“If you don’t know where you’re going, you’ll end up somewhere else”- Yogi Berra
Financial institutions that do not have a pure banking license are generally called as non-banking institutions. These institutions play a significant role in satisfying diverse financial needs of different sectors in the economy by facilitating bank related financial services such as micro credit, insurance, investment, risk pooling, contractual savings and market brokering. It creates a supplementary and competing role in financial sector.
It contributes not only to the economic development of the country but also to establish a firm financial system. Recently most of the Sri Lankan banking and financial sector engage in non-banking transactions such as lease financing. Thus, in Sri Lankan context non-banking financial sector has experienced a rapid growth.
Planning in non-banking institutions is the process of establishing goals and objectives and the courses of action to attain them. Planning does not guarantee organizational success of the firm because they may fall due to faulty performance of function of organizing, motivating and controlling. Thus, budgeting is required for planning and control purposes.
Budgets are quantified financial guides for a future period of time and considered as a major management control tool widely used by the organizations. It requires management to specify future expected revenues, expenditures, cash inflows and cash outflows. It is a standard which allow organizations to measure actual performance and to compare against standards.
A budget assists organizations to control its costs and to achieve financial goals to survive in the industry as it directs activities and effort of employees towards common objectives. Non-banking institutions required to maintain its financial stability, adapt the environmental changes while taking risks as mentioned earlier. There is a need for non-banking institutions to develop and implement a well-conceived strategic plan in order to be competitive in the business environment. A management control mechanism of budgeting could be used to verify that the company is on the path for reaching the strategic developments as it is set as the year one of the strategic plan.
This is a study elaborates the role of budgeting system with special reference to a selected non-banking financial institution. And the study is based on interview conducted with the finance manager of the company and previous research papers.