Project 7

Assignment Part of PGDBA
Concept, Principles and Significance of Financial Institutions

and their Role in Economic Development.
SUBMITTED BY
DIPANJAN MUKHERJEE
COURSE: POST GRADUATE DIPLOMA BUSINESS

ADMINISTRATION
SEMESTER/YEAR: 2020-21
ENROLLMENT NUMBER: 200755156336
SUBMITTED TO
SINGHANIA UNIVERSITY
Submitted By Dipanjan Mukherjee
Enrollment Number 200755156336
Concept, Principles and Significance of Financial Institutions and their Role in Economic
Development.
Abstract
Financial institutions are one of the most important components of any country's financial
system. They play a vital role in determining the effectiveness and efficiency of the financial
system, and come in the importance of financial institutions in that they provide the economy
services for richer than them, They represent the vital infrastructure through which money flows
from savings to investors in various economic fields. Interest in medium and small enterprises is
one of the factors of economic growth. Small and medium enterprises sector is an important
sector of the national economy, Through its contribution to economic development, increasing
domestic output ... etc.Small individual projects are of interest to different countries of the
developed and developing world alike, Starting from the vital role of these projects in economic
growth and job creation, And activating local and regional development. The aim of this research
is to shed light on the experience of the Iraqi private banks listed in the Iraqi market for securities
as one of the financial institutions that play a large role in providing the cash needed to develop
and finance small individual projects.
Keywords: Economics, Work Capital, Economic Growth,
Economics is all about making smart choices to cope with scarcity. The most fundamental
measurement used to evaluate the success in allocating the scarce resources is economic growth.
Individuals monitor their income and the changing value of their assets. Businesses track their
profits and their market share.
Nations monitor a variety of statistics to measure economic growth such as national income,
productivity etc. Moving beyond growth and productivity, some economists argue that any
assessment of the nation’s economy must also include measurements of distribution, equity, per-
capita income etc. Further, the country should also focus on other needs of a society, like
environmental justice or cultural preservation to sustain the economic growth process and allows
an overall human development in the economy through creation of more opportunities in the
sectors of education, healthcare, employment and the conservation of the environment.
ECONOMIC GROWTH
The term economic growth is defined as the process whereby the country’s real national and per
capita income increases over a long period of time.
This definition of economic growth consists of the following features of economic growth:

Economic Growth implies a process of increase in National Income and Per-Capita

Income. The increase in Per-Capita income is the better measure of Economic Growth since it
reflects increase in the improvement of living standards of masses.
Economic Growth is measured by increase in real National Income and not just the increase in
money income or the nominal national income. In other words the increase should be in terms of
increase of output of goods and services, and not due to a mere increase in the market prices of
existing goods.
Increase in Real Income should be Over a Long Period: The increase of real national income
and per-capita income should be sustained over a long period of time. The short-run seasonal or
temporary increases in income should not be confused with economic growth.
Increase in income should be based on Increase in Productive Capacity: Increase in Income

can be sustained only when this increase results from some durable increase in productive
capacity of the economy like modernization or use of new technology in production,
strengthening of infrastructure like transport network, improved electricity generation etc.
Economic development is the primary objective of the majority of the world’s nations. This truth
is accepted without controversy, or so it would appear in public discourse at least. Raising the
well-being and socioeconomic capabilities of peoples everywhere is easily the most crucial
social task facing us today. Every year, aid is disbursed, investments are undertaken, policies are
framed, and elaborate plans hatched to achieve this goal, or at least to get closer to it. How do we
identify and track the results of these efforts? What criteria do we use to evaluate the extent of
“development” a country has undergone or how “developed” or “underdeveloped” a country is at
any point in time? How do we measure development?
The issue isn’t easy to resolve. We all have intuitive notions of ”development.” Presumably,
when we speak of a developed society, we have in mind a world in which people are well fed
and well clothed, have access to a variety of goods and services, possess the luxury of leisure and
entertainment, and live in a healthy environment. We think of a society free of violent
discrimination, with tolerable levels of equality, where the sick receive proper medical care and
people do not have to sleep on the sidewalks. In short, most of us would insist that a minimal
requirement for a “developed” nation is that its physical quality of life be high, uniformly so
rather than restricted to an incongruously a✏uent minority. Of course, the notion of a good
society goes further. We might stress political rights and freedoms, intellectual and cultural
development, stability of the family, a low crime rate, social civility and so on. However, a high
and widely accessible level of material well-being is probably a prerequisite for most other kinds
of advancement, quite apart from being a worthy goal in itself. Economists and policy makers
therefore do well (and have enough to do!) by concentrating on this aspect alone.

It is, of course, tempting to suggest that the state of material well-being of a nation is captured
quite accurately by its per capita gross national income (GNI): the per person value of income
earned by the people of a country over a given year. (Or one might invoke its close cousin, gross
domestic product, GDP, which restricts itself to domestically produced income, and ignores net
income received from other countries, such as dividends, interest or repatriated profits.) Indeed,
since economic development at the national level was adopted as a conscious goal, there have
been long phases during which development performance was judged exclusively by the
yardstick of per capita income growth. In the last few decades, this practice increasingly has
come under fire from various quarters.
We must be careful here. No one in their right mind would ever suggest that economic
development be identified, in a definitional sense, with the level or growth of per capita income.
It is perhaps universally accepted that development is not just about income, although income
(economic wealth, more generally) has a great deal to do with it. For instance, we noted
previously that economic advancement should not be restricted to a small minority. This means,
in particular, that development is also the removal of poverty and under nutrition: it is an
increase in life expectancy; it is access to sanitation, clean drinking water, and health services; it
is the reduction of infant mortality; it is increased access to knowledge and schooling, and
literacy in particular. There is an entire multitude of yardsticks. Paul Streeten’s thoughts,
summarized in the quotation at the beginning of this chapter, capture this “multidimensionality”
very well.
Far more intriguing is the sharp focus of Robert Lucas’ words . At first they appear narrow,
perhaps even missing the point, whereas the more holistic scenario sketched in the foregoing
paragraphs seems pretty much the way to go. In thinking this we would be wrong.
Neither Lucas nor any intelligent person believes that per capita income is development. What’s
hidden in these words is actually an approach, not a definition. It is really a belief about the
world, which is that the universal features of economic development—health, life expectancy,
literacy, and so on— follow in some natural way from the growth of per capita income, perhaps
with the passage of time. Implicit here is a belief in the power of aggregate economic forces to
positively affect every other socioeconomic outcome that we want to associate with
“development.” This outlook may be contrasted with the view that a correlation between per
capita income and other desired features is not automatic, and that in many cases those
connections may not be present at all. According to this view, per capita income fails as an
adequate overall measure and must be supplemented by other indicators directly.
Measurement Issues
Low per capita incomes are an important feature of economic underdevelopment — perhaps the
most important feature — and there is little doubt that the distribution of income across the
world’s nations is extraordinarily skewed. Per capita incomes are, of course, expressed in takas,
pesos, escudos, remimbi, and in the many other currencies of the world. To facilitate
comparison, each country’s income (from all sources, but presumably largely in local currency)
is converted into a common currency, typically U.S. dollars, and divided by that country’s
population to arrive at a measure of per capita income. This conversion scheme is called the
exchange rate method, because it uses the rates of exchange between the local and the common
currencies to express incomes in a common unit.
The World Development Indicators(see, e.g., World Bank [2011]) contains such estimates for all
countries. Using the yardstick of gross national income, the world produced approximately $59.2
trillion of it in 2009. A bit under $9.3 trillion of this came from all low-income and lower
middle-income developing countries5 Simply put, close to 70% of the world’s population have
access to under 16% of world income. Norway, with per-capita income close to $85,000 under
this system of measurement, would therefore be over
500 times as rich than the Democratic Republic of Congo, and close to 150 times as rich as
Bangladesh.
Figure 2.1 contrasts per capita gross national income in different countries with the populations
of these countries. The figure speaks for itself.
For one thing, underreporting of income is not uncommon in developing countries. Because tax
collection systems are not as efficient as those prevailing in the industrialized market economies,

