FORM THREE COMMERCE – MONEY AND BANKING

BANK

Is the institution which are involved in financial transaction such as mobilizing of saving, provision of credits, accepting deposit and provide advice to the customer.

EVOLUTION OF BANKING IN TANZANIA

During the colonial days (before independence)

Banking in Tanzania was controlled by the East Africa Currency Board, All the East Africa countries E.g. Uganda, Kenya and Tanzania were using the same currency the East Africa sterling, after independence each country established its own central bank hence in 1968; Bank of Uganda was set up.

BANKING SERVICES

Bank loan: This is money sent by a bank to its customer on presenting collaterals security. A security is any item a bank can sell off for a certain value should a borrower fail to pay back the loan. A fixed rate of interest is paid on a bank loan.

CONDITIONS CONSIDERED BEFORE GIVING A LOAN

• Credit worthiness of a person
  
• Objective for the loan
  
• Period for which the loan is to be used
  
• Whether a borrower is a bank customer or not
  
• The economic integrity of the applicant
  
• The value of the security presented
  
• The amount of money required by the borrower
  
• The government policy on lending
  

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Bank loans are divided into:-

• SHORT-TERM LOAN
  
• MEDIUM-TERM LOAN
  
• LONG-TERM LOAN
  

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BANK OVERDRAFT: This is money sent by a bank to its prominent customer exceeding the amount on his account. In other words the customer has overdrawn his current account up to a certain figure. Interest is paid on the amount overdrawn.

BANK DRAFT (BANKER’S DRAFT): This is a cheque by which a bank pays money to a named person. This is the safety means of paying money to a person because a bank guarantees payment on it. In other words, a bank draft is a cheque drawn on a bank itself and the bank will issue it only if a person requesting it has paid money to the bank. A bank draft may also be drawn by one bank to another to pay a specified amount to a named person.

STANDING ORDERS (S.O): This is a system where a customer of a bank with a current account authorizes bank to pay a given amount of money to a named person or company of regular intervals on a given day of the month.

DIRECT DEBIT (D.D): This differs from a standing order in that the payee request the bank to dedicate fixed or specified sums from the holder’s account. Otherwise both request transferring money from one account to another or to a named person.

CREDIT TRANSFER SYSTEM (C.T.S): This is when a bank customer authorizes his bank to pay money in to the account of a named company or individual payments are made directly into the bank account of the named person.

DIFFERENCES AND SIMILARITIES BETWEEN STANDING ORDER AND CREDIT TRANSFER.

i. Credit transfer are made by putting the money on ones account but standing orders are made directly to the payees

ii. With credit transfer system the payee must have an account but this is not necessary with standing orders

iii. With both systems, payments are made regularly

iv. Both systems are affected through bank. 

TRAVELLERS CHEQUE (T.C):

These are cheque issued by the commercial bank to people who travel to distant places. A person pays for them in advance and is useful because they are both in local and foreign currency. When applying for these cheques a person pays a small service charge then the bank issues the cheque leaves and the person signs them in presence of a bank officer.

IMPORTANCE OF TRAVELLERS CHEQUE

• Some shops and hotels may be willing to accept person  cheques
  
• They are available in various currencies
  
• They are safer to carry than cash.
  
• They are easy to carry  compared to hard cash.
  
• Travelers cheques may be given in different denominations