What Is The Difference Between Direct And Indirect Finance?


4 Answers

Anonymous Profile
Anonymous answered
Direct Finance is more risky- it takes place between an ultimate lender and an ultimate borrower, with no intermediary (i.e. No bank). An example would be you borrowing £100 from your friend on agreement to pay it back at a later date (with some interest). I say it is risky because one party may default on the payment..    Indirect Finance involves a middle-man, typically a bank. So if I borrow £100 from the bank, I am effectively borrowing £100 from the person who deposited that money in the bank (so he is technically the one loaning me the money). In this case, he is insured against the risk of default as the bank will cover the loan should I default on the payment.    So direct finances tend to be less efficient, as there are costs incurred in finding a second party willing to proceed with the agreement (transaction costs), and also there is a higher risk premium imposed (since there is greater risk that you may default, the lender will likely charge a higher interest on the loan).    Indirect finance has numerous advantages. Through maturity transformation, loans can be re-packaged into different maturities (banks can operate with liabilities that have shorter maturities than their assets), usually with increasingly high interest rates as the term increases (Interest rate term structure). Furthermore, the intermediaries remove the risk of default and have a 'monitoring' role to ensure no overly risky loans are made (though this certainly hasn't been the case lately). Intermediaries also provide a means for portfolio adjustment, and serve as a basis for the payments mechanism.
Karl Sagan Profile
Karl Sagan answered

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Sophie Carroll Profile
Sophie Carroll answered

The following criteria must be considered while selecting a Digital lending platform:

The capacity to address both short-term and long-term business requirements

End-to-end integrated functionality with a modular structure is present.

On-premises vs. Cloud-based

Origination and servicing components that are comprehensive and integrated

Approaches to intelligent automation and proprietary adjustable credit scoring

Meeting the needs of borrowers in terms of user-friendliness, UI, and UX design

Regional editions of the platform will be developed to work with specific markets.

Ease in customisation of business logic

Time-to-market and the learning curve

The provider's demonstrated track record

Sergio Jemas Profile
Sergio Jemas answered

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