there is a greater incentive to underreport income or output for tax purposes. The national
accounts may not be comprehensive as well.6 In addition, the proportion of income that is
actually generated for self- consumption is relatively high in developing countries. As we shall
soon see, the proportion of the population living in the rural sector in developing countries is
large. Many of these individuals are subsistence farmers who grow crops that they themselves
consume. Such outputs may not be reported adequately. Although we can make educated guesses
about the degree of underestimation involved, there is possibly very little that we can do about
accurately correcting for this problem (though see the discussion in Parente, Rogerson and
Wright [2000]).
(2) A more serious discrepancy arises from the fact that prices for many goods in all countries
are not appropriately reflected in exchange rates. This is only natural for goods and services that
are not internationally traded. Exchange rates are just prices, and the levels of these prices
depends only on commodities (including capital) that cross international borders. The prices of
nontraded goods, such as infrastructure and many services, do not a↵ect exchange rates. What is
interesting is that there is a systematic way in which these nontraded prices are related to the
level of development. Because poor countries are poor, you would expect them to have relatively
low prices for nontraded goods: their lower real incomes do not suce to pull these prices up to
international levels. However, this same logic suggests that a conversion of all incomes to U.S.
dollars using exchange rates underestimates the real incomes of poorer countries. This can be
corrected to some extent, and indeed in some data sets it has been. The most widely used of these
is the Heston–Summers data set . Recently, the World Bank started to publish income data in this
revised format.
FACTORS AFFECTING ECONOMIC GROWTH
The process of economic growth is a highly complex phenomenon and is influenced by

numerous and varied factors such as political, social and cultural factors. These factors are as
follows:
A. Economic Factors
 Natural Resources: The principal factor affecting the development of an economy is the
natural resources. The natural resources include the land area and the quality of the soil,
forest wealth, good river system, minerals and oil resources, good climate, etc. For
economic grow th, the existence of natural resources in abundance is essential. A country
deficient in natural resources may not be in a position to develop rapidly. However, the
availability of rich natural resources are necessary condition for economic growth but not
a sufficient one. In less developed countries, natural resources are unutilized,
underutilized or misutilised. This is one of the reasons of their backwardness. On the
other hand countries such as Japan, Singapore etc. are not endowed with abundant natural

resources but they are among the developed nations of the world. These countries have
shown commitment towards preserving the available resources, putting best efforts to
manage the resources, minimizing waste of resources etc.
 Capital Formation: Capital formation is another important factor for development of an
economy. Capital formation is the process by which a community’s savings are
channelized into investments in capital goods such as plant, equipment and machinery
that increases nation’s productive capacity and worker’s efficiency thus ensuring a larger
flow of goods and services in a country. The process of capital formation implies that a
community does not spend whole of its income on goods for current consumption, but
saves a part of it and uses it to produce or acquire capital goods that greatly add to
productive capacity of the nation.
 Technological Progress: Technological progress is a very important factor in
determining the rate of economic growth. Technological progress mainly implies the
research into the use of new and better methods of production or the improvement of the
old methods. Sometimes technical progress results in the availability of natural resources.
But generally technological progress results in increase in productivity. In other words,
technological progress increases the ability to make a more effective and fruitful use of
natural and other resources for increasing production. By the use of improved technology
it is possible to have greater output from the use of given resources or a given output can
be obtained by the use of a smaller quantity of resources. The technological progress
improves an ability to make a fuller use of the natural resources e.g. with the aid of power
- driven farm equipment a marked increase has been brought about in agricultural
production. The USA, UK, France, Japan and other advanced industrial nations have all
acquired the industrial strength from use of advanced technology. In fact economic
development is facilitated with the adoption of new techniques of production.
 Human Resources Development: A good quality of population is very important in
determining the level of economic growth. So the investment in human capital in the
form of educational and medical and such other social schemes is very much desirable.
Human resource development increases the knowledge, the skills and the capabilities of
the people that increase their productivity.
 Population Growth: Labor supply comes from population growth and it provides
expanding market for goods and services. Thus, more labor produces larger output which
a wider market absorbs. In this process, output, income and employment keep on rising
and economic growth improves. But the population growth should be normal. A
galloping rise in population retards economic progress. Population growth is desirable
only in a under-populated country. It is, however, unwarranted in an overpopulated
country like India.
 Social Overheads: Another important determinant of economic growth is the provision
of social overheads like schools, colleges, technical institutions, medical colleges,
hospitals and public health facilities. Such facilities make the working population
healthy, efficient and responsible. Such people can well take their country economically
forward.
Non-Economic Factors
Non-Economic factors that include socio-economic, cultural, psychological and political factors
are also equally significant as are economic factors in economic development. We discuss here
some of the essential non economic factors which determine the economic growth of an
economy.
Political Factors: Political stability and strong administration are essential and helpful in
modern economic growth. The stable, strong and efficient government, honest administration,
transparent policies and their efficient implementation develop confidence of investors and
attracts domestic as well as foreign capital that leads to faster economic development.
Social and Psychological Factors: Social factors include social attitudes, social values and
social institutions which change with the expansion of education and transformation of culture
from one society to the other. The modern ideology, values, and attitudes bring new discoveries
and innovations and consequently to the rise of the new entrepreneurs. The outdated social
customs restricts occupational and geographical mobility and thus pose an obstacle to the
economic development.
Education: It is now fairly recognized that education is the main vehicle of development.
Greater progress has been achieved in those countries, where education is wide spread.
Education plays an important role in human resource development, improves labor efficiency
and removes mental block to new ideas and knowledge thus contributes to economic
development.
Desire for Material Betterment: The desire for material progress is a necessary precondition
for economic development. The societies that focus on self-satisfaction, self-denial, faith in fate
etc. limit risk and enterprise and thus keep the economy backward.
COMMON FEATURES OF UNDERDEVELOPED COUNTRIES
 Low per Capita Income: The level of per capita income is very low in underdeveloped
countries.
 Poor Level of Living: The vast majority of people in underdeveloped nations lie under
the conditions of poverty, malnutrition, disease, illiteracy, etc. Even basic necessities of

