Which term describes a financing transaction between sources of funds (lenders) and users of funds (borrowers) which is facilitated by an intermediary?

Which term describes a financing transaction between sources of funds (lenders) and users of funds (borrowers) which is facilitated by an intermediary?

• A. Indirect Financing
• B. Direct Financing
• C. Peer-to-Peer Lending
• D. Microfinance

Answer: (A)

Indirect financing focuses on funds flowing from savers to borrowers through a financial intermediary, such as a bank or platform, which pools funds, screens credit, and provides liquidity. In this setup, lenders do not lend directly to borrowers; the intermediary handles the connection and risk management, transforming and channeling funds to those in need. Direct financing would involve borrowers obtaining funds directly from savers with no middle party, which is not what's described here. Peer-to-peer lending does involve an intermediary platform, so it’s still a form of intermediation, but the broad term that fits the description is indirect financing. Microfinance refers to targeted small loans to low-income individuals and isn’t the general mechanism described.

Indirect financing focuses on funds flowing from savers to borrowers through a financial intermediary, such as a bank or platform, which pools funds, screens credit, and provides liquidity. In this setup, lenders do not lend directly to borrowers; the intermediary handles the connection and risk management, transforming and channeling funds to those in need. Direct financing would involve borrowers obtaining funds directly from savers with no middle party, which is not what's described here. Peer-to-peer lending does involve an intermediary platform, so it’s still a form of intermediation, but the broad term that fits the description is indirect financing. Microfinance refers to targeted small loans to low-income individuals and isn’t the general mechanism described.