Roles of financial intermediaries

A financial intermediary helps to facilitate the different needs of lenders and borrowers. But, this would be very time consuming and you would find it difficult to know how reliable the lender was. Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a bank a financial intermediary to borrow money.

Roles of financial intermediaries

Arranging Foreign Collaboration Services viii. Mergers and Acquisitions ix. The required infra-structure, in the form of required asset or finance is provided for rent or interest respectively.

Role of Financial Intermediaries in Economic Development

Such companies earn their incomes from the interest spread, namely the difference between interest paid and interest earned.

The financial institutions may be regulated by various regulatory authorities, or may be required to disclose the qualifications of the person to potential clients.

In addition, regulatory authorities may impose specific standards of conduct requirements on financial intermediaries when providing services to investors.

Role of Financial Intermediaries for Poverty Reduction Finding innovative ways to provide financial services to the poor so that they can improve their productive capacity and quality of life is the role of the financial intermediaries in the 21st century.

Most of the poor live in the rural areas, and are engaged in agricultural activities or a variety of micro-enterprises. The poor are vulnerable to income fluctuations and hence are exposed to risk.

They are unable to access conventional credit and insurance markets to offset this. Most formal financial institutions do not serve the poor because of perceived high risks, high costs involved in small transactions, perceived low profitability, and most importantly, inability to provide the physical collateral generally required by such institutions.

About 95 percent of poor households still have little access to institutional financial services. Most poor and low-income households continue to rely on meager self-finance or informal sources of finance. Providing efficient micro-finance to the poor is important for many reasons: Efficient provision of savings, credit and insurance facilities can enable the poor to smoothen their consumption, manage risks better, gradually build assets, develop micro-enterprises, enhance income earning capacity, and generally enjoy an improved quality of life.

Efficient micro-finance services can also contribute to improvement of resource allocation, development of financial markets and system, and ultimately economic growth and development. With improved access to institutional micro-finance, the poor can actively participate in and benefit from development opportunities.

Explain the role of financial intermediaries

The latent capacity of the poor for entrepreneurship would be encouraged with the availability of small-scale loans and would introduce them to the small-enterprise sector. This could allow them to be more self-reliant, create employment opportunities, and, not least, engage women in economically productive activities.


Micro-finance activities prove that poor households can and do save rather than borrow, and it is possible to successfully mobilize funds from poor households. Another important fact is that contrary to expectations, the poor are creditworthy and financial services can be provided to the poor on a profitable basis at low transaction costs without having to rely on physical collateral.

Finally, micro-finance services contribute to the development of rural financial markets and to strengthening the social and human capital of the poor. There are many problems that should be resolved for the further development of micro-finance in Poverty Reduction: Policy environments in many developing countries are not favorable for the sustainable growth of micro-finance.

In particular, interest rate ceilings and subsidized credit limit the ability of micro-finance institutions to provide services to the poor. Inappropriate and extensive intervention by governments in micro-finance undermines its efficient operation.

Inadequate financial infrastructure is another major problem in the region.

Roles of financial intermediaries

Financial infrastructure includes legal, information, and regulatory and supervision systems.A non-bank financial intermediary does not accept deposits from the general public.

The intermediary may provide factoring, leasing, insurance plans or other financial . A financial intermediary is an entity that acts as the middleman between two parties in a financial transaction, such as a commercial bank, investment banks, mutual funds and pension funds.

Definition of financial intermediaries A financial intermediary is a financial institution such as bank, building society, insurance company, investment bank or pension fund. A financial intermediary offers a service to help an individual/ firm to save or borrow money.

The Role of Financial Intermediaries, Major Types of Financial Intermediaries: Life insurance companies, Pension funds, Mutual funds, The Role of Financial Intermediaries Imagine that you are the president of Blue Skies Airlines, Inc.

and you have decided that Blue S. A financial intermediary is a firm or an institution that acts an intermediary between a provider of service and the consumer. It is the institution or individual that is in between two or more parties in a financial context.

In theoretical terms, a financial intermediary channels savings into. Financial institutions, such as corporations, organizations, and networks operate the marketplace, and they play a crucial role in improving the efficiency of the economy What are financial intermediaries?

The Role of Financial Intermediaries