Indirect financing

Indirect financing is the symmetry of direct financing, also known as "indirect finance". It refers to that the units with temporary idle monetary funds provide their temporarily idle funds to these financial intermediary institutions in the form of deposits or the purchase of securities issued by banks, trusts, insurance and other financial institutions, and then the funds are provided by these financial institutions in the form of loans, discounts, or through the purchase of securities issued by units that need funds For these units to use, so as to achieve the process of financing.

Financial terms/

1. Indirect financing

Indirect financing is the symmetry of direct financing, also known as "indirect finance". It refers to that the units with temporary idle monetary funds provide their temporarily idle funds to these financial intermediary institutions in the form of deposits or the purchase of securities issued by banks, trusts, insurance and other financial institutions, and then the funds are provided by these financial institutions in the form of loans, discounts, or through the purchase of securities issued by units that need funds For these units to use, so as to achieve the process of financing. Financing through financial intermediaries.

In this way of financing, in a certain period of time, the surplus funds will be deposited in financial institutions or purchase various securities issued by financial institutions, and then the centralized funds will be paid by these financial institutions for the use of fund demand units. The supply and demand sides of funds do not meet directly, and there is no direct relationship between them. Instead, financial institutions intervene as creditors and debtors to realize the adjustment of surplus and shortage of funds. Compared with direct financing, indirect financing is more flexible. Scattered small amount of funds can do great things through the concentration of banks and other intermediary agencies. At the same time, these intermediary agencies have more information and professional talents, which have unique advantages in ensuring the safety of funds and improving the efficiency of capital use, which is beneficial to both sides of investment and financing.

2. Classification

bank credit

Bank credit and the credit provided by other financial institutions to customers in the form of money is a form of capital financing conducted by banks as intermediary financial institutions.

(1) Indirect. In indirect financing, there is no direct loan relationship between the fund demanders and the initial suppliers of funds; the financial intermediary plays a bridge role between the fund demanders and the initial suppliers. The initial suppliers and demanders of funds only have financing relationship with financial intermediaries.

(2) Relative concentration. Indirect financing is carried out through financial intermediaries. In most cases, financial intermediary is not a one-to-one corresponding intermediary between a certain fund supplier and a certain fund demander; it is a comprehensive intermediary facing both the fund supplier group and the fund demander group on the one hand. It can be seen that in the indirect financing, financial institutions have the status and role of the financing center.

(3) The difference of reputation is small. As indirect financing is relatively concentrated in financial institutions, the management of financial institutions in the world is generally strict, and the operation of financial institutions is also constrained by the corresponding sound operation and management principles. In addition, some countries have also implemented deposit insurance system. Therefore, for direct financing, indirect financing has a higher degree of credibility, and its risk is relatively small The stability of capital is strong.

(4) All of them are reversible. The indirect financing through financial intermediary belongs to loan financing, which must be returned at maturity and pay interest, which is reversible.

(5) The initiative of financing is mainly in the hands of financial intermediaries. In the indirect financing, the funds are mainly concentrated in financial institutions, who does not lend the funds to.

Consumer credit

It mainly refers to the loans provided by banks to individual consumers for purchasing houses or durable consumer goods. The basic characteristic of indirect financing is that the financing is carried out through financial intermediary institutions, which consists of two links: raising funds and using funds by financial institutions. Securities issued by financial institutions are called indirect securities.

3. Features

(1) In indirect financing, there is no direct loan relationship between fund demanders and initial suppliers; financial intermediaries play a bridge role between fund demanders and initial suppliers. The initial suppliers and demanders of funds only have financing relationship with financial intermediaries.

(2) Relatively centralized indirect financing is conducted through financial intermediaries. In most cases, financial intermediary is not a one-to-one corresponding intermediary between a certain fund supplier and a certain fund demander; it is a comprehensive intermediary facing both the fund supplier group and the fund demander group on the one hand. It can be seen that in the indirect financing, financial institutions have the status and role of the financing center.

(3) The difference of reputation is small. Because indirect financing is relatively concentrated in financial institutions, the management of financial institutions in the world is generally strict, and the operation of financial institutions is also constrained by the corresponding sound operation and management principles. In addition, some countries have implemented deposit insurance system, so the reputation of indirect financing is higher than that of direct financing, The risk is relatively small, and the stability of financing is strong.

(4) All the indirect financing through financial intermediary is a kind of loan financing, which must be returned at maturity and pay interest.

(5) The initiative of financing is in the hands of financial intermediaries. In indirect financing, funds are mainly concentrated in financial institutions. It is not determined by the initial suppliers of funds, but by financial institutions. For the initial suppliers of funds, although they have the initiative to supply funds, this initiative is actually subject to certain restrictions. Therefore, the initiative of indirect financing is dominated by financial intermediaries to a large extent.

It can also be classified from other perspectives. For example, financing can be divided into loan financing or investment financing in terms of whether the financing is interest paying and whether it is repayable; it can be divided into monetary financing and physical financing according to different financing forms; it can be divided into domestic financing and international financing according to the different countries of both financing parties; it can be divided into local currency financing and foreign exchange financing according to different financing currencies; It can be divided into long-term financing, medium-term financing and short-term financing from the term length; it can be divided into policy financing and commercial financing from whether the purpose of financing is policy oriented; it can be divided into risk financing and stable financing from whether the financing has greater risk. The above-mentioned financing methods are intertwined, which are both in direct financing and indirect financing, rather than independent of these two financing methods.

If we observe different financing methods from different angles, we will find that different financing methods have different characteristics. It is of great significance to investigate the different characteristics of different financing methods for customers to choose specific financing methods according to their needs.

difference

The advantages of indirect financing are as follows:

① Banks and other financial institutions have many outlets, and the starting point of absorbing deposits is low. They can widely raise idle funds from all aspects of society, and accumulate a little into a large amount of funds.

② In direct financing, the risk of financing is borne by creditors alone. In indirect financing, because the assets and liabilities of financial institutions are diversified, the financing risk can be borne by diversified assets and liabilities structure, so the security is high.

③ Reduce financing costs. Because the emergence of financial institutions is the result of specialized division of labor and cooperation, it has the expertise of understanding and mastering the information of borrowers, and does not need each surplus person to collect the relevant information of fund deficit, thus reducing the financing cost of the whole society.

④ It is helpful to solve the problem of adverse selection and moral hazard caused by information asymmetry. The limitation of indirect financing is mainly due to the joining of financial institutions as an intermediary between fund suppliers and demanders, which cuts off the direct contact between the supply and demand sides of funds, and to a certain extent reduces the investors' attention to the operating conditions of investment objects and the pressure of fund raisers in the use of funds. Direct financing is a kind of financing activity that the government, enterprises, institutions and individuals directly act as the last borrower to the lender of last resort without the media of financial institutions. The financing funds are directly used for production, investment and consumption. The most typical direct financing is the company going on the market.

Indirect financing is a kind of financing activity which is carried out by the last borrower to the lender of last resort through the media of financial institutions, such as enterprises' financing from banks and trust companies.

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