Page 44 - Office Practice and Accounting 10

4 Financial Institutions

Meaning and Definition

Financial institutions are those institutions which mediate between the savers in the
communities and the users of these saving. Financial institutions deal with money and
monetary instruments. They collect scattered savings of public by offering different
deposit accounts and interest thereon. All banks, finance companies, co-operatives,
mutual funds ,micro finance are financial institutes.

A.T.K. Ukrant, “Financial institutions are investment intermediaries linking
the savers and users of capital.”

Nepal Rastra Bank Act 2012 defines financial institutions as, “Any institution
incorporated under the prevailing law that operates with the motive of
providing loan for agriculture, cooperative, industries and for any other
specific economic purpose by collecting deposits from public.”

Types of Financial Institutions:

Financial institutions can be classified as follows :

i. Bank ii. Finance Company
iii. Financial Co-operative iv. Insurance Company
v. Employees Provident Fund vi. Citizens Investment Trust

Bank

A bank is just like a shop. The important distinction between bank and an ordinary
shop is that shop deals with commodities whereas bank deals with money. A bank
borrows with one hand in order to lend with the other. It is an institution which
purchases and sells money, and transacts other financial business of like nature. A
bank simply comes out of the work of exchanging money, providing loan, accepting
deposit and transferring money.

38 Office Practice and Accounting 10