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Introduction to Financial Intermediation Rev.vers.Fin 08/21/12 “Show me the money!” Rev.vers.Fin 08/21/12 Types of Financial Transaction Sources of Funds Users of Funds • Loans/Investments • Repayments/Returns Rev.vers.Fin 08/21/12 How does Financial Intermediation work? P10,000 Rev.vers.Fin 08/21/12 How does Financial Intermediation work? P20,000 P10,000 + P2,000 Rev.vers.Fin 08/21/12 P8,000 How does Financial Intermediation work? P1,000 P10,000 + P1,000 Rev.vers.Fin 08/21/12 P20,000 P8,000 Financial Intermediation Excess funds - Savers (Sources of Funds) Financial Intermediary Borrowers (Users of Funds) Deposits Loans/Investments Withdrawals Repayments/Returns Rev.vers.Fin 08/21/12 Why are financial intermediaries necessary? • Without financial intermediaries, the bulk of surplus funds will be lying idle, while many economic activities will not be able to expand or take off the ground. • However with financial intermediaries, funds can be pooled together from the resources of thousands of savers and these funds can be made available to borrowers who can make use of these funds and provide adequate returns, thus creating economic growth. Rev.vers.Fin 08/21/12 Services provided by Financial Intermediaries Savings Loan Insurance Pre-need plans Investments Credit Cards Fee-based services Rev.vers.Fin 08/21/12 Rural Banks as microfinance institutions RBs are ideal for microfinance – they are located close to microenterprises - they can provide products appropriate to the needs of microenterprise operators - they can mobilize deposits for sustaining their microfinance operations. The experiences of RBs engaged in microfinance prove that, indeed, microfinance can be a profitable banking activity. Rev.vers.Fin 08/21/12 The MABS program is implemented by the of the Rural Bankers Association of the Philippines. It receives funding support from the U.S. Agency for International Development with oversight provided by the Office of the President and the Mindanao Economic Development Council. Rural Bankers Association of the Philippines Mindanao Economic Development Council Office of the President of the Philippines U.S. Agency for International Development These materials were made possible through the support provided by the U.S. Agency for International Development/Philippines under the terms of contract no. 492-C-00-98-0008-00. The opinions expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Agency for International Development. Rev.vers.Fin 08/21/12