1.) Depository Financial Institutions:
Depository financial institutions are institutions that accept deposits from individuals and businesses and use those funds to provide loans and other financial services.
Thank you for reading this post, don't forget to subscribe!- These institutions play a direct role in the money creation process and are regulated by central banks.
Key Features:
- Accept savings and checking deposits
- Offer interest on deposits
- Provide loans and credit services
- Are closely regulated by monetary authorities
Examples:
- Commercial Banks (e.g., Nabil Bank, Global IME Bank)
- Development Banks
- Finance Companies
- Microfinance financial institutions
- Savings and Loan Associations
- Credit Unions
- Cooperative Banks
Functions:
- Mobilize savings from the public
- Provide personal, business, and mortgage loans
- Facilitate payments (cheques, cards, online banking)
- Support economic development through credit distribution
2.) Non-Depository Financial Institutions:
Non-depository financial institutions are institutions that do not accept traditional demand or savings deposits.
- Instead, they raise funds through other means (such as issuing insurance policies or investment products) and provide financial services like lending, investing, and risk management.
Key Features:
- Do not accept deposits
- Raise funds through premiums, investments, or fees
- Offer financial services like insurance, leasing, and investment management
- Subject to regulation, but not as tightly as depository institutions
Examples:
- Insurance Companies (e.g., LIC Nepal, Nepal Life Insurance)
- Investment Banks
- Finance Companies
- Mutual Fund Companies
- Pension Funds
- Leasing Companies
Functions:
- Provide long-term financing and capital
- Offer investment and retirement planning services
- Manage financial risk through insurance products
- Support businesses with leasing and venture capital