Banks play an important role in the economic development of a country.

It the banking system is unorganized and inefficient, it creates maladjustments and impediments in the process of development. In Pakistan, the banking system is very well organized. The State Bank of Pakistan established on July 1, 1948 stands at the apex and is responsible for the operation of the banking system in Pakistan. The other banks which form the banking structure in Pakistan are playing an active role in the economic development of the Country. The role of the commercial banks in the growth and development of sound and healthy economy of the country is briefly discussed as under: 1. Saving mobilization. The commercial banks namely National Bank of Pakistan, Habib Bank, Allied Bank, United Bank and Muslim Commercial Bank have opened up branches in urban and rural areas to mobilize savings of the people. 2. Financing development project. The banks and other development finance institutions like IDBP, Zarai Taraqiati Bank Limited, PICIC etc. advance short and medium term loans for financing of the development projects both in the private and public sectors and thus help in accelerating the rate of economic development in the country. 3. Facilitating trade activities. The credit institutions collect the savings of the people arid make them available for facilitating trade activities both inside and outside the country. 4. Creating climate for capital formation. A developed banking system is a stimulant to growth and is creating favourable climate for capital formation in the country. 5. Helping SBP in achieving monetary policies. The commercial banks under the supervision and guidance of the State Bank of Pakistan help in implementing and achieving the objectives of the monetary policy which vary from time to time. 6. Assisting in the development. The commercial banks are profit seeking enterprises. In order to maximize the profits, they have the incentive to maximize the loans. An organized banking system keeps a balance between liquidity and profitability and thus assists in the planned development of the economy. 7. Provision of agency services. The commercial banks provide agency services to the clients. They receive and pay cheques. They collect dividends and pay interest and premium on behalf of the clients. They keep their valuables in safe custody. They help in the mobility of capital and thus stimulate capital in the country. 8. Making capital available for investment. The organized banking system helps in directing physical resources into productive channels. It also keeps a balance between the availability and requirements of the capital in the country. 9. Less reliance on foreign capital. A planned banking system by launching a vigorous campaign of mobilizing idle saving in the country can meet the capital development

requirements from within the country. The country will thus have to rely less on foreign capital for financing the development projects. 10. Profit, sharing scheme. The commercial banks receive surplus balances of households and business and pay interest on the deposits of the clients. The banks have now introduced interest free banking in Pakistan. The depositors instead of having a fixed return on the deposits will share in the profit and loss of the banks. The Profit and Loss Sharing (PLS) arrangement which is an alternative to interest under an Islamic Economic System is now operating in Pakistan. 11. Provision of Qarze Hasna. Qarz-e-Hasna Scheme has been prepared and launched by Pakistan Banking Council through nationalized commercial banks. Under the Qarz-eHasria Scheme, financial assistance is provided to the students of in sufficient means and of outstanding calibre who are unable to pursue their studies due to financial difficulties. Loans are provided for pursuing studies both Within and outside Pakistan. 12. Export promotion cell. In order to boost the exports of the country, the banks have established Export Promotion Cell for the information and guidance of the exporters.