The non-banking financial institutions are similar to that of traditional banks that accept deposits and advance loans. These funding agencies are not registered with banks but specialize in the advancing loans and receiving investments from the public. The non-banking financial institutions include investment banks, insurance companies, credit institutions, development financial institutions, mutual funds, discount and guarantee house, leasing companies and venture capital companies. The regular increase in the per capita income of a country is known as economic development. Although, it is not clear whether non-banking financial institutions help in the economic growth of the country or their rapid growth results in the growth of the financial sector. The non-banking financial institutions facilitates economic growth in the following ways;

Funds Mobilization

The NBFI’s helps in the mobilization of resources by converting sales into investments. Without mobilization of resources, there will not be a balance between intra-regional income and asset distribution. In the absence of NBFI’s in the finance markets; turning savings into investments will remain a dream for any economy. The primary objective of these lending institutions is economic development and not just mere profit maximization.

Long term credit

Traditional banks are not keen giving long-term credit to trade and commerce industry. This is because they hold only short-term repayable deposits which cannot be used for long-time lending purposes which are a mismatch of deposits maturity and long-term credit. This is where NBFI’s come into the picture. Large projects and mega infrastructure projects depend to a great extent on the funds advanced by the non-bank lending institutions which boost economic development. One unique feature of NBFI is advancing funds to corporations through equity participation.

Creates employment

One of the primary objectives of every macroeconomic policy is to create more jobs in the country. NBFI’s helps in achieving full employment in the economy by working with the government and disbursing funds to private sectors. These private sectors create more employment opportunities with their business activities.

Increase productive potential

Development funding institutions aim at increasing the capital formation of a country by increasing the capital stock. These institutions are part of NBFI’s and aim at increasing long-term capital formation of industrial and other sectors. The increase in the capital stock of a country results in employment, national income and GDP growth.

Development of financial market

NBFI’s are an important part of financial markets of a country. These lending institutions underwrite public issues of corporations and provide the funds needed by the start-up companies as capital. They are the significant part of the financial market and are a source of liquidity. The financial markets depend on NBFI’s to function effectively.

Raise the living standard

NBFI’s can be considered as government instrument in improving the standard of living of the masses with their operations. Some NBFI’s attract foreign grants in bulk amounts from various countries and donor agencies which will help in boosting the economic growth of the country.

The NBFI’s actively participate attracting funds from the public and divert it into capital for industrial and other sectors to facilitate economic growth. In short NBFI’s play a significant role in the economic development of the country.