properly managing finances, supporting investments, and
facilitating access to resources.
Types of Financial Institutions

There are 2 types of depositary financial intuitions in Nepal.

They are:

1. Depository Financial Institutions

2. Non-Depository Financial Institutions

1. Depository Financial Institutions

-Depository financial institutions accept deposits, provide

banking services, and channel funds towards lending and
investments, ensuring safety and financial stability. Examples
include commercial banks.

2. Non-Depository Financial Institutions

- Non-depository financial institutions provide specialized

financial services like investment, insurance, and brokerage
activities without accepting deposits. They play a significant
role in the financial sector, serving specific needs and adhering
to regulations for consumer protection and stability.
Banks

- Banks are important financial entities that accept deposits,

lend money, and provide payment services. They make
economic activity easier by managing funds, allocating
resources, and facilitating secure transactions. Banks serve an
important role in the financial system, helping individuals,
businesses, and governments through a variety of products and
regulatory monitoring.

Functions of Banks
1. Acceptance of deposit
2. Provide loan
3. Deal with securities
4. Creation of credit
5. Exchange of foreign currencies
6. Remittance
7. Agency Functions
8. General Utility Service
9. Issues Currencies
10. Helps to form plans & Policies
1. Acceptance of deposit
- Acceptance of deposits is the process by which financial
institutions receive and safeguard customer funds, thereby
providing a safe place for individuals, businesses, and
governments to hold their money for future use or investment.

2. Provide loan
- The process by which financial institutions lend money to
individuals, organizations, and governments for a variety of
purposes such as personal expenses, commercial investments,
or infrastructure projects is known as lending.

3. Deal with securities

- The actions of financial institutions involved in purchasing,
selling, and trading financial instruments such as stocks, bonds,
and other investment products on behalf of their clients are
referred to as dealing with securities. This includes brokerage
firms that facilitate transactions and investment firms that
manage securities portfolios.
4. Creation of credit
- Credit creation happens when financial institutions generate
cash for lending to borrowers, allowing access to additional
funds for diverse reasons and increasing economic activity.

5. Exchange of foreign currencies

- The exchange of foreign currencies involves the process of
converting one currency into another, typically conducted by
financial institutions to facilitate international trade and travel.

6. Remittance
- Remittance is the transfer of funds from one location to
another, most commonly by those working overseas to support
their relatives back home.

7. Agency Functions
- Agency functions of financial institutions involve acting as
intermediaries, providing services such as transaction
facilitation, financial advice, investment management, and
trade execution on behalf of clients.
8. General Utility Service
- Financial institutions provide essential general utility services
encompassing banking functions, loan provisions, payment
facilitation, and a wide array of financial products. These
services meet customer requirements and play a pivotal role in
supporting economic activities.

9. Issues Currencies
- Currency issuance is the process through which central banks
create and distribute official money to maintain monetary
stability and support the economy.

10. Helps to form plans & Policies

- Financial institutions contribute to the formation of plans and
policies by offering expertise, data analysis, and guidance to
governments, businesses, and individuals. They provide
valuable insights on economic growth, investment decisions,
and risk management, aiding in the development of effective
strategies and policies.
Types of Banks

1.Central Bank

Central banks are important financial institutions in charge of

managing a country's monetary system as well as developing
and implementing monetary policy. They oversee issuing and
regulating the national currency, controlling interest rates,
managing foreign exchange reserves, and supervising the
banking sector. Central banks play an important role in
promoting price stability, fostering economic growth, and
ensuring financial stability. They operate as lenders of last
resort, provide banking services to commercial banks, and are
the major regulatory authority for the financial industry.
Central banks also play an important role in crisis management
and preserving trust in the financial system.
Central banks play an important role in maintaining price
stability, encouraging economic growth, and assuring financial
system stability. Furthermore, they function as lenders of last
resort during financial crises, provide critical banking services to
commercial banks, and are the primary regulatory authority for
the financial industry. Central banks' policies and actions have a
tremendous impact on the general economy and financial
markets.

1.1 Functions of Central Bank

I. Monetary Policy: Central banks devise and implement

monetary policies to contain inflation and promote price
stability. They establish interest rates and other monetary
instruments to impact borrowing costs and general
economic activity.

II. Currency Issuance: Central banks oversee issuing and

regulating the national currency. They oversee developing
and distributing banknotes and coins to maintain a stable
and reliable currency supply.

III. Bank Supervision and Regulation: To maintain financial

stability, central banks supervise and regulate the banking
industry. They create prudential regulations, monitor
banks, and enforce rules to protect depositors, preserve
sound banking practices, and avoid systemic hazards.
IV.Lender of Last Resort: In times of financial crisis or liquidity
shortages, central banks operate as a lender of last resort,
providing emergency liquidity assistance to financial
institutions. This position contributes to the banking
system's credibility and prevents widespread disruptions.
V. Foreign Exchange Management: Central banks maintain
foreign exchange reserves and perform foreign exchange
operations to influence the value of the national currency
in comparison to other currencies. They interfere in
currency markets to maintain stability and reduce
excessive volatility.
2. Bank and Financial Institution

Financial institutions and banks provide a range of services

including deposit accounts, loans, payment solutions,
investment options, insurance products, and advisory support.
Their work is facilitating financial transactions, managing funds,
and supporting individuals, corporations, and governments in
managing their finances properly to promote economic growth
and stability.

