Financial Institution: An institution that provides financial services to its members is known as financial institution.

In more proper words we can define a financial institution as an intermediary that channels the savings of individuals, businesses and governments into loans or investments. Types: Broadly speaking, there are three major types of financial institutions: 1. Deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies and mortgage loan companies etc. 2. Insurance companies and pension funds. 3. Brokers, underwriters and investment funds. Role of Financial Institutions: Financial institutions provide service as intermediaries of financial markets. Financial institutions are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy. Most financial institutions are highly regulated by government. Government uses financial instruments for development programs. Investing money on behalf of the client is another of the variety of functions of financial institutions. Providing funds to government for infrastructure programs.

Deposit Taking Institutes /Banking Institutes: A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses. Common types: 1. 2. 3. 4. 5. Central bank Commercial bank Community banks Savings banks Islamic banks

Role of banks: Banks issue money to borrowers and receive a certain ratio of interest in return Banks receives money form lenders and pays a certain ratio of interest in return

Banks provides loans to small and medium investors thus create self employment opportunities. Banks act as underwriters for companies. Banks provide the facility of assets management to its customers. Banks help government by providing short term and long term loans for improving infrastructures and other development measures. Banks help in foreign exchange trading.

Insurance Companies & non banking financial institutions: Non-bank financial intermediaries (NBFIs) comprise a mixed bag of institutions, ranging from leasing, factoring, and venture capital companies to various types of contractual savings and institutional investors (pension funds, insurance companies, and mutual funds). The common characteristic of these institutions is that they mobilize savings and facilitate the financing of different activities, but they do not accept deposits from the public. Types: Initially, there were four different categories of companies for the purpose of acceptance of deposits by Non Banking Financial Companies ("NBFCs") namely: 1. Equipment Leasing Company 2. Hire Purchase company 3. Investment Companies 4. Loan Companies Functions of non banking institutes: NBFIs are actively involved in the securities markets and in the mobilization and allocation of long-term financial resources. Leasing companies help individuals to obtain their desired asset at installments. NBFIs play an important role in mobilizing financial savings. Insurance companies facilitate individual and institutional investors to insure their inventory and any other sort of assets.