What is Merchant Banking ? (Meaning ,Definition ,Objectives & Features of Merchant Banking)

Merchant banking is a combination of banking and consultancy services. It provides consultancy to its clients for financial, marketing, managerial and legal matters. Consultancy means to provide advice, guidance and service. It helps a business person to start a business. It helps to raise (collect) helps finance .It helps to expand and modernize the business .It help in restructuring of a business . It helps to review sick business units. It also helps companies to register, buy and sell share at the stock exchange.

Definition

Merchant banking can be defined as a skill-oriented professional service provided by merchant banks to their clients, concerning their financial needs, for adequate consideration, in the form of fee.

Merchant banks are a specialist in international trade and thus, excel in transacting with large enterprises

OBJECTIVES

Here are some of the objectives of merchant banks:

1. Provide funds to companies — this usually includes loans for startup companies. They decide how much money a company needs to function through proposals created by these companies. They also help their clients raise funds through the stock exchange and other activities. Merchant banks act as a foundation for small scale companies in terms of their finances.
2. Underwriting — this is like insurance where banks sign into documents that agree to provide financial payment to their clients in case of any damage or losses. This is very important for clients to ensure that the bank will help them gain more income. If not, in case they would incur losses, the bank will pay them for the losses.
3. Manage their portfolios — the bank will look into the companies’ assets and will do the computation of their credits and debits to ensure they are not incurring any losses. They also provide other kinds of services to check on the liquidation of assets to track the income made by these companies and study how they can make it better.
4. Offering corporate advisory — they offer advises especially to starting companies and those that would want to expand. This advice involves financial aid to ensure that the company will be successful and will not have any problems along the way.
5. Managing corporate issues — help incorporate securities management, they also serve as an intermediary bank in transferring capitals.

CHARACTERISTICS OF MERCHANT BANKING

• High proportion of decision makers as a percentage of total staff.
• Quick decision process.
• High density of information.
• Intense contact with the environment.
• Loose organizational structure
• Concentration of short and medium term engagements
• Emphasis on fee and commission income.
• Innovative instead of repetitive operations
• Sophisticated services on a national and international level.
• Low rate of profit distribution.
• High liquidity ratio

QUALITIES OF A GOOD MERCHANT BANKERS

• Ability to analyse
• Abundant knowledge
• Ability to built up relationship
• Innovative approach
• Integrity
• Capital Market facilities
• Liaisoning ability
• Cooperation and friendliness
• contacts
• Attitude toward problem Solving

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