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🏦 Examples of Financial Intermediation
📘 Definition

Financial intermediation is the process by which financial institutions act as middlemen between savers and borrowers, helping to channel funds from those who have surplus money to those who need funds for investment or consumption.

💡 Common Examples of Financial Intermediaries and How They Work
1. Commercial Banks

Accept deposits from individuals and businesses.

Lend money in the form of loans, overdrafts, and mortgages.

Earn profit from the interest rate difference (interest on loans – interest paid on deposits).

Example:
Equity Bank collects savings from customers and lends to SMEs or individuals seeking personal loans.

2. Savings and Credit Cooperative Societies (SACCOs)

Members pool their savings together.

The pooled funds are lent out to members at affordable rates.

Promote savings culture and access to credit for small-scale earners.

Example:
Teachers’ SACCOs like Mwalimu SACCO provide loans to members from their savings.

3. Insurance Companies

Collect premiums from policyholders.

Invest the funds in bonds, shares, and real estate.

Use returns to pay claims and generate profits.

Example:
Jubilee Insurance invests premiums in government securities and corporate bonds.

4. Pension Funds

Collect contributions from employees and employers.

Invest the funds to grow retirement savings.

Pay out benefits upon retirement.

Example:
The National Social Security Fund (NSSF) invests contributions in treasury bills and real estate.

5. Investment Banks

Help companies raise capital through issuing shares or bonds.

Act as intermediaries between investors and corporations.

Offer advisory services for mergers, acquisitions, and restructuring.

Example:
An investment bank facilitates an Initial Public Offering (IPO) for a company.

6. Microfinance Institutions

Provide small loans to low-income earners or small businesses.

Encourage financial inclusion among people without access to formal banking.

Example:
Faulu Microfinance lends to small traders and farmers.

7. Stock Exchanges

Provide a platform for buying and selling shares and securities.

Link investors (buyers) and companies (sellers of shares).

Ensure liquidity and transparency in financial markets.

Example:
The Nairobi Securities Exchange (NSE) connects companies seeking capital with investors.


Financial intermediaries mobilize savings, allocate capital efficiently, and promote economic growth.
They transform savings into productive investments, bridging the gap between savers and borrowers in an economy.