Financial Intermediaries Essay Example | Topics and Well Written Essays - 1250 words

Financial Intermediaries - Essay Example Financial intermediaries have played a key role in poverty eradication, by financially supporting their customers with investment funds. Their main 21st-century role is providing financial services through innovative ways to the poor in order to increase their capacity of production and quality of life. Since majority of the poor live in rural areas and only depend on agriculture, they are prune to many risks because of income fluctuations. On the other hand, they cannot access insurance markets and conventional credit to offset this. The poor rarely access funds from many formal financial intermediaries due to fear of high risks and costs that are involved in small transactions that are not profitable and the poor are unable to provide collateral security to these institutions.Financial institutions also provide markets for assets of firms by liquidation and restructuring of firms that are in distress. In this case, they sell assets in order to recover bank loans. When they know the synergies existing among firms, they suggest efficient solutions like corporate control and assets reallocation. Siklos asserts that healthy firms search for displaced capital of firms that have become bankrupt, although this may make firms acquire machines that are unsuitable for them. Financial intermediaries also act as centralized markets where they provide ready information on buyers and machines, thus allowing capital, which is displaced, to move to uses that are its productive.