life such as minimum food clothing and shelter are not easily accessible to the poor
masses.
 High Rate of Growth of Population: Population growth in underdeveloped countries
neutralizes economic growth. High population implies greater consumption expenditure
and lower investments in productive activities and slows down the economic
development.
 Highly Unequal Income Distribution: The income inequality between the rich and the
poor people within the underdeveloped countries is also very high.
 Prevalence of Mass Poverty: Low level of per capita income combined with high degree
of inequalities in its distribution leads to widespread poverty in underdeveloped
countries.
 Low Levels of Productivity: The Productivity level (i.e. output produced per person)
tends to be very low in an underdeveloped country which is mainly due to : (i) inefficient
workforce which itself is a consequence of poverty, ill health and lack of education (ii)
Low work culture (iii) Low use of capita in the form of machinery and equipment.
 Low Rate of Capital Formation: The saving rate in an underdeveloped country is quite
low and rate of capital formation is also is very slow.
 Technological Backwardness: In most of the sectors, an underdeveloped economy the
techniques of production employed are generally obsolete mainly due to low saving rate.
 High Level of Unemployment: Unemployment levels are very high in the
underdeveloped countries mainly due to lack of capital and low level of development in
various economic sectors, these countries are not able to absorb the rising labor supply.
 Low Social Indicators of Development: The under-developed countries have very low
social indicators such as low literacy rate, high infant mortality rate, low expectancy of
life, etc. as compared to the developed countries.
Development Economics Principles and Issues
Economic development’s main aim is to devise ways of improving the economic, political, and
social well-being of people within each nation. In addition to the increase in the level of output
as advocated by economic growth, economic development aims for both an increase in output
and a betterment of the social and political welfare of people. So, economic development
involves both economic growth and welfare goals. It is the main objectives of this book to
explicate development economics by focusing on both the principles and theories of
development economics and the main issues that are central to the success of development
economic plans. The issues outlined in this book are as follows:
 The economics of social issues

 The dual economy and dual labor markets
 The role of information in development economics.

 The role of political risk in development economics.

