Three Major Types Of Financial Intermediaries

As the financial institutions play such an important role in the economy that they are also called financial intermediaries.

As the financial institutions play such an important role in the economy that they are also called financial intermediaries. Banks are the financial intermediaries that accept deposits and make loans. These are the Commercial Banks, Savings and Loan Associations, Mutual Savings banks and credit unions. Insurance Companies, Finance Companies, Pension funds, mutual funds and investment banks are also formed from the growth of banks.

Type of Intermediaries:

There are three main types of Financial Institutions with their subtypes as shown below:

• Depository Institutions (Banks): ------) Commercial Banks ------) Savings

These include commercial banks and thrift Institutions as explained below:

Commercial Banks: These banks raise funds by accepting deposits on which cheques can be written, savings deposits and fixed time deposits. These banks use these funds in commercial, consumer and mortgage loans and to buy Pakistan Govt. Securities and Municipal Bonds. There are a number of Commercial banks in Pakistan and these are the largest financial intermediary and have the most diversified collections of assets.

Askari Bank, Habib Metropolitan Bank, MCB, Standard Chartered Bank, Bank AlFalah, UBL, Bank AlHabib Limited, NBP, HBL, Citi Bank, Allied Bank Limited.etc. are some of the examples of Commercial Banks.

Savings and Loan Associations and Mutual Savings Banks: These institutions get funds through savings deposits which are called shares and fixed and current account deposits. The best example of this Institution is National Savings Bank of Pakistan.

Credit Unions: These institutions are less in numbers which are cooperative lending institutions which are organized around a particular group that is union members, employees of a particular firm.etc. They acquire funds from shares also called deposits and give consumer loans. U Microfinance Bank Ltd, SME Bank Ltd., Tameer Microfinance Bank Ltd., Khushhali Bank Ltd,

For these institutions the liquidity of assets is not important because these mostly invest in long term securities.

Life Insurance Companies: These insure people against financial hazards and sell annuities. They acquire funds from the premiums and they use in buying corporate bonds and mortgages. They also purchase some stocks. In Pakistan there are very few or some Insurance Companies which are Jubilee Life Insurance, EFU Life Insurance, IGI Insurance, Adamjee Life Insurance, State Life Insurance.etc

Fire and Casualty Insurance Companies: These companies insure the public against loss from theft, fire and accidents. These are just like Life Insurance Companies but they have a greater possibility of loss if major disasters occur. They usually buy more current liquid assets than Life Insurance Companies. They purchase mostly Municipal bonds, corporate bonds and stocks and Pakistan Govt. Bonds. IGI Insurance Comp. Limited, ACE Insurance Ltd., Asia Insurance Company Ltd.,