A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license. It can also be defined as a financial institution that is not supervised by a national or international banking regulatory agency. such institutions facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering.
NBFI can add to the health and stability of a financial system by making it complete, balanced and sophiscated.NBFIs supplement the role of commercial banks in providing financial services in the economy by serving the section of population generally not covered by banks, help improve the operational efficiency through enhanced competition in the market and improve the resilience of the financial system.
NBFI also play a complementary role. They often borrow funds from banks and extend them as loans to their customers. They also increase competition in the financial system. They compete with banks in deposit collection and loan advancements.
NBFI play an important role in strengthening the economy of a country by providing many alternatives to transform an economy 's savings into capital investment. These institutions also introduce competition in the provision of financial service.
Categories of non bank financial institutions.
Depending upon their nature of activities, non- banking finance companies can be categorized into the following categories; a). Asset Finance Company (AFC):
An AFC is a company which is a financial institution that holds the principal in business of
References: Carmichael, Jeffrey, and Michael Pomerleano. The Development and Regulation of Non-bank Financial Institutions. Washington, D.C.: World Bank, 2002. Print Demirguc-Kunt and Maksimovic, (1998) non-Bank Financial Institutions: A Study of Five Sectors .Branson H.W (1989) Macroeconomics Theory and Policy, Third Edition, Harper and Row Tokyo.