 The role of project appraisal
 The need for a mixed economy
Developing countries face insurmountable problems in their attempts to achieve progress in their
economic development programs. Their efforts led to the rise of a new economic subdiscipline-
namely, development economics- to address the various problems and policies affecting
economic development. The problems and policies affecting economic development. The
problems and policies are either domestic- such as growth, poverty and income distribution,
unemployment, population growth, education, agricultural transformation and rural
development- or international- foreign investment and aid, and new international economic
order. These problems and policies are examined in this chapter, in addition to an explication of
economic development and its contemporary problems.
THE MEANING OF UNDERDEVELOPMENT
Two-thirds of the world’s population subsists on only 20 percent of the world’s income. These
people live in a state of underdevelopment, forcefully portrayed as follows: Underdevelopment is
shocking: The squalor, disease, unnecessary deaths, and hopelessness of it all! No man
understands if underdevelopment remains for him a mere statistic reflecting low income, poor
housing, premature mortality and underemployment. The most empathetic observer can speak
objectively about underdevelopment only after undergoing, personally or vicariously, the “shock
of underdevelopment.” This unique culture shock comes to one as he is initiated to the emotions
which prevail in the “culture of poverty.” The reverse shock is felt by those living in destitution
when a new self-understanding reveals to them that their life is neither human nor inevitable. . . .
the prevalent emotion underdevelopment is a sense of personal and societal impotence in the face
of disease and death, of confusion and ignorance as one probes to understand change, of servility
toward men whose decisions govern the course of events, of hopelessness before hunger and
natural catastrophe. Chronic poverty is a cruel kind of hell; and one cannot understand how cruel
that hell is merely by gazing upon poverty as an object.
These much less fortunate people live in what are generally characterized as developing
countries. Various classifications of these countries exist:
1. The UN classifies these countries in three major groups designed as (a) the “least
developed” for the 42 poorest countries, sometimes referred to as the “Fourth World”; (b)
the “developing nations” for the 88 non-oil-exporting countries; and (c) the oil-exporting
nations for the 13 members of the Organization of Petroleum Exporting Countries
(OPEC).
2. The Organization for Economic Cooperation and Development (OECD) classifies these
countries into 62 low-income countries (LICs), 73 middle-income countries (MICs), 11
newly industrialized nations (NICs), and 13 members of OPEC.
3. The World Bank, also known as the International Bank for Reconstruction and
Development (IBRD), classifies these developed and developing countries into six
categories: low income, middle income, upper middle income, high income oil exporters,
industrial market economies, and East European nonmarket economies.
ECONOMIC DEVELOPMENT
The Nature of Development Economics
The study of development economics is a relatively new and separate development in the
disciplines of economics and political economy. It deals with the economic, social, and
institutional tools necessary to bring changes in the levels of living of developing countries.
Basically, development economics addresses the critical questions about the economies of the
developing countries, questions that center on finding the best way- economically, socially, and
institutionally- of bringing these countries to an acceptable and decent level of living and
productivity. It obviously goes beyond simple economics. In fact there is an implicit assumption
in development economics about the limited relevance of traditional theory. Myrdal states the
case as follows: Economic theorists, more than any other social scientists, have long been
disposed to arrive at general propositions and then postulate them as valid for every time, place
and culture.
The developing countries need to go beyond simple economics and adopt strategies that attack
not only economic problems but all other problems of the social systems of their nations. That is
the objective of development economics. It goes beyond the formal modeling of conventional
economics to cover a more exhaustive approach to development. In effect, formal modeling, by
itself, is insufficient to provide a clear picture of poverty. Such a model would not be able to
describe adequately the complexity of poverty and its application would not be easy given the
more difficult task of measuring all the required parameters.
This model needs to differ from those adopted in developed countries. A new paradigm of
economic development, which differs from those adopted for the economic development of the
Western countries, is needed as shown by the following arguments:
1. The capital and cultivable land resources available to the underdeveloped countries are
much more limited than was the case during Western economic development.
2. Without comparable resources labor productivity cannot be improved by means similar to
those which have been successful in the West.
3. International and domestic demand conditions are such that urban industrialization cannot
be expected to grow at a rate which permits the transfer of labor from agriculture into
higher productivity urban industrial occupations: at the same time the limited demand
conditions also slow down or prevent the adoption of modern agrarian technologies and,
hence, prevent the growth of rural income.
4. Urban migration is already in excess of what is economically justified, as shown by the
widespread urban unemployment in almost all underdeveloped countries.
5. Social justice and structural conditions in the economy require an improvement in the
distribution of income and a growth in the incomes of the lower income groups. But these
can be brought about only by increasing employment and work opportunities at higher
returns than the market can yield. Since the primary opportunities for the productive use
of unskilled labor can be found in rural and agricultural-related activities rather than
urban industrial or service employment, the focus of the development effort must be
shifted from urban industrialization toward rural transformation. But there are no
competitive market processes which can bring about the required change; hence the
market must be, in some of its basic functions, replaced by government or community
action. Hence the need for a new paradigm for development.
The Meaning of Development
As stated earlier, development is more than an economic process. It involves the economic,
social, and institutional process necessary to efficiently eliminate the major evils of
underdevelopment: malnutrition, disease, illiteracy, slums, unemployment, and inequality.
Besides the creation of selfsustained growth in per capita gross national product (GNP), it
involves the requisite modernization of economic, social, and political structures implicit in the
achievement of GNP growth. The basic purpose and meaning of development is depauperization,
which has been defined as follows: Depauperization has both economic and noneconomic
dimensions and stresses the removal not only of material but equally importantly of social,
political, and spiritual forms of deprivation. It involves not only equity but more significantly the
creation of conditions conducive to continuing improvements in equity. It may require temporary
sacrifices in national economic growth and involves major social and instructional changes.
Development calls then for both the elimination of deprivation and the restoration of equity in
addition to the achievement of GNP growth. Achieving good growth and efficiently distributing
the growth is the essence of good development. Development goals focus on the improvement in
human life and human happiness. While human life and/or human happiness are universal goals
and values sought by every developing country, these universal values that all societies desire
and that development claims to foster are life-sustenance, selfesteem, and freedom.Life
sustenance includes people’s requirement for food, shelter, healing, or survival. Development’s
main goal is to provide such life-sustaining goods as food, medicine, adequate shelter, and
protection. As Denis Goulet states, “Quite clearly, one of development’s most important goals is
to prolong man’s lives and render those men less ‘stunted’ by disease, extreme exposure to
nature’s elements, and defenselessness against enemies.”Self-esteem is every person’s sense that
he or she has worth, that he or she is respected and is not used as a tool by others for their own
purposes. In some societies this self-esteem is expressed by the need for identity, dignity,
respect, honor, or recognition. The need for self-esteem is a major drive for achieving
development. As Goulet states, ‘Therefore, the conviction is gaining strength throughout the
world that mass poverty cuts societies off from due recognition or esteem. Once deprivation of
esteem reaches an intolerable point, people are quite ready to begin desiring material
‘development.’” Freedom from any form of servitude to nature, ignorance, other people,
institutions, and beliefs is a fundamental goal of and drive for development. With freedom comes
development and a great choice for people in dealing with their environment.
Theories of Economic Development
Three basic schools of thought dominate the economic development literature: an early literature
on the stages-of economic-growth and more recent literature on the structural change models and
the international dependency paradigms.
1. The linear stages of economic growth focuses on the importance to development of both
the acquisition and use of capital and the historical development of the developed
countries. One example is Rostow’s argument that the advanced countries have passed
the stage of “take-off into self-sustaining growth” while these underdeveloped countries
are in a “pre-condition” stage, and in need of massive infusion of domestic and foreign
savings before growth takes place. A second example is the Harrod-Domar growth
model, which simply states that the growth of national income will be directly, or
positively, related to the savings ration, and inversely or “negatively” related to the
economy’s capital/output ratio. Both theories and models did not work effectively for the
developing countries because more savings and investments are not sufficient for
economic growth. Favorable institutional and attitudinal conditions need to be present
before takeoff can take place. Michael Todaro argues the case as follows: The Marshall
plan worked for Europe because the European countries receiving aid possessed the
necessary structural, institutional, and attitudinal conditions (e.g. well-integrated
commodity and money markets, highly developed transport facilities, well-trained and
educated manpower, the motivation to succeed, an efficient government bureaucracy) to
convert new capital effectively into higher levels of output. The Rostow-Harrow-Domar
models implicitly assume the existence of the same attitudes and arrangements in
underdeveloped nations. Yet in many cases they are lacking, as are complementary
factors such as managerial competence, skilled labor, and the ability to plan and
administer a wide assortment of development projects.
2. The neoclassical structural change model relies on neoclassical price and resource
allocation theory and statistical modeling to describe the structural changes in the
developing nations on their way to becoming modern nations. For example, the two-
sector labor theoretical model of W. Arthur Lewis argues for a labor transfer from a
traditional, overpopulated rural subsistence sector to a more productive modern urban
industrial sector, and a growth of output and employment in the industrial sector.Another
example is the patterns of development empirical analysis of Hollis Chenery that
identified a shift from agricultural production to industrial production as per capita
income rises.
3. Two streams of though characterize the international dependency models, namely, the
neoclassical dependence model and the false paradigm model. The neoclassical
dependence model views the world as being dominated by rich countries (the core) at the
expense of poor countries (the periphery). In addition, the policies of the core countries
have an effect on the peripheral countries because of this dependency situation and most
of the time are responsible for the continuing and worsening poverty of their developing
nations. The effects are perceived to be negative most of the time given the developed
countries’ power to control world commodities to their advantages, to dominate the
domestic economies of the developing countries through direct foreign investment, to
affect the developing economies’ trade by exporting unsuitable products, and by dumping
cheap products and locking them into exporting primary products with declining
revenues. These accusations are well contained into the following observation: The very
forces which are set in motion by the rapid growth of rich countries- specially the
development of even more sophisticated, costly and capital-intensive technologies, and of
morality-reducing health improvements and disease controls- specially a population
explosion, rising unemployment and inability to develop their own technological
capacities, which may in fact assume that they will not have the time needed for the
continued maintenance of current growth rates, let alone their acceleration, so as to result
in acceptable levels of development. A general list of the forces of international
dominance and dependence is provided by Todaro. Immanuel Wallerstein argued
forcefully that the coreperiphery schema is fundamental, and that the exploited peripheral
countries are vital to the functioning to the core countries. Nations, of course, move with
development from a peripheral status to either a semicore or core status. The false
paradigm model blames the underdevelopment of some of the developing countries on
the wrong advice given by well-intentioned advisers sent to help the developing world.
These experts resort to sophisticated models, some theoretical and some analytical, which
are most of the time inappropriate to resolve the practical problems of underdevelopment.
Growth, Poverty, and Income Distribution
The first problem is one of growth, poverty, and income distribution. In effect, one main
objective of development is to eliminate poverty and income inequalities. As in some
developed economies, the developing economies face the situation where only a small
portion of the population constituting the rich class controls a very large share of the national
income and resources, influencing the consumption and production patterns toward
expensive consumer goods. These income inequalities are aggravated by high levels of
“absolute poverty,” which is generally measured by the number of people living below a
specified minimum level of income. Absolute poverty in the world is widespread, leading
World Bank economists Ahluwalia, Carter, and Chenery to conclude that almost 40 percent
of the population of the developing countries live in absolute poverty defined in terms of
income levels that are insufficient to provide adequate nutrition. The bulk of the poor are in
the poorer countries: in South Asia, Indonesia and Sub-Saharian Africa. These countries
account for two-thirds of the total (world) population and well over three-fourths of the
population in poverty. The incidence of poverty is 60 percent or more in countries having the
lowest level of real GNP.
Development goal originally focused on maximizing rates of GNP growth and expecting a
“trickle down” of the benefits of economic growth to the very poor. Failure of these policies
led to a redefining of development goals toward broad-based income growth, with special
emphasis on accelerating the growth of income of “target” poverty groups. Four policy
options are generally advocated in determining a developing economy’s distribution of
income: (1) to alter the functional distribution of income through policies designed to change
relative factor prices, (2) to modify the size distribution through progressive redistribution of
asset ownership, (3) to reduce the size distribution at the upper levels through progressive
income and wealth taxes, and (4) to affect distribution at the lower levels through direct
transfer payments and the public provision of goods and services.
Unemployment
The second domestic problem is that of unemployment. Not only is a very large section of
the population unemployed, but unemployment in the developing countries seems to grow
faster than employment, mainly due to the phenomenon of labor underutilization. Edgar
Edwards distinguishes among the following forms of underutilization of labor: open
unemployment; underemployment; the visible active but underutilized as disguised
underemployment, hidden unemployment, and prematurely retired; the impaired; and the
unproductive. All major economic models of employment determination are advocated in the
literature, namely, classical, Keynesian, the output/employment macro model, the price-
incentive micro model, and the two-sector labor transfer model. The classical model relies on
the forces of supply and demand to set the wage rate and the level of employment. The
Keynesian model relies on demand factors such as increases in government expenditures and
encouragement of private investments for reducing unemployment. Both the classical and the
Keynesian models are considered to be far from relevant to the developing countries. The
output/employment macromodel argues that the rate of national output and employment
depend upon the rate of savings and investment, lending credence to the “big push” for
industrialization in some developing countries. The priceincentive model maintains that the
combination of labor and capital will be dictated by the relative factor prices. Cheap labor
would lead to labor-intensive production processes. Finally, the two-sector labor transfer of
rural-urban migration focuses on the determinants of both demand and supply. Two
variations characterize the last model: the Lewis theory of development and the Todaro
model. The Lewis model divides the economy in two sectors; (1) a traditional, rural
subsistence sector characterized by zero- or low-productivity surplus labor; and (2) a growing
urban industrial sector characterized by an influx of labor from the subsistence sector. The
Todaro model hypothesizes that migration is due to urban-rural differences in expected rather
than actual earnings. All these approaches lead to a consensus position on employment
strategy, which would include the following five elements: (1) creating an appropriate rural-
urban economic balance; (2) expanding small-scale, labor-intensive industries; (3)
eliminating factor-price distortions; (4) choosing appropriate labor-intensive technologies of
production; and (5) noting the direct linkage between education and employment.
Another way of reducing unemployment is by creating special trading zones, which are
usually intended to attract foreign investors to produce assembly goods for export. The zones
are made attractive to investors through offering inducements such as reducing taxes or
offering tax holidays, relaxing tariffs and currency-exchange facilities, and allowing
administrative advantages, which may include a watering down of union and labor laws.
Some groups, however, criticize the concept of special trading zones as merely sweatshops
exported by “footloose” multinational companies. For example, the International
Confederation of Free Trade Unions, which is the largest organization of democratic labor
unions, is concerned by the possible exploitation of workers who are often desperate for jobs,
and by the possible isolation of worldwide conventions on labor norms and employee
protection drafted under the auspices of the UN International Labor Organization (ILO) in
Geneva and ratified by most governments.
Population Growth
The third domestic problem is that of ever-expanding human numbers. All positions on the
population debate seem to agree that in the long run “zero population growth” is not only a
necessity but also an important means to a better life in the developing countries. The
population growth in the developing countries is now accentuated by lower death rates due
undoubtedly to the rapid improvement in health conditions. As a result, one may notice that
high birth rates are generally associated with national poverty and low per capita income.
The question is whether population is a real problem; and whatever the position is in this
question, the problem is to find adequate solutions to the population growth. Two extreme
positions may be explored. The first claims that population growth is not a real problem but a
result of other problems such as underdevelopment, depletion of world resources, and
population distribution. The solution advocated is through development programs focusing
on improvements in health, nutrition, income, social justice, status of women, and other such
general factors. The second position claims that population growth is a real problem
requiring deliberate governmental “population policies,” which may include providing
family-planning services, programs and laws affecting information and education, incentives
directed toward fertility behavior, and programs to alter the frequency and age of marital
unions.
Advocates of the first position attribute the decline in fertility in some developing countries
to their experienced economic development, industrialization, and urbanization, while
advocates of the second position point to the intensive population and family-planning
programs in these countries for a better explanation of the declining birth rates. One way of
solving the debate between both positions is to reach a consensus position based on a
population program plus a development position.
Education
The fourth domestic problem pertains to the need for improving the human resources of the
developing countries by providing a sound education system. The general mechanism used is
the formal education system, which takes place in schools, uses the traditional academic
curriculum, and prepares students to join modern economic lifestyles. There are, however,
other types of education most beneficial to the developing countries- namely, informal
education or learning by doing, which “includes agricultural training, programmes, evening
adult literacy classes, radio and mass media campaigns, and vocational training
programmes,” and education for self-reliance or problem-posing education, which “teaches
groups of people to study together and become aware of the political and economic
determinants of their poverty.”Given the inadequacy of formal education, various developing
countries have experimented with informal education and education for self-reliance. The
results are far from conclusive at this time. So the call for education reform beyond the
boundaries of formal education continues to stir interest and debate in the developing
countries. Education is considered to be the best determinant and hope for a better lifestyle in
the developing countries. As stated by Torsten Husen, “the mood ahs swung from the almost
euphonic conception of education as the Great Equalizer to that of education as the Great
Sieve that sorts and certifies people for their (predetermined) slot in society.”Most calls for
an education reform stress the need for a curriculum most beneficial and in accordance with
the real needs of each developing country, and more relevant to the development needs.
INTERNATIONAL PROBLEMS AND POLICIES
There are a number of critical international problems that are also the main target of
development policies in the developing countries. In what follows, these problems are
described and the economic policies used for their ultimate resolution are explored.
International Trade and Development

