Direct Finance

Direct finance is the process where borrowers raise funds directly from lenders in the financial markets, without using intermediaries like banks. In direct finance, individuals, companies, or governments issue securities like bonds or stocks to raise money from investors. This approach can be more efficient for large entities that don’t want to rely on bank loans, as it allows them to tap into a broader pool of capital. Investors, on the other hand, get a chance to invest directly in companies or governments through these securities, potentially earning returns through interest or dividends.

Example

A company issues corporate bonds to raise funds directly from investors, bypassing the need for a bank loan.