What is Non-Bank Financial Institution (NBFI)? - Ikajo Glossary


Non-Bank Financial Institution (NBFI)

The non-bank financial institution stands for establishments that have a connection with finances but don’t possess a specific banking license. These organizations enable clients to use different banking services among them loans and credit facilities, risk pooling and financial consulting; nevertheless, they are not permitted to receive deposits from customers. Yet, around 85% of NBFIs’ gross revenue should have a financial nature. Such establishments as hedge funds and insurance firms, currency exchanges along with pawn shops refer to the non-bank organizations. Well, the most popular NBFIs are micro-lenders.

Non-bank FIs assist the banking sphere in proving services that help managing funds to individuals as well as enterprises. Sometimes they can also compete with financial establishments that have a license because they can suggest services that the bank can’t give. In addition, different NFBIs can concentrate on different areas so the client can choose the institution according to his/her specific wants. Of course, NBFIs have shown significant growth during crises. As banks follow the strict banking regulation rules, non-bank FIs are free of them.

These establishments are able to guard economies against financial shocks as well as to overcome them. There are three major kinds of NBFIs: risk pooling organizations such as insurance organizations, pension, and mutual funds refer to institutional investors and other NBFIs that suggest the lease of assets.

Of course, NBFIs are the solution for clients who do not meet banks’ requirements. Besides this, clients can use non-bank FIs for specific services that banks usually don’t offer. Many business people require these types of institutions as business or financial advisors.

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