Difference between Direct and Indirect Finance – Finance | Management Notes

Difference between Direct and Indirect Finance
Finance | Management Notes
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Management Notes

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.

S.No.

Direct finance 

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.

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