Disintermediation, financial services, economic development, Financial
intermediation, institutional unit, acquires financial
assets, incurs liabilities, account by engaging, financial transactions
on the market. The assets and liabilities have different characteristics, because
the funds are transformed or repackaged with respect to maturity, risk, scale
and the like. It facilitates the flow of funds from surplus to needy apart from
providing liquidity and risk reduction to the system. According to economic theories,
financial intermediaries are necessary to bridge the gap of asymmetric information
between ultimate lenders and borrowers. They are supposed to protect the interests
of deposit holders by judiciously deploying funds, as investors have little knowledge
about the borrowers.
Thus,
financial intermediaries play a vital role in building economies. The financial
intermediaries include banks, insurance companies, investment companies, development
financial institutions, NBFCs, mutual funds, pension funds, etc., the popular
ones being commercial banks.
Financial
disintermediation refers to withdrawal of funds from a financial institution in
order to invest them directly. Over the last two decades, financial intermediaries
have been steadily losing market share in global financial intermediation business
to capital markets. There is a shift from intermediation to disintermediation
as a common, growing phenomenon in the global market.
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