Financial Intermediation, Markets, and Alternative Financial Sectors

We provide a comprehensive review of firms’ financing channels (internal and external, domestic and international) around the globe, with the focus on alternative finance—financing from all the nonmarket, non-bank external sources. We argue that while traditional financing channels, including financial markets and banks, provide significant sources of funds for firms in developed countries, alternative financing channels provide an equally important source of funds in both developed and developing countries. Alternative finance is often the dominant source of funds for firms in fastgrowing economies. We compare marketand bank-finance with alternative finance, along with the supporting mechanisms such as legal and institutional structures. Much more research is needed to better understand alternative finance and its role in corporate financing. We suggest ways to obtain firm-level data on various forms of alternative finance and thus overcome the main obstacle in the field.