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Question

Difficulty: MediumNon-Bank Financial Institutions and Traditional Financial Systems

A cooperative association of individuals periodically pools personal savings specifically to offer long-term loans to its members for home construction and real estate acquisition. Which non-bank financial institution operates on this mutual self-help mortgage financing framework?

  1. Building societyAnswer
  2. B
    Merchant bank
  3. C
    Discount house
  4. D
    Commercial bank

Answer

Building society
Building societies are specialized non-bank financial institutions formed on a mutual cooperative basis where members pool funds to receive long-term loans for purchasing or constructing residential housing.

Step-by-Step Solution

1
Analyze the institutional characteristics in the stem
Identified key features: mutual member savings, non-bank status, and long-term financing for residential building/mortgages.
Non-bank financial institutions are distinguished by their specific funding mechanisms and operational mandates.
2
Differentiate building societies from other financial institutions
Building societies operate as financial cooperatives specifically tailored to mobilize savings for mortgage financing.
Unlike money market institutions or commercial banks, building societies focus primarily on housing development through pooled member contributions.

Key Concept

Building Societies and Non-Bank Financial Intermediation
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Topics

Non-Bank Financial Institutions and Traditional Financial Systems