The Role Of Lending In An Economy

by Vinaya HS on February 4, 2017

in Finance

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Remember how difficult it was for the earlier generation to get loans until a couple of decades ago? Most of us remember our parents having to run around, submit documents, and then wait at the banks. All this to get a loan approved. The situation has changed quite a bit over the last few years. Nowadays, banks and other financial institutions encourage people to take loans. The loan processes have become much simpler. It is easy for an eligible person to get a loan. When banks and financial institutions lend, it strengthens the country’s economy.

The role of lending in an economy

Lending plays a big part in improving the economy of a nation. Some of the reasons behind this are:

1. More investments: This holds true in the case of business loans. Many a time, a business loan is taken to finance investments. With the help of these investments, businesses grow and so does productivity. This adds to the economic betterment of the country.

2. Increase in sales: You could take a home loan to buy a property or a personal loan to buy furniture for a house. Remember, lending leads to an increase in the purchasing power of customers. A rise in purchasing power is proportional to growth of a nation’s economy.

3. More employment opportunities: Loans enable people to spend more. This has a domino effect. For example, when you take a home loan to buy a house, the builder appoints an architect. The architect, in turn, appoints a contractor. The contractor then appoints a team of construction workers. One thing leads to another and many job opportunities are created. This increases employment and has a positive effect on the country’s economy.

4. Loans empower an individual: Loans are vital. A loan enables you to reach your true potential and realize your dreams. It increases productivity and plays a significant role in improving the nation’s economy. Here is an example to understand this.

29-year-old Rishi, for example, was on the brink of inventing a machine. The new machine would reduce the power consumption of large factory equipment. But he needed some more money to convert his ideas into reality. He took a personal loan. Armed with it, he travelled to Japan and attended a few training sessions. He then took a business loan to buy the raw materials he needed. Soon after, he came up with his revolutionary product. It is now patented in his name and used all over the world. Rishi now earns hefty revenues. Being an honest tax payer, he contributes to the country’s economy as well.

The bottom line.

Lenders need to give out loans as much as borrowers need to take them. Without lending, the country’s economy cannot grow. This has made the loan process quite simple these days. So, if you need a loan, make a valid application. This is the best time to borrow.

Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

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