Functions of the financial sector:

Scope and Coverage of Financial Services

The financial system provides five key services:
a) savings facilities,

b) credit allocation and monitoring of borrowers,

c) payments,

d) risk mitigation, and

e) liquidity services.

Savings mobilization can be assessed by examining the effectiveness with which the financial system provides saving facilities and mobilizes financial resources from households and firms. The extent of financial savings could be ascertained by examining the level and trends in the "ratio of broad money to GDP". As mentioned earlier, this indicator may overstate the true picture if  currency constitutes a high proportion of broad money. Other more specific indicators of access to savings facilities include the "ratio of bank deposits to GDP" and "the proportion of the population with bank accounts". Information on the outreach of the  financial system can help interpret developments in financial savings. Hence, indicators such as "the total number of bank branches", "the population per bank branch", and "the distribution of branches" and other outlets (e.g., rural or urban) could  provide valuable information on the access of the population to saving facilities. Further, it is important to assess the range of saving vehicles that are available because, in many countries, traditional bank deposits are the most common form of financial  savings.

Saving through non-bank forms of financial intermediation are, therefore, crucial to financial diversity, and development indicators for non-bank intermediaries such as insurance, pensions, and capital markets could be useful in gauging the degree to which the population uses non-bank forms of financial savings. Hence, household and corporate holdings of non-bank financial assets (e.g.,  bonds) could provide extra information on the degree of access to financial savings. The ratio of private sector bank credit to GDP is a common measure of the provision of credit to the economy, as well as of banking depth. Often, this indicator is supplemented by information on the ratio of loans to total bank deposits. Where available, the volume of finance raised through the issuance of bonds and money market instruments should supplement information on bank credit. Analyzing trends in those indicators should reveal the overall degree to which the banking sector provides credit to firms and households. It is also useful to assess the  sectoral distribution of private sector credit to gauge the alignment of bank credit with the distribution of domestic output.

Therefore, the relative proportion of total credit going to agriculture, manufacturing, and services would be relevant information in evaluating the adequacy of the level of credit provided to the economy.

A key function of financial systems in market economies is to offer fast and secure means of transferring funds and making  payments for goods and services. The state of development of the payment system is of special importance here, especially the focus on the various instruments for making payments, including cash, checks, payment orders, electronic (or wire) transfers, and  debit and credit cards. The proportion of payments (volume and value) made with different payment instruments can reveal the developmental status of the payment system, with cash-based economies at the lower end of the spectrum. Some indicators such as the number of days for clearing checks, the number and distribution of clearing centres, and the volume and value of checks cleared could provide general information on the effectiveness of existing money transfer mechanisms. In addition, it is relevant to examine the various risks associated with the payments system, through indicators such as access to settlement credit, size of settlement balances, and so forth, thereby complementing the qualitative information from assessments of 'Core Principles for  Systemically Important Payment Systems'.