Key Takeaways
- Non-bank financial institutions (NBFIs) provide lending, investment or insurance services without a banking licence, and fund themselves from investors and wholesale markets instead of deposits.
- The FSB puts NBFI assets at $256.8 trillion at the end of 2024, 51% of global financial assets, growing at twice the pace of banks.
- Non-bank lenders now finance much of the SME, consumer, invoice and specialist credit that banks have stepped back from.
- Their main risks are funding fragility, leverage, data quality and lighter oversight, so governance and structure matter as much as the loans.
- Investors usually gain exposure by lending to NBFIs through senior secured facilities, funds or notes, secured on the loans they originate.
Banks remain the most visible part of the financial system, yet they hold well under half of its assets. Pension funds, insurers, investment funds and a long tail of specialist lenders now hold more than half. Among them are the finance companies that lend to small businesses, fund instalment purchases, buy invoices and finance equipment, often in places banks have chosen to leave.
These are non-bank financial institutions, or NBFIs. For investors in private credit, they matter twice over. They are the source of much of the lending that private credit funds, and they are a growing set of borrowers in their own right.
This guide explains what NBFIs are, how they differ from banks, how large the sector has become, where the risks sit and how investors gain exposure.
What is a non-bank financial institution?
A non-bank financial institution is any firm that provides financial services such as lending, investment or insurance without holding a full banking licence. NBFIs cannot take deposits from the public. They raise money from equity investors, institutional lenders, securitisation and other wholesale sources.
The term covers a wide range of businesses:
- Insurance companies and pension funds, which invest long-term savings.
- Investment funds, including money market funds, hedge funds and private credit funds.
- Specialist lenders, such as SME lenders, consumer finance and buy now, pay later providers, education lenders and mortgage companies.
- Leasing and factoring companies, which finance equipment and invoices.
- Broker-dealers, trust companies and securitisation vehicles.
Regulators sometimes call the credit-providing part of this world "shadow banking", a term that sounds more sinister than the activity usually is. Most NBFIs are regulated, though under different and often lighter regimes than banks. In the UAE, for example, finance companies are licensed and supervised by the Central Bank of the UAE.
How NBFIs differ from banks
| Feature | Banks | Non-bank lenders |
|---|---|---|
| Funding | Customer deposits, plus wholesale funding | Equity, credit facilities, securitisation, notes |
| Regulation | Basel capital and liquidity rules, deposit insurance | Varies by country and activity; often lighter |
| Focus | Broad: deposits, payments, lending, wealth | Specialist: one product, sector or borrower type |
| Speed and flexibility | Constrained by capital rules and process | Faster decisions, tailored products |
| Access to central bank support | Yes | Generally no |
| Main funding risk | Deposit flight | Lenders or investors withdrawing facilities |
The difference in funding is the one that matters most to investors. A bank can grow its loan book from deposits. A non-bank lender can lend only as much as its own capital and its funders allow. That makes the terms of its funding, and the strength of the people providing it, central to its survival.
How big is the NBFI sector?
The Financial Stability Board's latest global monitoring report found that NBFI assets grew 9.4% in 2024 to $256.8 trillion, about 51% of global financial assets and double the 4.7% growth of the banking sector. The FSB's narrower measure, covering entities engaged in bank-like credit intermediation, rose 12% to $76.3 trillion.
Banks have become funders of this growth. In the US, bank loans to nondepository financial institutions grew at a compound annual rate of 21.9% between 2010 and 2024, almost three times faster than any other loan category, according to the FDIC. Banks increasingly lend to the lenders, leaving the small-ticket origination to specialists.
Private credit sits inside these numbers. PIMCO estimated global private credit assets at about $3.2 trillion in June 2026, and the FSB itself notes that data on private credit remains patchy.
The non-bank lenders private credit investors meet
For private credit investors, the part of the NBFI sector that matters most is the specialist lenders: firms that originate many small loans and need institutional capital to fund them.
Each of these businesses turns a stream of small loans into a pool of receivables. Those pools can be financed, secured and structured, which is what makes them investable. Our guide to receivables-based finance explains the underlying assets, and Invoice Factoring as a Private Credit Allocation looks at one segment in detail.
