The Role of Nonbank Financial Intermediaries

Author(s): Dimitri Vittas
Publication Number: ECES-WP31-E


The state of development of nonbank financial intermediaries (NBFIs) is a good indicator of the financial system’s development as a whole. NBFIs include all the financial institutions which are not classified as commercial banks. Such institutions have the common characteristic of mobilizing savings and facilitating the financing of different activities, but they do not accept deposits from the public at large. NBFIs play an important dual role in the financial system. On one hand, they complement the role of commercial banks by filling the gaps in their range of services. On the other hand, they compete with commercial banks, thus forcing them to be more efficient and responsive to the needs of their customers.
This paper focuses on contractual savings institutions, namely pension funds and life insurance companies — their role and the determinants of their growth. It also offers a brief review of the role and development of leasing and factoring companies, as well as the insurance sector, venture capital companies and mutual funds. Besides presenting an overview of the developments of that sector in a number of selected countries, a section is devoted to examining the recent growth of NBFIs in Egypt, especially that of contractual savings institutions and securities market. The paper concludes that greater openness is key to the growth of the NBFIs sector.

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