Question

What are the roles of Non banking Financial intermediaries compared to the banking systems, and how these both complement to the financial assistance?

Answer 1

A non-banking financial intermediaries are the institutions that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary institution (such as non-banking institutions, insurance company, etc.), and these institutions gives those funds to spenders (borrowers). This may be in the form of loans or mortgages.

This will benefits both the spender/borrower and the saver/lender when non-banking financial intermediaries perform following roles :

1. Being Intermediaries in between, reconciling conflicting preferences of lenders and borrowers become easy.
2. Risk aversion intermediaries help spread out and decrease all kinds of risks.
3. Economies of scale using financial intermediaries reduces the costs of lending and borrowing.
4. Economies of scope intermediaries concentrate on the demands of the lenders and borrowers and are able to enhance their products and services.
5. Reconciliation of lenders and borrowers conflicts prevents financial market failure.

The both Non-banking and Banking Financial Institutes complement to the financial assistance by helping the borrowers to have funds at the low costs. The non-banking intermediaries connects the borrowers and the Banking systems while providing the informations and securities to both the borrowers and the banking institutions. The aim of both Banking and Non-banking Financial Intermediaries are always to increase the funding to the projects. Banking systems provide fund to Non-banking Financial intermediaries so that they could able to finance the ultimate user ie. Borrowers.

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