- These are also divided into 4 classes, they are

1. Class A: Commercial Banks

2. Class B: Development Banks
3. Class C: Finance Companies
4.Class D: Micro Finances
2.1 Class A: Commercial Banks
- Commercial banks provide banking activities such as receiving
deposits, making loans, providing payment services, and
facilitating transactions for individuals and businesses.

2.2 Class B: Development Banks

- Development banks specialize in long-term financing and
support for economic development initiatives that promote
long-term growth and infrastructure development.

2.3 Class C: Finance Companies

- Finance Companies are non-bank financial firms that provide
loans and credit for consumer and business purchases,
sometimes with more liberal lending standards.
2.4 Class D: Micro Finances
- Microfinance institutions provide low-income individuals and
microenterprises with financial services such as small loans and
savings accounts, encouraging financial inclusion and poverty
alleviation.

Cheque

- A cheque is a written, unconditional instruction from an

account holder to a bank to pay a certain sum of money to
a chosen recipient. It is a safe and generally accepted
method of payment that allows individuals and
organizations to transfer monies without the need of
actual cash.

3. Parties involved in Cheque

3.1 Drawer: The drawer is the individual who writes and signs
the cheque. They are the account holder, and they are the one
who authorize the payment from their bank account.
3.2 Payee: The payee is the person or organization identified as
the recipient of the funds on the cheque. They are the
payment's designated recipient.

3.3 Drawee: The drawee is the bank or financial institution

where the drawer's account is held. When a cheque is
presented, the bank is responsible for honoring it and making
the payment to the payee.
4.Types of Cheque

4.1 Bearer Cheque: A bearer cheque is made payable to the

person who holds it. Anyone who brings it to the bank,
regardless of whether they are the payee mentioned on the
cheque, can enclose it. Bearer cheques are problematic since
they can easily lose or stolen.

4.2 Order Cheque: An order cheque is made payable to the

person or entity listed as the payee on the cheque. An order
cheque can only be cashed or deposited by the designated
payee. It is more secure than a bearer check because it needs
the payee's identification and verification.
4.3 Crossed Cheque: A crossed cheque has two parallel
lines across its face, signifying that it can only be deposited into
a bank account and cannot be cashed over the counter. It adds
an additional degree of protection by guaranteeing that funds
are directly credited to the payee's account, lowering the
chance of fraudulent or unauthorized cheque cashing.

Payment of Cheque through Computer System

Payment of cheques through a computer system involves the

electronic processing and clearing of cheques using automated
methods. Instead of handling cheques physically, their details
are entered or scanned into a computer system. The system
verifies the information, checks for sufficient funds, and
initiates electronic transfers between accounts. This process
offers benefits such as faster processing, fewer errors,
increased efficiency, and enhanced security compared to
manual handling. It eliminates the need for physical
transportation of cheques and provides quicker access to funds
for both the sender and recipient.
 The electronic handling and clearance of checks using
automated procedures is part of the process of making
payments through a computer system for cheques. Instead of
handling the cheques physically, their information is entered or
scanned into a computerized system. The system then validates
the information, confirms the availability of funds, and initiates
electronic transfers across accounts. This electronic payment
method provides benefits such as faster processing times,
reduced error possibilities, increased operational efficiency, and
enhanced security measures

Financial Institutions (Finance Companies)

Financial institutions, including finance corporations, offer a

variety of financial services to individuals, businesses, and
organizations. Finance companies specialize in providing loans
and credit to individuals and corporations. Finance companies
play an important role in the financial system by offering credit
to individuals and businesses who may not qualify for typical
bank loans. They frequently have more open lending
requirements and are prepared to accept higher-risk
borrowers.

Finance companies often make money by charging interest on

the loans they make. They evaluate borrowers'
creditworthiness and set loan terms and conditions, such as
interest rates and repayment schedules. It should be noted that
the regulatory structure that governs finance corporations
varies by jurisdiction. Regulations are in place to safeguard
consumer protection, fair lending practices, and industry
financial stability.

Functions of Finance Companies

These are the basic 4 functions of finance companies, they are:

1. Raising Funds
2. Investment of funds
3. Assists in non-funds activities
4. Merchant banking information
Financial institutions, especially finance businesses, play an
important role in raising funds through a variety of channels,
including deposits and capital markets. These monies are also
invested in productive ventures. They also offer services other
than fund-based operations, such as advising and consultancy
services, as well as merchant banking activities such as
underwriting, issue management, and corporate finance.

