Need to recognize the Importance of Non-bank financial institutions

After the global financial crises of 2007-2009 non-bank financial institution (NBFIs) get more attention all around the world. NBFIs are the alternative source of funds for the businesses and also provide the investors with diversity of assets which helps in increasing economic stability and future prospects. However in Pakistan NBFIs share in financial sector is declining that emphasize the need for the development and diversification of financial assets to attract the investors and channel the funds for the economic development of Pakistan.

The share of NBFIs will increase if state bank of Pakistan try to set certain measure which eliminate the risks associated with NBFIs. NBFIs provide multiple alternatives which convert the economy’s saving into capital investment which act as back up facilities to bear the shocks of financial crisis. NBFIs provide the saving-investment products which are alternative to typical commercial banks. But in Pakistan, NBFIs other than investment banks and leasing companies which offer saving and investment products at small level it requires to offer suitable and inexpensive products at large level to increase its market share. Due to less contribution of NBFIs in financial system, public and businesses have lesser access to limited number of product offerings and risk associated with spread is high.

Following are the constraints that affect the NBFIs;
Although NBFIs are trying to increase the business activities and product base but it needs breakthroughs in efforts, so that NBFIs scope promoted in Pakistan.

NBFIs need to capitalize on opportunities come from SMEs, consumers and agriculture to create new ways for fund deployment.

NBFIs require establishing a capital market instruments to pool funds from different kind of investors so that stability of source and cost of funding will be maintain.

Regulation and monitoring of NBFIs should be strong to reduce risks coming from shadow banking. Shadow banking is the system of credit intermediation that involves objects and activities that are not part of regular banking system, its means financial intermediation occur through non-banks.

In conclusion I can say that, financial system of Pakistan need to grow to its potential and depth, and play an important role in the economic development of country. Therefore financial institution requires more diversification and depth like Non-bank financial institutions which help in channeling of public funds and creating new avenues for investment.