Why NBFIs matter for investors
- They fill the gaps banks leave. SMEs, entrepreneurs and borrowers in specialist sectors are often too small or too complex for banks. Non-bank lenders serve them, and need capital to do it.
- They create diversified, contractual cashflows. A book of thousands of short, amortising loans behaves differently from a portfolio of corporate bonds or equities.
- They are the engine of private credit growth. Much of the asset-based finance now attracting institutional capital is originated by non-bank lenders. See our investor's guide to asset-based lending.
- They move faster. Free of deposit-taking structures, NBFIs adopt digital underwriting, embedded finance and new distribution channels earlier than banks.
The risks of investing in and alongside NBFIs
The features that make NBFIs useful also create risk:
- Funding fragility: without deposits or central bank support, a lender whose facilities are withdrawn can stop lending overnight, and its book can deteriorate quickly.
- Leverage and liquidity mismatch: borrowing short to lend long, or offering investors liquidity on illiquid assets, can turn a market wobble into a run.
- Lighter oversight: regulation varies widely, and weaker regimes leave more to the investor's own diligence.
- Data and fraud risk: the September 2025 collapse of US auto lender Tricolor, involving alleged double-pledging of collateral, showed what happens when lenders' reports go unverified, as Cambridge Associates set out.
- Interconnection: as banks lend more to non-banks, stress in one can spread to the other, which is why the FSB and national regulators are watching the sector closely.
Separating credible NBFIs from those relying on short-term funding or weak controls is the investor's main job. Our article on governance in private credit sets out what good looks like.
How investors gain exposure to NBFIs
Investors can own equity in a non-bank lender, invest in funds that buy its loans, or lend to it directly. For most allocators seeking income, lending is the most direct route. A senior secured facility to a non-bank lender, secured on its loan book and sized against eligible loans, puts the lender's own capital beneath the investor and gives the investor control over the cash. That is the model described in funding for lending.
When assessing a non-bank lender, investors should ask:
- Is it licensed, and by whom? And does it meet its regulator's capital and conduct rules?
- How is it funded? The maturity of its facilities, concentration among funders and headroom under covenants.
- How does it underwrite? Credit criteria, approval process and performance through past stress.
- What does the data show? Loan-level arrears, defaults, recoveries and collections, verified independently.
- Who runs it? Management experience, board oversight and alignment through the owners' capital.
At Kingsbury & Partners we lend to lenders: senior secured facilities to non-bank and specialty lenders and growth-stage businesses, typically first institutional credit lines of around $5–25 million. Each facility is reviewed by our Credit Committee (formerly the Product & Risk Committee), which looks at the governance, funding model and structural resilience of the lender as well as its loans. We explain our reasoning in why we allocate to NBFIs.
What this means for investors
NBFIs are a permanent feature of the financial system, and in many lending markets they are now the main source of credit. For investors, they offer access to granular, short-duration loan books that banks no longer prioritise, with cashflows that can be secured and monitored.
For family offices, wealth managers and private clients, the sensible approach is to treat an NBFI as both a credit and an operating business: judge the loans, and judge the people, systems and funding behind them. Favour structures where your capital is senior, secured on the receivables and protected by the lender's own capital and by independent verification. For how this fits within private credit more broadly, see What Is Private Credit?
Frequently Asked Questions
What is an example of a non-bank financial institution?
Insurance companies, pension funds, investment funds, finance companies, leasing firms, factoring companies and consumer lenders such as buy now, pay later providers are all NBFIs.
What is the difference between a bank and an NBFI?
A bank holds a banking licence and can take deposits from the public. An NBFI cannot, so it funds itself from equity, institutional lenders and capital markets.
Are NBFIs regulated?
Most are, but rules vary by country and activity and are usually lighter than bank regulation. In the UAE, finance companies are licensed by the Central Bank of the UAE.
Is an NBFI the same as shadow banking?
Shadow banking is an older term for credit intermediation outside the banking system. NBFI is the broader, now-preferred term used by regulators such as the Financial Stability Board.
How large is the NBFI sector?
The Financial Stability Board estimates NBFI assets at $256.8 trillion at the end of 2024, about 51% of global financial assets.
Are NBFIs risky to invest in?
They can be. Funding fragility, leverage and lighter oversight are the main risks, which is why investors should lend on a senior secured basis and verify the lender's data independently.
