Wednesday, December 7, 2016

What is the difference between a Financial Institution and an Intermediary?

Logo of State bank of India a Leading Financial Institution
SBI is a Leading Financial Institution
A financial institution is an organisation that raises and lends money to those who need them and earn interest as their main income. Examples:
  1. State Bank of India - Scheduled Commercial Bank
  2. HDFC - Leading Housing Finance Company
  3. Rural Electrification Corporation - Term Lending Institution that funds state governments for electrification of villages

Financial intermediary on the other hand do not directly lend money but facilitate borrowing. They possess knowledge about the product and relationships with financial institutions. They render valuable services usually to the borrowers for a fee. This fee may be paid either by the borrower or the financial institution.
Many a times the financial institutions themselves create their own financial intermediaries to source business as well as generate fee as their primary incomes. For example 'SBI Caps' is a financial intermediary floated by SBI.
Logo of SBI Capital Markets a leading financial intermediary.
SBI CAP is a leading financial intermediary
In conclusion a financial institution directly deals with money by way of borrowing and lending and earns interest as the main income and a financial intermediary facilitates such borrowings and lending for a fee which constitutes their primary income.


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