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.
- 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
