Measuring Risk in Non-bank Financial Intermediate Firms for Developing Economies

This chapter explores the pivotal role of Non-Bank Financial Intermediaries (NBFIs) in fostering financial stability and economic growth within developing economiesDeveloping Economies. NBFIs serve as an essential complement to traditional banks, bridging critical gaps in financial service delivery, especially in underserved and rural areas. The chapter examines their unique characteristics, operational frameworks, and contributions, such as facilitating credit access, promoting financial inclusion, and supporting economic sectors like trade, agriculture, and manufacturing. It also highlights how NBFIs leverage technology to expand their reach and improve efficiency in emerging markets. The discussion identifies and categorizes the multifaceted risks faced by NBFIs, including market, credit, operational, regulatory, and country-specific risks, emphasizing the challenges of risk measurement and management in developing economies. It provides a comprehensive review of both qualitative and quantitative risk assessment methodologies, such as stress testing, scenario analysis, value-at-risk models, and expert judgment, to enhance risk management practices. Through case studies, the chapter illustrates best practices and challenges in risk management, offering lessons on regulatory compliance, governance, and adaptive strategies to mitigate financial and operational vulnerabilities. Additionally, it examines the evolving regulatory landscape, contrasting its impacts on NBFIs across regions and underscoring the need for balanced frameworks that encourage innovation while ensuring systemic stability. By integrating theoretical insights with practical case analyses, the chapter provides actionable strategies for policymakers, regulators, and NBFI stakeholders to strengthen the resilience and efficacy of non-bank financial systems in developing economies.