Financial Intermediaries Essay Sample

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A financial intermediary is an institution, firm or individual who performs intermediation between two or more parties in a financial context. Typically the first party is a provider of a product or service and the second party is a consumer or customer. Financial Intermediaries are financial institutions that accept money from savers and use those funds to make loans and other financial investment in their own name. These intermediaries come between ultimate borrowers and lenders by transforming direct claims into indirect claims. Financial intermediaries purchase direct securities and in turn, issue their own indirect securities to the public.

Financial Intermediation:
Financial intermediation is a process of savers depositing funds with financial intermediaries and letting the intermediaries do the lending to the ultimate investors. The financial intermediary sector of Pakistan is composed of the money market and capital markets, with primary and secondary dealers. Key FIs are comprised of State Bank of Pakistan (SBP), commercial banks, non-bank financial institutions (NBFIs) and insurance companies. Financial Intermediaries are providing credit to Pakistani industry, agriculture, housing and other sectors.

Types of Financial Intermediaries:

Financial intermediaries include:
* Deposit Institutions
* Building societies
* Credit unions
* Financial advisors or brokers
* Insurance companies
* Collective investment schemes
* Pension funds

Deposit Institutions:
These institutions include:
A banker or bank is a financial institution that acts as a payment agents for customers, and borrows and lends money. Banks acts as a payment agents by conducting agents checking or current accounts for customers, paying cheques drawn by customers on the bank and collecting cheques deposited to customers current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer and ATM.

Commercial banking refers to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses as opposed to normal individual members of the public (retail banking). Commercial banks in Pakistan includes:

* National bank of Pakistan
* First Women bank Ltd
* Bank Al Falah
* Habib bank Ltd etc

These banks includes following activities:
* Processing of payments by way of telegraphic transfer, internet banking or other means
* Issuing bank drafts and bank cheques
* Accepting money on term deposit
* Lending money by way of overdraft, installment loan or otherwise
* Providing documentary and stand by letter of credit, guarantees, performance bonds, securities , underwriting commitments and other forms of off balance sheet exposures
* safekeeping of documents and other items in safe deposit boxes
* currency exchange

* sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a “financial supermarket”

Other deposit intuitions include:

* Mutual saving banks
* Saving and loan associations
* Credit unions

A mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, Bonds and other securities.

A savings and loan association is a financial institution that specializes in accepting savings deposits and making mortgage loans. Some of the most important characteristics of a savings and loan association are:

* It is generally a locally owned and privately managed home financing institution. * It receives individuals savings and uses these funds to make long term amortized loans to home purchasers. * It makes loans for the construction, purchase, repair, or refinancing of houses . * It is state or federally chartered.

A credit union is a cooperative financial institution that is privately owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit unions and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union.

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