What is the main function of financial intermediaries?

The primary role of financial intermediaries is to channel funds from lenders to borrowers. This involves collecting funds from individuals or organizations that have surplus capital, such as savers or investors, and then providing those funds to individuals or businesses that require financing. Financial intermediaries, such as banks, credit unions, and investment firms, play a crucial role in the economy by making it easier for those who have excess funds to invest or lend those funds to those in need, thereby promoting overall economic growth.

This function is essential because it helps to overcome the limitations of direct lending, where potential lenders and borrowers might not easily find or trust each other. Financial intermediaries also perform additional services such as assessing credit risk, managing assets, and providing liquidity, which enhances the efficiency of the financial system. While providing loans to the government, facilitating transactions between businesses, and offering investment advice are important activities, they are secondary to the core function of facilitating the flow of funds within the economy.