A financial intermediary is an organization that works as a middleman between two parties to facilitate financial transactions. commercial banks, investment banks, stock brokers, stock exchanges, etc are some examples of financial intermediaries.
Financial intermediaries accumulate funds from the savers and redistribute these funds to investors and entrepreneurs and by doing this they work as a medium to facilitate financial transactions. These intermediaries are an essential part of a financial market and economy. Their smooth function is good for the economy of a country.
What are the functions of financial intermediaries?(financial intermediary)
The study of financial intermediaries suggests that it has three major functions and these are:
Providing loans:
Financial intermediaries are also known as creditors in the financial system. They provide credits to qualified clients and accumulate money from them to disburse these funds as a debit to loan people for home loans, education loans, auto loans, credit cards, small businesses, and personal needs.
Asset storage:
The funds accumulated from the public are safely stored by the banks and depositors are issued checks, deposit cards, and deposit slips. The banks also keep records of withdrawals, deposits, and direct payments.
Investment:
Some financial intermediaries such as investment banks offer their customers investment opportunities such as mutual funds. The banks leverage their knowledge of the financial market and help investors to invest in several business entities and by doing that they mutually make profits.
Advantages of financial intermediary
By the means of a financial intermediary, savers accumulate their funds and can invest in businesses of their own choice and make a profit from their investments and also benefit the entity in which they have invested their money. On the other hand, financial intermediaries also invest the accumulated funds from savers in various businesses and make a profit. Loans provided by banks to various entities and the public help the economy in many ways. Home loans, education loans, vehicle loans, and medical loans are provided by these institutions to help the general public to develop and prosper. Financial intermediaries make sure there is liquidity in the financial markets.
Recent trends in financial intermediaries
Financial intermediaries have become a major source of finance in developing countries. They have come up with a variety of schemes for homes, education, agriculture, skill development, and poverty alleviation programs. Financial intermediaries are helping governments in various developmental programs for the benefit of the general public.
Conclusion of financial intermediary
Financial intermediaries have a major role in economies worldwide. The financial intermediaries have a responsibility and are answerable to the borrowers as well as lenders. The very term delegate recommends that these substances are vital to the working of the monetary arrangement of an economy. These entities make sure that funds reach the needy and also do not jeopardize the interests of investors. In modern times, the complexity of the financial system has increased, keeping this in mind, the financial intermediaries come up with innovative and new ideas. They offer new products and services to facilitate the borrowers as well as lenders.