Negative role (Implications) of foreign commercial banks in developing countries
- They accelerate regional income inequalities in economy. This is because most of their banking activities are mainly concentrated in urban areas neglecting the rural areas. This creates regional imbalance.
- They lead to profit repatriation. Foreign commercial banks tend to plough back the profits made to their home countries instead of re-investing them in the countries where they operate. This leads to low capital accumulation in the economy.
- They undermine the provision of banking services to the small scale local investors. This discourages the production of cheap goods and services for the local people.
- They lead to unemployment in the economy. This is because they tend to employ mainly foreigners especially at the level of management and they use capital intensive techniques of service delivery hence technological unemployment.
- They encourage rural -urban migration. This is because most of their business activities are concentrated in urban centers due to poor infrastructure in rural areas. Tills leads to congestion in urban areas and minimal contact with the local population,
- They lead to divergence between private and society interests. This is because foreign commercial banks aim at maximizing profits at the expense of the society. Some of their policies are not in line with the national development goals of the country like poverty eradication, rural development etc.
- They discourage the development of local financial institutions. This is because foreign commercial banks have huge capital and they have the capacity to operate on a large scale and provide better quality services to their customers at competitive rates. This undermines the growth of the local banking sector.
- They interfere in the politics of developing countries. Foreign commercial banks use their economic power to influence national policies and politics of the countries in which they operate in their favor. This results into loss of independence in local decision making.
- They limit the successful implementation of the monetary policies. This is because the central bank has little control over their activities.
CATEGORIES Economics
