Financial Services. Athens University of Economics and Business. Paulina Papastathopoulou, Ph.D. Lecturer in Marketing. Department of Marketing and. INTRODUCTION TO FINANCIAL SERVICES. INTRODUCTION. These materials are intended for education purposes only. Any opinions expressed in these. Introduction to financial services- Merchant banking, meaning- Scope, function- The term “financial services” in a broad sense mean “mobilizing and allocating.
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PDF | This is now, the best selling book on Banking and Financial services in South Asia. for tighter regulation of financial services. But what is a financial service? Among the things money can download, there is a distinc- tion between a good (something. The financial services sector—defined as private and public institutions that offer insurance, banking, and asset management services—is a unique qualitative.
Online multichannel account enrollment is growing in popularity. The key is to make it as easy as possible. More insight about your industry. The future of financial services is banking on mobile. The four core pillars of digital fitness.
Quality customer experiences build trust and revenue for financial services. Redefining exceptional experiences in financial services. To connect your experiences, connect your data. Getting mobile banking right can win millennials.
Financial industry leaders are committing to digital transformation. The state of digital transformation in financial services. How experience keeps the top finance brands in the lead. From fast follower to digital pacesetter. How digital tools put top financial brands in the lead. Whereas in case stock price goes up, they use over allocation alternative to cover short position. TABLE Process of IPO is expensive and time-consuming.
Open option of trading additional stock offerings in future. Stringent disclosure rules under Sarbanes-Oxley Act and demand of periodic reporting. Enhanced liquidity for shareholders and investors, as they cash Intense pressure post IPO to perform in the short term. Better monitoring and control by external capital markets. Unlike debt, corporations are not under compulsion to repay Competitors might gain access to certain information.
They can focus on performance and growth, and investors would get their return automatically. Though experts in de- veloping and developed nations suggest promotion of self-employment, glaring problem is the inadequacy they face in fixed and working capital. Banks have a constraint as source for them, as banks ask for collateral as a prerequisite, which is not available to microenterprises.
The evident resort for them is to avail credit services of local moneylenders and pawnbrokers who ask for high interest rates with stringent rules.
Therefore to support self-employment, it gets imperative for government and other agencies to provide financial services to them at a subsidized rate. Microfinance has evolved with intend to benefit microenterprises, small businesses, low-income households, and thereby support economic development.
Activities that are mostly financed by Microfinancing include: Farming, trifling trade, livestock, food processing, vending, small-scale labour incentive production like weaving, craft, etc. Artisans, street vendors, small shops, services, etc. Microfinance is often confused with Microcredit.
Microcredit is a subset of Microfinance that includes gamut of activities like savings, insurance, market assistance, technical assistance, etc. Key features of Microfinance can be summed up as: Primary reason for this is the available evi- dences that demonstrate that women are less to default in repayment of loans, than men.
The main incentive foreseen in doing so is that development of women has ripple effect on family and eventually on society. Empow- erment of women results in improved in nutrition an education of their family, which is also an indirect aim of MFIs. As per the statistics on Nov 5, , since , the World Bank has reached more than 6 million poor in Bangladesh through microfinance projects; 90 per cent of these microcredit borrowers are women.
Microfinanc- ing has improved their lives in various aspects: Formal sector 2. Semiformal sector 3. Few key contributors to Microfinance are: Pioneered by Mohammed Yunus in Bangladesh, it targets poor women in rural areas to setup a microenterprise.
Their prime objective for successful operations is to develop an understanding of the local environment, clientele and their business. To begin with, they form a group of 5 prospective borrowers, of which 2 are given loan.
The per- formance and loan repayment of these 2 borrowers is observed over a period of time mostly 50 weeks to decide the eligibility of other borrowers. Peer pressure and peer support drive these groups.
It is a type of Combined Saving and Credit Associa- tion.
It is a group of individuals who unite and make cyclical contribution to a common fund, shared by them all. This fund is given to involved members cyclically, i. This amount is paid back in regular monthly contributions. Self-Help Groups: It is a homogenous group of people who save portion of their emergent credit needs and revolve resources among the group members. Period and other term of loans are decided by members by consensus. If the group is not formally registered, it should not have more than 20 members.
A slightly detailed sub-categorization of these microfinance providers has shown below: The key challenge for lending organization is the Credit Risk involved in these transactions, and various factors that contribute in increasing this risk are: The traditional activity of agriculture, the major fraction among all, have high seasonal dependency and variation, thereby making loan recovery schedule dependent on these factors, and not on the planning.