Developing countries suffer from two main limitations in their trading with developed
countries. First, their exports are heavily composed of nonnumerical primary products, while
their imports include everything from new materials to capital goods, intermediate producer
goods, and consumer products. Second, the commodity terms of trade as measured by the
ratio between the price of a typical unit of exports and the price of a typical unit of imports
are deteriorating. The result shows up in a continuous deficit in the current and capital
accounts of their balance of payments. To solve this problem a variety of options are used:
export promotion or import-substitution policies; encouragement of private foreign
investment, or call for public and private foreign assistance; greater use of the Special
Drawing Rights of the International Monetary Fund (IMF); foreign exchange controls or
currency devaluation; economic integration with other developing countries in the form of
customs unions, free trade areas, or common markets. But above all, the major option is the
choice of a trade strategy for development. Should it be an outward- or inward-looking
policy? An outward-looking policy results from the classical trade theory and comparative
cost-advantage arguments with the implication that free trade will maximize global output by
allowing every country to specialize in what it does best. P. P. Streeten states that point as
follows: “Outward looking policies encourage not only free trade but also the free movement
of capital, workers, enterprises and students, a welcome to the multinational enterprise, and
open system of communications. If it does not imply laissez-faire, it certainly implies laissez-
passer.”
An inward-looking policy results from the belief that the developing countries should be
encouraged to engage in their own style of development and not be constrained by or
dependent upon foreign importation, and to learn by doing. Streeten explains this option as
follows: Inward-looking policies emphasize the need for an indigenous technology,
appropriate for the factors available in the country, and for an appropriate range of products.
If you restrict trade, the movement of people and communications, if you keep out the
multinational enterprise, with its wrong technology, you will evolve your own style of
development and you will be stronger, more independent, master of your own fate.
In short, outward-looking is identifiable with export promotion while inward-looking is

