nonbanking

Nonbanking refers to financial services provided by entities that operate outside the traditional banking model. In general usage, nonbanking includes institutions that engage in credit intermediation, asset management, leasing, investment services, or payments without taking traditional demand deposits or offering the full suite of banking services such as cash handling and central bank settlement.

Common forms of nonbanking activity include nonbank financial companies, leasing and factoring firms, microfinance institutions, asset management companies, insurance brokers, payment service providers, and crowdfunding platforms. These entities may specialize in consumer or SME lending, mortgage finance, or wealth management, and often complement banks by serving customers or segments that banks do not reach efficiently.

Regulation varies by country. Nonbanking institutions are usually licensed and supervised by a dedicated financial regulator rather than a central bank, or by a separate unit within the banking regulator. Requirements may include minimum capital, liquidity standards, risk management, disclosure, and consumer protection rules. Restrictions on accepting public deposits help distinguish nonbanking activity from traditional deposit-taking banks.

Advantages of nonbanking activity include broader access to credit and financial services, innovation, and greater specialization. Risks include higher costs, weaker funding stability, and potential gaps in oversight. In some systems, loosely regulated nonbanking activities can contribute to systemic risk if they grow large relative to the economy.

See also: Nonbank financial company, shadow banking, microfinance, leasing, asset management.