CHAPTER 9

FINANCE AND DEVELOPMENT

Introduction:

The significant bond between finance and development is fundamental to understanding how
economies evolve and societies progress worldwide. Finance, comprising various methods of managing
and distributing capital, acts as a catalyst for development by facilitating investments, encouraging
entrepreneurial endeavors, and fostering innovation. Whether it's providing access to essential financial
services for individuals or directing funds towards productive initiatives, finance plays a central role in
shaping the paths of nations and communities.

Content:

Role of finance

The role of finance is to:

1. Link savers and investors

2. SCREEN & MONITOR PAYMENTS
3. SMOOTHEN CONSUMTION
4. MANAGE RISKS
5. MANAGE PAYMENT SYSTEMS

Finance is essential for economic development because it helps businesses grow by providing money for
investments and operations. It also allows people to save and borrow money through services like
banking and insurance, which supports entrepreneurship and job creation. Finance encourages
innovation by funding research and development. Additionally, it helps manage risks and ensures that
money flows smoothly through the economy. Overall, finance is vital for driving economic growth,
prosperity, and improving living standards globally.

Finance and Governance

1. SOUND LEGAL SYSTEM

2. CORPORATE GOVERNANCE
3. “COMPLY OR EXPLAIN”

Finance and governance are vital for economic development. Finance helps invest money, save, and
allocate capital effectively, boosting growth. Governance sets rules, transparency, and accountability to
keep financial systems stable and trustworthy. Together, they encourage entrepreneurship, innovation,
and investment, supporting sustainable development. By promoting good financial practices and
following laws, they build strong and fair economies that benefit everyone.
Microfinance:

1. Rotating Savings and Credit Association

2. MICROLENDERS
3. STORE CREDIT
4. MONEY LENDERS

Microfinance, a specialized area within the broader field of finance, aims to serve individuals and small
businesses who typically lack access to traditional banking services. It provides small-scale financial
products such as loans, savings accounts, and insurance, with a focus on empowering entrepreneurs,
especially in developing nations. By facilitating entrepreneurship, stimulating job creation, and alleviating
poverty, microfinance contributes significantly to economic development. When combined with
conventional finance, microfinance plays a crucial role in advancing financial inclusion and improving
people's lives, ultimately contributing to sustainable development and prosperity worldwide.

Microcredit:

1. MICRO SAVINGs
2. MICRO INSURANCE

Microcredit is a part of microfinance that gives small loans to people who can't get them from regular
banks. These loans help entrepreneurs and small business owners buy what they need to grow their
businesses. By giving people access to credit, microcredit helps them start or expand their businesses,
create jobs, make more money, and improve their lives. It also helps local economies grow and reduces
poverty, especially in places where formal banking services are hard to access.

Micro savings:

1. RANDOM ROSCA (Rotating Savings and Credit Association)

2. AUCTION ROSCA

Finance and microsavings are important for economic development. Finance manages money and
includes banking, investing, and insurance. Microsavings, a type of finance, helps people, especially in
developing countries, save small amounts of money regularly. These savings can be used for
emergencies, investments, or building assets over time. Microsavings provide accessible and secure ways
for people to save, promoting financial stability, entrepreneurship, and reducing poverty. Together,
finance and microsavings help economic growth, financial inclusion, and better lives.
Islamic finance:

1. KURAN
2. SUNNA
3. HALAL INDUSTRY

Islamic finance follows Islamic law and avoids charging interest, instead focusing on risk-sharing and
avoiding certain industries. It offers services like banking, bonds, and insurance that comply with these
principles. In economic development, Islamic finance provides ethical and accessible financial services to
both Muslim and non-Muslim communities. It promotes stability by emphasizing asset-backed financing
and risk-sharing, which can prevent financial crises. Additionally, it directs funds to socially responsible
projects, supporting long-term economic growth. In summary, Islamic finance offers an ethical
alternative to conventional finance, playing a vital role in inclusive and sustainable development.