Download How does Financial Intermediation work?

Introduction to
Financial Intermediation
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“Show me the money!”
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Types of Financial Transaction
Sources of Funds
Users of Funds
• Loans/Investments
• Repayments/Returns
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How does Financial
Intermediation work?
P10,000
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How does Financial
Intermediation work?
P20,000
P10,000 +
P2,000
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
P8,000
How does Financial
Intermediation work?
P1,000
P10,000 +
P1,000
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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
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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.
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Services provided by
Financial Intermediaries
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Savings
Loan
Insurance
Pre-need plans
Investments
Credit Cards
Fee-based services
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Rural Banks as
microfinance institutions
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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.
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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