identifiable with import substitution. These two strategies, when added to the strategies of
primary and secondary or manufacturing production, yield a fourfold division: primary
outward-looking policies, secondary outward-looking policies, primary inward-looking
policies, and secondary inward-looking policies. The choice of any one of these options
determines the nature of international trade of each developing country and of its impact on
development.
Foreign Investment and Aid
Many developing countries tend to rely on outside financial aid to alleviate the deficits in
their current account balances. This aid takes place in the form of either private foreign
investment or public development assistance. Both types of aid are examined next. Private
foreign investment is playing a major role in economic development through the activities of
the large multinational corporations, whose roles are claimed to be either positive or
negative, depending upon which side of the controversy one is on. Adolf Enthoven has
successfully summarized the results, both positive and negative, claimed for multinational
corporations by the spokespersons for developing countries as follows:
POSITIVE EFFECTS (Benefits/Advantages): 1. Transfer of capital; 2. transfer of know-

how and management; 3. balance-of-payments benefits; 4. increase in competition and lower
prices; 5. increase in entrepreneurial spirit; 6. help in training and education; 7. increase in
employment; 8. help in infrastructure; 9. improvement of living conditions in developing
countries; 10. Identification, allocation, management and efficient use of world material and
human and financial resources; 11. Greater international unity and interdependency; 12.
ensuring a more equal distribution of income and wealth.
NEGATIVE EFFECTS (Costs/Disadvantages): 1. Hampering of balance of payments;

export of profits and interest beyond investment; 2. technology too advanced for country and
too capital-intensive; 3. limited training and education; 4. input of foreign management to the
neglect of local managers; 5. curbing of local enterprises; 6. enforcement of consumption
functions (luxury items); 7. uneven distribution of income; 8. affecting employment;
restricting transfer of know-how; 9. subordination of companies and countries to the
multinational corporations, threatening the sovereignty of the nation-state; 10. hampering of
the endogenous socioeconomic development of a nation; 11. distribution of social, political,
and cultural pattern in the host country; 12. resentment against foreign penetration, resulting
in upsetting the social balance; 13. recession resulting from inability of national industries to
compete; 14. loss of national pride and nationalistic spirit.
Public development assistance is as much the subject of a heated debate as private foreign
investment. It is viewed by some as essential and beneficial to economic development by
supplementing scarce resources and helping the developing countries to achieve more forms
of self-sustaining economic growth. Others maintain that foreign aid may have retarded
growth through reduced savings and worsened income inequalities. They would even add
that countries have strong strategic, political, and economic motivations behind their foreign
aid programs.
New International Economic Order
Faced with their bleak situation, the developing countries began asking for a “New
International Economic Order” (NIEO). In fact, the UN General Assembly, in a special
session convened in April 1974 following the petroleum crisis, concluded its deliberations by
committing itself to work urgently for the establishment of a new international economic
order based on equity, sovereign equality, common interest and cooperation among all states,
irrespective of their economic and social systems, which shall correct inequalities and redress
in existing injustices, make it possible to eliminate the widening gap between the developed
and the developing countries and ensure steadily accelerating economic and social
development and peace and justice for present and future generations.
THE PROCESS OF DEVELOPMENT
 The process of development entails a process of economic growth expressed in terms

of its components of capital accumulation, growth in population, and technological
progress. It is best expressed by Simon Kuznets: “A country’s economic growth may
be defined as a long-term rise in capacity to supply increasingly diverse economic
goods to its population, this growing capacity based on advanced technology and the
institutional and ideological demands that it demands.”In fact, Kuznets presents six
characteristics of modern economic growth in each developed country based on the
conventional measures.
 High rates of growth of per capita product and of population.
 High rates of rise in productivity of all inputs, including labor.
 High rates of structural transformation of the economy away from agriculture to
nonagricultural pursuits, away from industry to services, and away from personal
enterprise to impersonal enterprise.
 High rates of social and ideological change, including urbanization and secularization
as the components of the process of modernization.
 Higher access of the developing countries to the markets and raw materials in the rest
of the world. The limited spread of economic growth to only a third of the world’s
population.
These characteristics are significantly interrelated. It is expressed by Kuznets as follows:

With the rather stable ratio of labor force to total population, a high rate of increase in per
capita product means a high rate of increase in product per worker; and with average hours of
work declining, it means still higher growth rates in product per man-hour. Even if we allow
for the impressive accumulation of capital, in its widest sense, the growth rate of productivity
is high, and indeed, mirrors the great rise in per capita pure consumption. Since the latter
reflects the realized effects of advancing technology, rapid changes in production structure
are inevitable- given the differential impact of technological innovations on the several
production sectors, the differing income elasticity of domestic demand for various consumer
goods, and the changing comparative advantage in foreign trade. As already indicated,
advancing technology changes the scale of production plants and the character of the
economic enterprise units. Consequently, effective participation in the modern economic
system by the labor force necessitates rapid changes in its location and structure, in the
relations among occupational status groups, and even in the relations between labor force and
total population (the last, however, within narrow overall limits). Thus, not only are high
aggregate growth rates associated with rapid changes in economic structure, but the latter are
also associated with rapid changes in other aspects of society- in family formation, in
urbanization, in man’s views on his role and the measure of his achievement in society. The
interdependence of growth characteristics signals to developing countries the need for a
multidimensional approach to development with a stable, but flexible, political and social
framework that can accommodate the fundamental societal changes generated by
development; a positive attitude toward the role of technological innovations and research for
development; and a just relationship with rich nations that minimizes dependence and
maximizes self-reliance and equity. In addition, the developing countries need to be sensitive
to the emerging economic global issues that may hinder their development. One first issue is
the global interdependence that places the developing countries in a situation of dependence
on the rich countries, especially on four key issues: energy and resource balances, the global
food-population equation, the crisis of the developing countries’ debt, and the demand for a
restructuring of the international economic order. Each of these issues places the destiny of
the developing countries and the success of their development strategies at the doorsteps of
the developing nations. The cooperation of the developing countries becomes a key element
for the success of the development of poor countries.
Significance of Financial Institutions
Financial institutions are one of the most important and dangerous economic institutions that
contribute to stimulating or hindering economic activity, Through their ability to grant credit or
credit scaling, and through the control (central bank) in determining the interest rate and legal
reserve ratio, As well as the contribution of some in the creation of money, and the purchase of
securities, And the employment and use of savings. Small enterprises are one of the components
that play a major role in advancing the economy of many developed countries.
The first topic is research methodology
A: Research problem
Small enterprises face several challenges in Iraq, and one of the most important of these is the
difficulty of obtaining sufficient financial funding to sustain them, Because small entrepreneurs
are often professionals, And craftsmen, that is, they do not have sufficient savings to allow them
to set up their projects, and hence we can identify the problem of research in the following
question:
To what extent can financial institutions contribute to the development and financing of small
individual projects?
B : Objective of the research: The research aims to

