Credit is the most significant component required for enabling economic development in the country. The availability of cheap and affordable credit is crucial for promoting the economic development of any country. The basic importance of money and credit in the economy can be summarised as:
- Promotes investment: From the viewpoint of development, another important role of money lies in making the magnitude of investment independent of the current level of savings. The greater the current savings, the greater the investment. The credit that the households, firms and government saves become pat part of the investment and further promoted economic development.
- Credit creation: One of the main functions of the commercial bank is credit creation. It is the banks that create credit for the producers to invest in the economy. The banks make the credit available by accepting the deposit from the people. The investment of the investors makes the economy better off and investment is made available by the bank.
- Promote economic growth: The saving potential and the addition to the existing stock of capital enables economic development. The expansion of credit through the credit creation process of the commercial banks also enables economic growth in the country.