The market, on which borrowers count for to sell their output and repay the loans, has high level of uncertainty of demand, price and competitors. The borrowers take loans for, and are dependent on, one particular skill they possess to re- pay loans. Failure of that skill to generate desired result would lead neither borrowers nor lenders with alternates.
Unavailability of income history makes it tough to predict future income. It is extremely difficult to monitor the diversion of funds in unproductive activities, instead of purpose loan was taken. A main disadvantage to microfinance is that the deal is too small for the lender to devote ample time and money to doing proper due diligence. The smaller deal size makes transaction cost comparatively higher.
As the capital is low, the profits are also low. Lesser technology and doorstep service for loan initiation and monitoring makes the operational cost very high. The inability to reach the poorest of the poor is the biggest challenge and failure of such programs. Due to lesser default, women are preferred and targeted over men in microfinancing programs. This may result in men requiring wife to get loans for them.
Pension funds contribute on large scale to overall institutional investments. A Pension Scheme is the set of financial, administrative, legal, social, and other arrangements established for the purpose of providing pensions to a designated group of workers and their survivors. Pension schemes can be organized in several ways with various organizers including: Schemes arranged by employers or other organizations are referred to as employer pension schemes.
These schemes are mutual agreements between employees and employer.
The terms of such schemes are typically in the form of a legal contract. The terms of these schemes can be altered by mutual consensus of both the parties, by forming a new contract or agreement.
Through employment, employees become eligible for participation in employer pension schemes. After specified time period, the employee becomes eligible to pension benefits. Pension Schemes are categorized mainly on the type of benefits and contributions: Defined-contribution scheme: In defined-contribution scheme, the employer is obliged by agreement to contribute a definite amount to the scheme on behalf of its employees. Employees also contribute to individual accounts and get tax advantage apart from future savings.
The amount contributed by em- ployee is excluded from current taxable income. These contributions are deposited in individual accounts for each employee. Since upon retirement, the employee or survivor receives benefits based on the contribution, employers invest these contributions in long-term financial assets in the meanwhile.
These funds are invested in variety of as- sets, including shares, bonds, other financial assets, land, buildings, and valuables. The pension funds thereby have a liability to provide the committed pension benefits. The counterpart of the liability is a financial asset owned by the employees. This asset and its counterpart liability are classified as insurance technical reserves. Defined-benefit scheme: In defined-benefit scheme, the employer is obligated to provide specific benefits.
The level of benefits offered is typically defined by a formula centred on the years of employment, the wages and salaries earned.
There is no obligation of contribution on either employee or employer. Either party may or may not make contributions to the scheme. In case contributions are made, the amount deficit to provide an agreed benefit is borne by employer. Pension Funds in India Pension funds in India, like in other countries, are structured and controlled by Government Regulatory bodies.
Pension funds and related norms have modified and improved over a period of time to find justifiable solu- tions to the problem of providing satisfactory retirement income. Tier-I account: Any withdrawal of saved amount before retirement at age of 60 is not allowed.
These contributions also help in tax advantages as it is exempted from taxable income, subject to certain defined range by govern- ment. Tier-II account: It is a voluntary savings facility. Neither does it provide tax benefits, nor there is any restric- tion on the time period after which withdrawals be done.
These savings can be withdrawn on need basis. They are mostly short-term investments, unlike traditional sources. These investments include Commodities 2. Hedge funds 3. Real assets 4. Private equity 5. Structured products It provides alternate source of investment and acts as a tool of diversification. These investments are expected to have low correlation with traditional financial investments, thereby reducing portfolio risk and diversifying in- vestments.
Initially, there was demand of retail investor to get into commodities, but it was difficult. The common way to trade commodities and currencies is through the futures and options market.
However, trading futures is much more complicated than the ease of investing in equities. ETPs Exchange-Traded products were created with a familiar structure, thereby making investments in commodities and currencies easier to understand and more accessible like stocks.
Exchange Traded Funds: They are shares of a portfolio, not of any individual company. They are traded on stock market as common share. Commodities Commodities are raw materials, mostly natural resources that are sold in bulk, like silver, gold, oil, wheat, etc. The items traded as commodities are largely raw materials that are ultimately used to produce other goods.
Com- modities can be broadly categorised as It is countercyclical asset, i. So, commodities help in diversification. There are various ways of getting exposure to commodity market: Spot Market 2. Pure Play 3. Commodity Futures 4. Commodity Indices 1. Spot Market: It provides access to either the producer directly, or intermediary.
In this case, the investor has to bear the storage cost too. This is feasible for some commodities, like precious metals, but not for all, like gas. It requires full payment at initial level itself. Its storage and other overheads are feasible and under control of investors. These markets provide better hedge against hostile price movements. Pure Play: This involves downloading shares of the company or organization producing the commodity investor wants to deal with.
