The importance of entrepreneurship has magnified in today’s economic climate. It introduces a crucial element of dynamism, particularly into an economic system. Entrepreneurs are often regarded as national assets who are motivated and rewarded to the greatest possible extent mainly because they contribute in terms of innovation, jobs and improve the conditions for a prosperous society.

The Indian government is also pushing and encouraging young Indian to start their own business or undertake ventures which have increased the role of a financial institution. Now the banks have to meet the need of financial assistance to a new startup company.

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There is no denying that activities of banks reflect their unique role as the kick-starter of growth in any economy. Commercial and specialized banks always play an important role in the growth and development of entrepreneurship. Apart from providing financial assistance, banks also give valuable inputs to support and promote their enterprise.

We shall now examine their role in developing entrepreneurship and for the purpose of convenience and proper understanding, the roles can be divided in the following category.

Statute laws

It’s is one of the main reason why banks were created in the first place. The roles such as accepting of deposit, safekeeping assets but more importantly giving of loans and advances make them a key element in the growth. Commercial banks will be providing security for the customer’s money and at the same time giving entrepreneurs the opportunity to use their deposits to borrow more fund in order to run their enterprises without any hassle. A good payment system is essential for the efficient functioning of an economy. And with the advancement of technology, the speed of service has greatly improved.

The growth of digital banking has reduced the cost of starting/doing business tremendously. This has greatly helped entrepreneurs in modern days. It is also very helpful for those involved with businesses on foreign soil.

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For instance, most international businesses are conducted on credit, with payment later. Commercial Banks offer quick foreign exchange – a service where money is transferred to any part of the world on behalf of the banks’ clients. With banks playing this crucial role, they have now become a very important part of promoting entrepreneurial development.

Financing roles

Not all entrepreneurs are from a sound financial background. Most will need initial loans on reasonable interest rate in order to generate capital to start their venture or enterprise. It is self-explanatory but without funds, entrepreneurs cannot grow, and this is where banks, particularly commercial banks play a significant role in the lives of entrepreneurs. Once an enterprise or business is set-up, then comes the important part, funding the cash cycle.

There will be a delay in cash after selling products due to credit period provided to customers. But entrepreneurs will have to make payments upfront to service providers. Banks will help in providing working capital assistance that becomes the lifeline of companies. Apart from that, banks will also provide financial help on regular basis like during expansion or play the role of middleman to connect entrepreneurs. Banks can connect people with huge pockets to people with great ideas. Banks are great advisers as well, they can suggest young entrepreneurs to invest their money on shares or commodities to earn more and without any interest rate.

Counseling  

Since banks have professional and specialized status, they are in a strong position to advise entrepreneurs on sustainable lines of investment by analyzing the pro and cons of each investment as well as management of investment of customers. This is one of the key roles of banks in the development of entrepreneurs as many enterprises/businesses fail to succeed because of faulty investment decisions, mismanagement of funds, inefficient capital and poor planning.

Banks will always remain crucial to the growth and advancement, plus their operations offer a rock-hard backing which is capable of entrepreneurs in profitable and viable ventures. Commercial and specialized banks contribute significantly and positively in advising and providing loans for the development of entrepreneur in India. They are essential for the survival and growth of entrepreneurship in the country.

(Ajay Sharma is President, Abhinav Outsourcings Pvt. Ltd. He can be reached at ajay@abhinav.com)