Functions of Merchant Banking, Definition & Meaning

Learn of the financial and management functions of merchant banking with definition and meaning that customers benefit from today.

The Merchant Banks Definition

These banks are of great benefit to persons in many countries and communities. The merchant banker operation can best be described by the many functions it provides to the business community, as follows:

Specialized Merchant Banking Functions

There are two main functions, as follows:

1. Financial Functions of Merchant Banking

  1. Merchant banks are financial institutions like investment banks that raise finance for their clients. When a customer is in need of raising finance then these banks lend a helping hand.
  2. If a client is looking to invest in stocks then the banks act as a broker of the stock exchange market. They serve as investment banks and buy and sell stocks on behalf of the client and conduct research on equity shares.
  3. Leasing is also a part of merchant bankers’ functions.
  4. They also manage dividends and interest on loans and debentures and assist with investment decisions.
  5. Portfolio management services are also an important function of the merchant banker. They make the investments of the clients safe, profitable and liquid by managing their portfolio.

2. Management Functions of Merchant Banks

  1. The merchant bank also functions as a project manager by offering project management service to its individual and institutional customers.
  2. If a business is looking to become modernized or expand then the bank offers modernization and expansion advice to the clients. The corporate banker can help with promotional activities for raising funds through institutional investors, government securities or by other means.
  3. They also manage the public issue of companies, give advice on the timing, size and price of the public issues, and help to appoint brokers and underwriters. They provide services as investment banks in raising venture capital funds on the money market. You can also contract the merchant bankers for issue management and for advisory services.
  4. If a business has taken up industrial projects then these banks handles the work for government consent. The merchant bank also complements the services of retail and commercial banking. They provide project counselling and other services.
  5. One of the most important functions of merchant banks is offering special assistance to entrepreneurs and small companies. They help them to take advantage of government policies, concessions and incentives. They help with obtaining government approval where necessary.

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