The main objective of the research is to identify financial institutions and their role in the
development and financing of small individual projects. Through the main objective, the research
aims to achieve the following objectives:
1- Learn about the role of financial institutions in financing small projects.
2- To identify small projects and their impact on economic development if they have the
necessary means.
C: The importance of research
The importance of research stems from the objective it seeks, and its importance is highlighted
by the importance of small enterprises, As they contribute effectively to economic development
that is of great interest to many countries, And for the purpose of demonstrating the role of small
individual enterprises' contribution to the operation and production, Must be provided with
adequate financial funding by financial institutions represented by Iraqi private banks, As the
financing of the most important problems facing small enterprises, and hence shows the
importance of research to identify the financial institutions and their role in the development and
financing of small individual projects through the granting of loans and the establishment, And
the operation, development, and realization of employment opportunities, through the creation of
a special section for the development and financing of small individual projects, and manages
this section competent people with experience and competence and skill.
The second topic: Theoretical side
1-Financial institutions
Financial institutions are part of the financial system and are the financial markets of this system
and regulate their operations, Control, and control. Financial institutions are similar in many
respects to other business organizations, It uses inputs to produce production units of financial
services provided, As well as a site in which it operates, and an organizational framework that
operates through its members and other elements of production.
A:The concept of financial institutions:
Financial institutions can be defined as businesses that may be private, public, or corporate,
Organized and managed in order to achieve many of the objectives may be maximizing profits of
the most important and may not seek some of these institutions to make a profit. (Omar, 2009:
44).
They are also known as intermediary institutions that mediate between those who increase their
income from spending, And between those who wish to spend more of their income by
transferring money from one user to another. (Mishkin:2016:20).

B: The importance of financial institutions
Financial institutions facilitate payments between economic units against their liabilities, As well
as by obtaining savers' funds against their own liabilities, and then by lending to others, They as
well as their mediation between borrowers and savers are selling rights to themselves to
depositors, And then buy rights on the borrowers from them mainly, and sell these institutions
and buy future rights and this activity in the completion of payments and promises to make
future payments, Which is very important in the modern economy, and that this mediation offers
these economies many benefits, including (Mayer, 2007: 23).
1. The rights of these institutions are of a liquid nature, so it is necessary to clearly

distinguish them from the rights of other borrowers such as bonds, which gives these
rights the ability to switch to cash quickly and without loss.
2. Reduce the cost of transactions for both lenders and borrowers
3. Risk pooling By combining these depositors' amounts, these institutions reduce the risk
of borrowing, including providing protection to their depositors.
C:Advantages of financial institutions
Financial institutions provide many advantages that can be summarized as follows: (Abbas and
Nawal, 2003: 9).
 Risk distribution.
 Creating the stock market issued by economic units and various institutions.
 Reducing the cost of conducting financial transactions.
 Compilation of small savings
D:Types of financial institutions
Financial institutions are divided into several types: (Omar, 2009: 46)
Commercial banks: Commercial banks are considered to be the largest financial intermediaries.
Commercial banks are the banks that accept deposits paid on demand or after specified dates and
then deposit these deposits in their operations.
Savings banks: It helps in mobilizing and mobilizing financial resources and employing them in
investment projects by collecting large amounts of savers' funds and investing them in various
investment fields. The savings banks rely mainly on small savers to obtain their resources.
Insurance companies: Insurance companies are another type of financial intermediaries that
contribute to the provision of financial resources, and development of savings awareness.

Microfinance Institutions: Are institutions that provide financial services to the poor, most of
which are institutions based on microcredit programs, and accept the deposit of micro amounts
from their clients.
Commercial banks
Commercial banks are the most important intermediary financial institutions and their main
function is to accept current deposits, Savings deposits from individuals, institutions, public
administrations, and projects, And invests it for its own profit, by granting loans and other
financial transactions. Some concepts can be included for commercial banks as follows:
Commercial banks are defined as one of the specialized financial institutions dealing in money
and seeking profit, And commercial banks are the place where the offer of funds to meet
demand, Providing an efficient system that mobilizes deposits and savings of individuals and
economic units (Anwar, 2005: 14).
Commercial banks can be defined as intermediary financial institutions dealing with various long
and medium credit instruments, And the short term in both the monetary and financial markets
and their markets, as well as the task of mediation between lenders and borrowers for the
purpose of making a profit. (Imran, 2015: 15).
The researchers know commercial banks as banks that specialize in receiving deposits and
granting loans, As well as offering a range of complementary banking services such as buying
and selling securities, Discounting bills and accepting them, collecting commercial papers,
selling and buying foreign currency, opening documentary credits, issuing letters of guarantee,
etc.
Objectives of Commercial banks
Commercial banks seek to achieve three main objectives, and that the most important of these
objectives are:(Husseini and Aldouri, 2008: 42)
A- Profitability: The management of banks on a continuous basis to achieve the profits of large
banks, since the measure of the efficiency of management of banks depends on the extent of
achieving profits if the management of banks a huge profit, This means that they are efficient
management and vice versa, and for the management to make profits must be the proceeds of the
bank is greater than the costs of the bank.
B- Liquidity means the speed and ease of transferring assets to cash and with minimal losses, as
the goods are more liquid than real estate, And receivables are more liquid than goods. Liquidity
in commercial banks is concerned with the extent to which banks manage to meet their
obligations through the ability to execute customer withdrawal requests, And to meet credit

requests, ie, banks should maintain high liquidity in which they can meet their obligations at any
time they wish.
C-Security: Commercial banks are keen not to reach losses more than the capital property, any
losses of this kind may lead to a withdrawal of funds depositors and thus lead to the bankruptcy
of the bank.
Small projects
Increased interest in the last period of the subject of small projects, so that it became one of the
main subjects taught in institutes and universities, Despite the fact that small projects have long
been a basic component of the national economy, as all large projects were the initial beginnings
of small projects, And that existing small enterprises will become many large enterprises in the
future, as well as that small enterprises as a whole constitute a large economic force.
A-The concept of small enterprise
A small project is defined as a project that creates a high degree of risk or uncertainty. For the
purpose of achieving profitability and growth by identifying opportunities and pooling the
resources necessary for the establishment of the project. (Ibrahim and Ismail, 2006: 21).
The small project was defined as an investment activity in which capital resources were used for
the purpose of creating productive assets that would lead to future benefits (Rassen, 2018: 16).
The researchers know the small project as a project that employs a small number of workers, is
run by owners and serves the local market.
B-Characteristics of small projects
Small enterprises have several characteristics and most important: (Omar, 2009: 28).
 The small project is managed by the owner

 Small enterprise locally in its operations
 The small project is characterized by personal character
 The small project depends heavily on internal financial resources in its establishment and
growth.
C-Reasons for the failure of small businesses

Not the condition that the beginning of each project is paved with success, and it is natural to exit
many small projects of investment in a short period of time, Due to mistakes made by the owners
of the project led to this, but it should be noted that these reasons differ in the case that the
existing project was purchased for the purpose of expansion, or reinvestment again (Afana Abu
Abd, 2004: 21).