For example, an investor wishing to trade in natural gas would trade in company produc- ing natural gas.
The movement of the stocks of those companies are expected to move in sync with the com- modity market. Commodity Futures: These contracts are well-defined standardized agreements.
They are backed by faith of exchange on defined terms mentioned in agreement. The future written on these commodities is another way of gaining exposure in commodities. Unlike Spot market, there is no need of full initial payment. Commodity futures require an initial margin only. Depending on direction of spot prices, future calls are determined. Commodity Indices: Commodity indices provide access to commodities or commodities of a specific sector.
Based on the total return on commodities, Commodity-linked Notes can also possible option to gain exposure in commodity. They do not perform relative to some specific or index and seek to maximize returns in all market scenarios. Most hedge funds are in the form of either limited partnership or limited liability corporation or offshore corporation.
The manager of the fund receives compensation, which has two components—base fee independent of hedge fund performance and incentive fee percentage of the actual return of the fund. Hedge funds can be classified as follows: These funds take long and short common stock positions.
They are not market-neutral but seek to make profit from greater returns on the long position that on the short positions. These funds make bets on the direction of a market, interest rate or such factors. These funds attempt to capitalize on some distinctive chances in the market.
This may be in- vestment in a distressed company or in a probable merger and acquisition. Real Assets: This involves direct ownership of nonfinancial assets. These assets have lesser dependence on value- creating factors, unlike for organizations where management performance and market acceptability determine the valuation. In prior times, land was the only valuable asset. downloading and selling occurs intermittently in local market. Transaction cost involved is comparatively high.
Private equity: Private equity includes both equity and debt that is not publicly traded. Debt, in short-term, has high risk and thereby cash flow is uncertain. So, in highly leveraged company, debt behaves more or less like equity, especially in short-term. In a typical transaction, a private equity firm downloads majority control of a firm, can be mature firm too.
This is different from a venture capital wherein the investors invest in young or emerging companies, and seldom gain majority control. Structured products: Structured products are synthetic investment tools created to meet definite needs that can- not be met from the standardized financial instruments available in the markets. They can be used to reduce risk exposure of a portfolio or to leverage on the existing market trends.
The investment for structured products might focus on a single security, on specific asset classes, or on a related sub-sector. Consumer protection laws are government regulations formulated to protect the rights of consumers.
The laws are intended to prevent business- es that engage in fraud, scams or unfair practices. Financial sector has been growing at a fast pace. This growth has led to increase in competition, advances in information technology, which in turn steered devising of highly complex financial products introduced in marketplace. These products demand deep understanding of their operations which is lacking in nascent financial consumers.
Consumer protection and financial literacy in developing countries are still in their initial stages. This leaves them vulnerable to unfair practices. Economies of all countries across the world are deeply intertwined. The financial crisis of —09 has been the recent demonstration of this. World Bank has been working upon the issue of Consumer Protection and Financial Literacy for the countries of the Europe and Central Asia Region, since , by a pilot program.
It suggests that a set of good practices should be followed, which requires financial sector players to provide their consumers with: The inherent risks should also be disclosed. Consumer Protection and Regulation in India Consumer protection in India is shielded by both statutory regulation and voluntary membership bodies also called consumer activism.
Strategic players in consumer protection in India are: The policy includes various aspects with provisions on pricing, transparency, re- covery methods, and avoidance of multiple-borrowing.
Financial institutions, like banks, adhere to these regulations. These Ombudsmen act as impartial watchdogs. These complaints and grievances have either not been fully resolved by the banks or not been satisfactorily resolved in the opinion of the consumer.
The BCSBI develops standards, enhances transparency and improves relations between banks and customers. The BCSBI also requires all banks to spread information to customers and manages a web-based helpline for customers.
On a broader perspective, all those involved with regulation and protection of consumer rights work on set of good practices discussed by World Bank. It also helps in making new acquisitions. Indian housing finance has developed from a stage where it was solely government-driven to the present stage of growth and multiple players.
Here, the corporate sectors are not forced to repay the debt but they can put limit on management freedom. Any withdrawal of saved amount before retirement at the age of 60 is not allowed. Neither does it provide tax benefits, nor there is any restriction on the time period after which withdrawals be done.
These in- vestments are expected to have low correlation with traditional financial investments by reducing portfolio risk and diversifying investments. What is a NBFC and how is it different from banks? Difference between VCs and PE. How the Credit card transaction can be divided? What is Securitization and Reverse mortgage?