The non-bank financial institutions also known as other financial institutions are those institutions apart from banks that help to perform the role of financial intermediation. They collect funds from the surplus unit under various tithes, and go ahead to make funds available to the investors who have need for such funds. These institutions are as follows:
- Insurance Companies
- Finance Houses
- Primary Mortgage Institutions (PMI)
- National Economic Reconstruction fund (NERFUND)
- Discount Houses
- Nigerian Social Insurance Trust Fund.
These various institutions play a similar role of bridging the gap between net savers and net borrowers. This role is called financial intermediation.
These various institutions contribute to the economy at Large by channeling money from net savers who have idle funds to investors or borrowers who have need for these funds.
Any person or institution that plays the role of financial intermediation is called a financial intermediary.
The Important of the Non-Bank Financial Intermediaries
The role of financial intermediation is so crucial in every economy. It affects the rate of investment, the Gross National Product, the level of employment level of income and also further savings. As a result of the crucial position of financial intermediaries the monetary policies of the government are usually implemented by them. An understanding of the role of the various institutions is therefore important for a better understanding of how monetary policy works in Nigeria.
The financial intermediaries provides an avenue for net savers to keep their idle funds with them, they ever pay some interests to those savers to encourage them to save more. The savers trust the financial intermediaries and as such keep their money with them who promises to pay the savers back when they need the money these intermediaries having collected the idle funds have performed a function called Savings Mobilization, and the intermediaries go ahead to lend the money out to the net borrowers who need the money for investment.
Differences between Non-Banks Financial Intermediaries and Banks
Banking and non-breaking financial institutions act as financial intermediaries between surplus and deficit units within an economy. They both perform the same role in the economy i.e. providing financial services.