Non-Banking Financial Institutions (NBFI) Quiz

Non-Banking Financial Institutions (NBFIs)

• NBFIs are financial institutions that do not have a full banking license and are not supervised by a national or international banking regulatory agency.
• They facilitate bank-related financial services such as investment, risk pooling, contractual savings, and market brokering.

Examples of NBFIs

• Hedge funds
• Insurance firms
• Pawn shops
• Cashier's check issuers
• Check cashing locations
• Payday lending
• Currency exchanges
• Microloan organizations

Role of NBFIs in the Economy

• NBFIs provide multiple alternatives to transform an economy's savings into capital investment.
• They act as backup facilities should the primary form of intermediation fail.

Origin of the Term "Non-Bank"

• The term "non-bank" likely originated from "non-deposit taking banking institution".
• Language differences and adoption of western banking systems may have led to the term "non-bank" being used differently in English and non-English speaking countries.

Operations of NBFIs

• NBFIs are not covered under a country's banking regulations.
• They supplement banks by providing infrastructure to allocate surplus resources to individuals and companies with deficits.
• NBFIs introduce competition in the provision of financial services.

Services Offered by NBFIs

• Loans and credit facilities
• Private education funding
• Retirement planning
• Trading in money markets
• Underwriting stocks and shares
• Wealth management
• Managing portfolios of stocks and shares
• Discounting services
• Advice on merger and acquisition activities

Funding of NBFIs

• NBFIs are not allowed to take deposits from the general public.
• They find other means of funding their operations, such as issuing debt instruments.
• They only take fixed deposit or time deposits, not current or saving accounts.