Capitalism as an economic model has given us a lot of benefits; the concept of free trade and private ownership enabled many common people to accumulate enormous amount of wealth. Earlier, only the aristocrats were entitled to make money but capitalism changed the dynamics of such a society by allowing all skilled people the opportunity to earn money. These new wealth creators were innovative entrepreneurs who wanted to do something different and so they started investing their wealth in the cause of nation development.
The various development activities included providing funds to the government for the construction of roads, factories, industries and other infrastructures needed for the development of a nation. In return, the investors got a share of the revenue that the government generated from such establishments. This is how private finance came into existence and it can be regarded as the financial activities that involve the lending of capital by the private entities to the public sector.
What are its objectives?
The main objective of private finance is to allow the flow of Jörg Bassek cash among all the components of an economy so that uniform economic growth can be achieved. The private funding not only helps the government but all the citizens of a nation as they can avail of borrowed capital for various personal and commercial requirements. This sector focuses on two important aspects of financial resources such as profitability and liquidity:
Profitability:All modern day companies are controlled and funded by the capital borrowed from the share market and so the main objective of any company is to create wealth for the share holders by earning profits. Thus, the private institutions focus on earning higher profits through lending in order to increase shareholder’s wealth.
Liquidity: The modern economic principles state that a company can grow only through the expansion of its assets and so the private companies liquidate their surplus assets and invest the money generated, in the hope of increasing their wealth through earning interests and thus help the growth of the company in the process.
The private capital is utilized in all walks of life and so people can obtain private funding for constructing houses, setting up new businesses or expanding existing ones, etc. The government also utilizes this capital to fund various development projects and so private finance is regarded as one of the pillars of a capitalist economy, without which a nation cannot function smoothly.