Financial Co-operatives

Financial cooperatives, also referred to as credit unions, are

financial institutions that are owned and operated by their
members. These cooperatives follow the principles of self-help,
mutual assistance, and democratic control. They offer a wide
range of financial services such as savings accounts, loans,
payment solutions, and insurance to their members. Financial
cooperatives prioritize meeting the financial needs of their
members and promoting financial inclusivity. Often, they have a
specific community or common bond as their focus. Members
have the right to vote and actively participate in the decision-
making processes and governance of the cooperative,
distinguishing them from traditional banks and other financial
institutions.
Financial cooperatives, often known as credit
unions, are distinctive financial entities based on the ideals of
collaboration and member ownership. Members of these
cooperatives vote on decisions by electing representatives to
the board of directors. This democratic framework ensures that
the members' interests are considered.

5. Functions of Financial Co-operative

There are 6 basic functions of Financial Co-operative, they are:

1. Generating savings from member

2. Lending among member

 3. Anti-discrimination

4. Motivation and reward

5. Education training and information

6. Concern for community

Insurance

Insurance is a risk management instrument that protects you

financially from probable losses or unforeseen catastrophes.
Individuals and corporations can buy insurance policies to
transfer the risk of potential damages, accidents, or losses to an
insurance company in exchange for regular premium payments.
In the event of a covered loss, the insurance company
compensates the policyholder in accordance with the terms
and conditions of the policy. Health, life, property, car, liability,
and business insurance are all examples of insurance coverage.
It assists individuals and organizations in mitigating financial
risks, offering peace of mind and a safety net in the event of
unforeseen calamities.

6. Functions of Insurance

6.1. Primary Functions

6.2. Secondary Functions

6.1. Primary Functions

 Risk Transfer
- In exchange for premium payments, insurance distributes
the financial responsibility of losses to the insurer,
providing protection against unanticipated catastrophes.

 Creation of common pool of risk

 - Insurance pools policyholder resources to create a single
fund for loss coverage. Premiums are collected from many
policyholders and used to reimburse the few who experience
insured occurrences, dispersing the financial burden
throughout the group.

 Charge equitable premium

Insurance companies set rates depending on the risk profile of

the policyholder and the possibility of sustaining a loss. This
equitable premium system assures equitable contributions to
the common risk pool, financial stability, and cheap coverage
while effectively safeguarding policyholders from potential
losses.

Types of Insurance

There are numerous types of insurance available to meet

various needs and risks. Here are two common types of
insurance:
7.1 Life Insurance
- Life insurance provides financial security to the insured
individual's beneficiaries in the event of their death. It provides
a payout to the selected beneficiaries, known as the death
benefit. Life insurance can be term life insurance, which
provides coverage for a set length of time, or permanent life
insurance, which provides coverage for the insured person's
entire life. It contributes to financial security.

7.2 Non-Life Insurance

- Non-life insurance, often known as general insurance, covers a
variety of hazards other than those involving human life. It
consists of numerous types of insurance that safeguard
individuals and organizations from financial losses caused by
unforeseen catastrophes.

Employee Provident Fund

The Employee Provident Fund (EPF) is a government-run social

security programme that provides employees with financial
stability and retirement benefits. It works since mandated
contributions from both the employee and the company.
Contributions and interest accumulate to form a savings pool
that can be accessed in retirement. The EPF is not just a long-
term savings instrument, but it also allows for partial
withdrawals in certain circumstances, such as education,
medical bills, or housing necessities.

In Nepal, the Employee Provident Fund (EPF) is a mandated

social security plan to which both employees and employers
contribute a percentage of their salaries. The EPF is a long-term
savings vehicle that provides retirement benefits. Contributions
and interest profits grow over time, and the assets are made
accessible to employees when they reach the scheme's
retirement age. Withdrawals can be made as a lump sum or as
periodic pension payments. In certain instances, the EPF also
permits for partial withdrawals. Contributions to the EPF are tax
deductible, and the interest received is tax-free, giving
employees with additional financial benefits.

8. Functions of Employee Provident Fund

-These are the basic functions:

  Enforce saving
 Benefit in retirement
 Investment in funds
 Loan facility
 Provide additional benefits

The Employee Provident Fund (EPF) mandates mandatory

retirement contributions, assuring financial security in
retirement. Contributions are invested to generate funds for
future rewards. Members can also get loans from the EPF.
Furthermore, it provides a variety of supplementary
advantages, including as disability insurance, housing
programmes, and education grants, boosting employees'
overall well-being.

Citizen Investment Trust

The Citizen Investment Trust (CIT) is a government-owned
financial institution in Nepal that encourages residents to invest
and save. CIT provides people and institutions with a variety of
investment schemes and services, including mutual funds,
retirement funds, and other investment products. It mobilizes
public savings and directs them to productive investments such
as infrastructure development, industrial initiatives, and capital
markets. CIT is critical in promoting a savings culture,
encouraging financial planning, and contributing to Nepal's
overall economic growth and prosperity. CIT offers individuals
opportunity to increase their wealth, create income, and
guarantee their financial future through its numerous
investment solutions.
9. Functions of Citizen Investment Trust

-These are the basic functions:

 Saving Mobilization
 Investment/Financing
 Capital Market Services

The Citizen Investment Trust (CIT) in Nepal focuses on three key

areas: saving mobilization, investment/financing, and capital
market services. CIT mobilizes savings from individuals and
institutions, provides investment and financing options, and
offers capital market services to support economic growth and
financial stability in Nepal.