Role of Banking Services in Strengthening Trade and Industry

Did you know banking services and industries constitute one-fifth of the world’s global trade? In the modern world, trade and industry shape everyday lives. Whenever you make any sale or purchase, you are participating in the worldwide economy.Role of banking services in trade

Banks are imperative in facilitating international trade. In collaboration with the global business community, banks create working relationships that develop bonds between buyers and sellers. Organizational heads Basil Mahadeo execute business transactions in both international markets and local trade to facilitate commerce.

Banking systems play a vital role in collecting individuals’ savings and lending them out to business personnel and manufacturing industries. Manufacturing industries borrow money from banks for the purchase of raw materials and meet other working capital requirements.

Bank systems assist and issue letters of credit to facilitate international trade by;

  • Financing working capital needs
  • Financing capital goods
  • Identification of potential markets for trade
  • Facilitating payment for trade transactions
  • Issuing import letters of credit
  • Financing pre and post-shipment
  • Identification of buyers and sellers
  • Guaranteeing payments

Amounts of savings kept in a bank can be stimulated by the interest earned. Industries can utilize high interest to create new capital assets for growth. Industrial banks assist in the formation of new enterprises and companies while acting as a source of long-term loans to manufacturers.

Banking systems provide guarantees and references on behalf of their customers. Thus, trade and the supply of goods on credit can be initiated. Businesses can therefore carry out international trade. In addition, importers and exporters can transact business via trade.

Through banks, foreign exchange transactions can easily be carried out. Banks play a crucial role in foreign trade. They provide the financial structure and instruments required for the conduct of business transactions. Buyers and sellers can conduct safe and transparent transactions.

Banks come in as intermediaries between the import and export parties. Banking systems and personnel ensure the purchase agreement is kept. Payment and control of shipment are confirmed through a letter of credit issued by the bank.

Commercial banks carry out direct financing for the payment of inventories such as raw materials, semi-finished and finished goods. Businesses can manage cash flow more efficiently, whereas suppliers are assured payment upon request from the exporter.

Trade Financing

Widespread use of trade finance promotes international trade growth. Trade financing integrates a third party to transactions to remove the risks associated with payment and supply. Trade finance involves parties such as banks, insurers, importers, and exporters.

Unlike conventional financing, trade financing protects against inherent international trade risks like political instability and currency fluctuations. Examples of products and services offered by financial institutions for effective trade and business include;

Letter of credit: This is a stipulation undertaken by the importer’s bank to the exporter indicating that once the exporter presents the needed shipping documents as by importers purchase agreement, the bank will immediately make the payment to the seller.

Bank Guarantee: The bank acts as a guarantor in case either the importer or exporter fails to fulfill the terms of the contract. The beneficiary receives a sum of money.

Industrial Banks

Banks plan the sale of shares and debentures. Manufacturers get fixed capital with the aid of industrial banks. Industrial banks are financial institutions owned by a commercial firm. Industrial banks accept customer deposits and provide loans to businesses. They integrate a distinct corporate structure.


Enterprises use financial instruments to promote commerce and trade. Industrial banks, through the organizational personnel, provide advice and counsel to business and industrial organizations. Trading intermediaries like banks oversee various financial transactions between buyer and seller. The transactions can either be domestic or international.