There are several factors confirmed by recent studies led to the failure of small projects are as
follows:( Al-Ghurairi, 2015: 30)
 Poor efficiency and experience of the owner of the small project: the use of a work
manager does not have the required knowledge and experience sufficient to manage the
small project, and thus lead to higher costs, and the length of work.
 The objectives of the small project are not clear and include not dealing with the
developments, and not to set a date for delivery of the project.
 Poor awareness of the small project of weak executive support, and weak experience in
the nature of work.
The fourth topic: the practical aspect of research
Introduction to the establishment and objectives of banks Sample Research:
The research community represents the Iraqi private banks listed in the Iraqi market for
securities, amounting to (36) banks. The sample was selected from three Iraqi banks:
1. Middle East Investment Bank
The Middle East Iraqi Bank for Investment was established as a shareholding company with a
nominal capital of 400 million Iraqi Dinars, in accordance with the incorporation certificate No.
SM / 5211 of 7/7/1993 issued by the Companies Registration Department under the Companies
Law No. 36 of 1983And after obtaining the banking license issued by the Central Bank of Iraq
under the book No. A / 4 / 941/4 issued on 28 September 1993 in accordance with the provisions
of Law No. (64) for the year 1976 amending. The bank started its work and opened its main
branch to the public on 8/5/1994.
Here are some financial indicators for Middle East Investment Bank:
Table (1) Financial indicators of Middle East Investment Bank (amounts in thousands of dinars)
Growth rate
Financial indicators 2017 2016
%
Volume of deposits 33579 326517 2%
Revenue 268,840 356,010 24%

Investments 36364 42802 15%
Equity capital 250000 250000 0
Cash Credit 100252 126,346 21%
Loans 301,690 178,705 69%
Source: Based on the annual reports of the Middle East Investment Bank for the years (2016-
2017).
Table (3) shows that the volume of deposits increased by 2016 to( 326,517), while in 2017 it
reached (332,579) with a growth rate of 2% and revenues in 2016 were (266,840) growth rate (-
24%), while in 2016 it reached (42,802)In 2017 it was 36,364 with a growth rate of -15%, while
cash in 2016 was 126,346 and in 2017 it grew by (100,252) with growth rate (-21%). (2016) was
at (178,705), while in 2017 it was (301,690) with growth rate (69%).
Middle East Investment Bank is working to mobilize national savings and employ them in
various investment fields, And contribute to the promotion of economic development in Iraq in
the light of the general policy of the state and contribute to the achievement of the objectives of
development, and economic growth.
The Middle East Bank has been granted a loan of 4 billion Iraqi dinars by the Central Bank in
several installments (2015, 2016 and 2017) in order to achieve economic and social development
through supporting small and medium enterprises. The loan is payable in quarterly installments,
Provided that the interest rate and administrative margins shall not be on the loan amount, And
the interest rate borne by the borrower does not exceed (5.5%). During the year (2016) the
Central Bank granted the bank the second installment of the loan amount of (1) billion Iraqi
dinars, and during the year (2017) the Central Bank granted the bank the third and fourth
installments of the loan amount of (2) billion Iraqi dinars.
Conclusions
Banks have a clear role in the development and financing of small projects, through loans
granted to small individual projects. The procedures of the private Iraqi banks in the case of
granting loans to small projects indicate that there is no specialized lending unit, which leads to
delay. The size of the number of loans does not meet the requirements of the project, especially
in the case of increased work and future expansions.

References
1. Abbas, Nawal Hussain, Financial Institutions, Khartoum, Sudan Printing Press Ltd.,
2003.
2. Afaneh, Jihad Abdullah, Abu Obaid, Kassem Musa, Small Enterprise Management, Dar
Al Yazuri, Jordan, Amman, 2004.
3. Al-Ghurairi, Sami, Project Management and Feasibility Study, First Edition, Zain Legal
and Literary Library, M. K, 2015
4. Brain, Haneen Jalal, The Role of Finance in Microenterprise Development, 2010.
5. Brealy Myers Marcus .Fundamentals of Corporate finance. Mcgraw Hill Irwin
Boston .2007
6. Fredri Mishkin .The Economics of Money Banking Financial Markets. New york sixth
edition Pearson. 2016
7. Husseini, Falah Hassan, Aldouri, Muayad Abdul Rahman, Banking Department, Dar
Wael Publishing, Jordan, Amman, 4th edition, 2008.
8. Ibraheem, Badruddin Abderrahim, Ismail, Fares Arbab, The Impact of Macroeconomic
Policies on Microfinance in Sudan, 2006.
9. Omar, Idris Mohamed, The role of financial institutions in financing small projects in
Sudan, a case study of some banks in the province of Duyem - White Nile State, 2009..
10. Omar, Idris Mohamed, The role of financial institutions in financing small projects in
Sudan, a case study of some banks in the province of Duyem - White Nile State, 2009..
11. Rasan, Abdul Kadhim Urgent, Commercial Banks and their role in financing small
projects, 2018.


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Assignment Part of PGDBA

Concept, Principles and Significance of Financial Institutions

COURSE: POST GRADUATE DIPLOMA BUSINESS

ENROLLMENT NUMBER: 200755156336

Keywords: Economics, Work Capital, Economic Growth,

Submitted By Dipanjan Mukherjee

Economic Growth implies a process of increase in National Income and Per-Capita

Increase in income should be based on Increase in Productive Capacity: Increase in Income

Submitted By Dipanjan Mukherjee

Submitted By Dipanjan Mukherjee

FACTORS AFFECTING ECONOMIC GROWTH

The process of economic growth is a highly complex phenomenon and is influenced by

Submitted By Dipanjan Mukherjee

COMMON FEATURES OF UNDERDEVELOPED COUNTRIES

Submitted By Dipanjan Mukherjee

Development Economics Principles and Issues

 The economics of social issues

Submitted By Dipanjan Mukherjee

 The role of political risk in development economics.

THE MEANING OF UNDERDEVELOPMENT

The Nature of Development Economics

The Meaning of Development

Theories of Economic Development

Growth, Poverty, and Income Distribution

INTERNATIONAL PROBLEMS AND POLICIES

International Trade and Development

Submitted By Dipanjan Mukherjee

In short, outward-looking is identifiable with export promotion while inward-looking is

Foreign Investment and Aid

POSITIVE EFFECTS (Benefits/Advantages): 1. Transfer of capital; 2. transfer of know-

NEGATIVE EFFECTS (Costs/Disadvantages): 1. Hampering of balance of payments;

New International Economic Order

THE PROCESS OF DEVELOPMENT

 The process of development entails a process of economic growth expressed in terms

These characteristics are significantly interrelated. It is expressed by Kuznets as follows:

Significance of Financial Institutions

The first topic is research methodology

B : Objective of the research: The research aims to

Submitted By Dipanjan Mukherjee

1- Learn about the role of financial institutions in financing small projects.

C: The importance of research

The second topic: Theoretical side

A:The concept of financial institutions:

Submitted By Dipanjan Mukherjee

B: The importance of financial institutions

1. The rights of these institutions are of a liquid nature, so it is necessary to clearly

C:Advantages of financial institutions

D:Types of financial institutions

Submitted By Dipanjan Mukherjee

Objectives of Commercial banks

Submitted By Dipanjan Mukherjee

A-The concept of small enterprise

B-Characteristics of small projects

 The small project is managed by the owner

C-Reasons for the failure of small businesses

Submitted By Dipanjan Mukherjee

The fourth topic: the practical aspect of research

Introduction to the establishment and objectives of banks Sample Research: