Finance Meaning: Kinds and Approaches of Finance in English

Finance: Meaning, Definitions, Kinds and Approaches of Finance

Contents

Finance Meaning: Kinds and Approaches of Finance

Meaning and Definitions of Finance

Finance is concerned with acquiring funds and their wise application.

According to P. G. Hastings, “Finance is the art of raising an spending money.”

According to Wheeler, “Business finance is defined. as that business activity which is concerned with the acquisition and conservation of capita funds in meeting the financial needs and overall objectives of business enterprise.”

According to Guthmann and Dougall, “Business finance can t broadly defined as the activity concerned with the planning raising controlling and administering of the funds used in the business.”

It can be concluded that the finance is the foundations of economic activity of mankind. Finance deals with the arrangement of capital to achievement the objectives of the business. Finance is called ‘the science of money’. Finance studies the principles and the methods for establishing control on money from those who have saved it, and of administering it by those into whose control passes.

Kinds of Finance

Above kinds of finance can be discussed as under :

(a) Domestic Finance : Domestic finance can be discussed as under: 1. Business Finance : The arrangement of finance in sole trade an partnership business is not much complicated because business is done on small scale and proprietors are able to provide funds. But financing big i business undertakings. Corporate finance is the business activity concern with planning, raising and administering of funds used in the company for of business.

According to Encyclopaedia of Social Science, “Corporation finance deals with the financial problems of corporate enterprises. These problem include the financial aspects of the promotion of new enterprises and the administration during early development, the accounting problems connected with the distinction between capital and income, the administrative questions related by growth and expansion, and finally, the financial adjustments equired for the bolstering up or Rehabilitation of a corporation which has come into financial difficulties,”

The corporation finance studies the financial activities carried on by a company from the time of its very inception to its growth and expansion and it xamines the financial needs in the promotion.

Following are the types of business finance –

(i) Fixed Finance: It is required to purchase plant and machinery, building, land, furniture and fitting etc. It is also needed for the replacement fabsolute plants and machinery and also for modernisation, R & D etc.

Following are the sources of fixed finance –

Issue of shares
Issue of debentures
Sale of securities
Sale of fixed assets
Long term debts
Retaining earnings etc.

(ii) Current Finance: Current finance is also known as working finance. It is required to operate routine functions e.g. to acquire raw material, current assets etc. and also for salaries and wages etc. Following are the sources of current finance –

Trade credit
Customers credit
Deposits from public
Loan from commercial banks
Loan from Indigenous banks
Loan from financial institutions.
Provision for taxes
Accrued expenses
Business credit papers
Government assistance.
Deposits from public.

2. Institutional Finance: Institutional finance or industrial, agricultural and developmental finance is provided by the financial institutions to develop productivity. This finance is provided at very liberal forms and conditions.

Following institutions provide industrial finance :

(a) Investment Institutions: These are as under:

(i) Unit Trust of India (UTI),

(ii) General Insurance Corporation of India (GIC),

(iii) Life Insurance Corporation of India (LIC).

(b) Development Banks at All India Level: These are as under:

(i) Industrial Finance Corporation of India (IFCI)

(ii) Industrial Development Bank of India (IDBI)

(iii) National Industrial Development Corporation (NIDC)

(iv) Industrial Credit and Investment Corporation of India (ICICI),

(v) Industrial Reconstruction Corporation of India (IRCI)

(vi) State Industrial Development Bank of India (SIDBI)

(vii) Industrial Investment Bank of India (IIBI)

(c) State Level Financial Institutions: These are as under:

(i) State Financial Corporations (SFCs)

(ii) State Industrial Development Corporations (SIDCs).

(d) Specialised Financial Institutions: following are the specialised financial institutions:

(i) Risk Capital and Technology Corporation (RCIC)

(ii) EXIM Bank

(iii) Infrastructural Leasing and Financial Services Ltd. (ILFS).

(iv) Tourism Financial Corporation of India (TFCI) etc.

Agricultural finance is needed for agricultural activities. Following are the institutional sciences of agricultural finance :

(a) At Village Level: These are as under :

(i) Primary Credit Co-operative Societies,

(ii) Regional Rural Banks ( RRBs),

(iii) Commercial Banks etc.

(b) At District Level: These are as as under:

(i) District Co-operative Bank (DCB)

(ii) Primary Land Development Bank (PLDB)

(iii) Regional Rural Bank.

(c) At State Level:

(i) State Co-operative Bank

(ii) Commercial Banks

(iii) Land Development Bank (LDB).

(d) At National Level:

(i)National Bank for Agriculture and Rural Development (NABARD)

In the development finance both industrial as well as agricultura finance are included.

3. Long-term, Mid-term and Short-term Finance: Following are the terms of various types of finance –

(i) Long term finance – Over 5 years

(ii) Mid term finance – 1 year to 5 years

(iii) Short term finance – upto one year

4. Public Finance: Public finance is the study of theory an behaviour of raising funds, expenditure and activities concerned wit. arranging loan at all levels of public authorities Central, State and Regional etc.

(b) International Finance : International finance is also important for the development of the country. It comprises grant- in-aid, foreign loan foreign private investments etc. Foreign finance is called as imported finance.

Following are the sources of international finance :

1. Private International Finance: It can be in the following forms:

(i) Foreign direct investment (FDI), (ii) Portfolio investment.

2. Government International Finance: It is acquired from the foreign governments. It can be in the following forms:

(i) Loan and grants (ii) Technological assistance etc.

3. Finance from International Institutes: Following international institution provide financial and technological assistance:

(i) World Bank of International Bank for Reconstruction and Development

(ii) UNO Fund

(iii) International Development Association (IDA)

(iv) International Finance Corporation (IFC)

(v) International Monetary Fund (IMF) (vi) Asian Development Bank (ADB) etc.

Managerial Approaches of Finance

In a modern money using economy finance function contains provision the money at the time it is wanted. In the modern business world following re the aspects of finance in managerial point of view:

Receipts of Funds Under this head task of providing funds needed by business enterprise on most favourable term is decided. This approach is lated with the procurement of funds. It is the approach of cost of the fund.

2. Expenditure of Funds: This approach is concerned with the following activities:

(a) Purchasing activities

(b) Production activities

(d) Financial research

(e) Other finance associated activities.

3. Effective Utilisation of Funds: This approach is widened approach as it involves procurement and effective utilisation of finance. This approach is modern approach. It influences optimum application of finance. his approach is problem centered approach.

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