Difference between Direct and Indirect Finance
Finance | Management Notes
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Finance is the study of how money is managed and the actual process of acquiring needed funds.Both direct finance and indirect finance channel funds from saver-lenders to borrower-spenders.Direct Finance takes place between an ultimate lender and an ultimate borrower, with no intermediary involved in it.Indirect Finance takes place between lenders and borrowers with financial intermediaries involved ie;one between lenders and financial intermediaries, and another between financial intermediaries and borrowers.Direct Finance is more risky as compared to indirect finance.
|1.||Direct finance is a method of financing where borrowers borrow funds directly from the financial market without using a third party service, such as a financial intermediary.||Indirect finance is method of financing where borrowers borrow funds from the financial market through indirect means, such as through a financial intermediary.|
|2.||Direct Finance is different from indirect financing where a financial intermediary takes the money from the lender with an interest rate and lends it to a borrower with a higher interest rate||Indirect Finance is different from direct financing where there is a direct connection to the financial markets as indicated by the borrower issuing securities directly on the market.|
|3.||Direct finance is less important to borrowers as compared to indirect finance.||Indirect finance is more important to borrowers than direct finance.|