COMMERCIAL BANKS
Commercial banks are financial institutions aimed at helping businessmen and the general public. In Tanzania, commercial banks include, Barclays Banks, CRDB Bank, NMB Bank.
FUNCTIONS OF COMMERCIAL BANK
- Stores money and jewels for customers
- Transfer money for customers by means of cheques, bank drafts, standing orders, and credit transfer and travelers cheques.
- Advises the customer on business and investment matters
- Commercial bank buys and sells stocks and shares for customers.
- It acts as a trustee to some of its customers
- Collect money for its customers
- It provides financial advice to customers
- It lends money to the public in form of bank loans or bank overdraft.
- It issues booklets and pamphlets to its customers regarding banking practices.
- Assists customers in international trade especially by selling traveler’s cheque and assuring bank drafts.
- Provides right safe services to its customers.
- It is a source of foreign currency of various countries it exchanges foreign currency with local through foreign exchange bureaus
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BANK ACCOUNTS
A person wishing to keep his money with a bank must choose the type of accounts he will use. There are several types of accounts each with its own features
- Current Account
- Saving Account
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Fixed Deposit Account
CURRENT ACCOUNT: –
This type of account is offered by commercial banks only and is normally preferred by businessmen. Current account has several features:-
- A minimum initial balance is required at the amount at the time of opening a current account.
- The withdraw are only limited by the amount on the account. One can withdraw all his money from his account.
- An account holder can deposit any amount at anytime in any form like cash, cheques, drafts, Postal orders and many others.
- A cheque book is provided to a current account holders.
- Bank statements are issued to customers on a monthly basis.
- No interest is given to current account holders (unless negotiated with the bank).
- Sometimes banks allow overdraft facilities to their customers.
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PAYING IN SLIPS
These are document used to pay or deposit money into the current account. Details of the deposits are filled on this slip. The purpose is to evidence that some money has been deposited on his account at a particular period. Details include the depositors name or signature, the amount deposited the denominations, the date and case of a cheque details.
OPENING UP A CURRENT ACCOUNT
When a person is opening up a current account be must show the following to the banks:-
- Name, address and occupation if any
- Two referees, who should be bank employers or bank existing customers who must give information regarding. Your financial position and your credit worthiness.
- A signature card is issued where a specimen signature is displayed.
- The applicant then issued with an account number.
- Then he is issued with a cheque book ready to begin transacting with the account.
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SAVING ACCOUNT
This is offered by both savings and commercial banks. Important features of this include:-
- A minimum initial deposit as required when opening up the account.
- A minimum balance is required at the time in the account
- Money can be deposited at any time in case of a post office, savings bank money can be deposited from any post office
- Withdraws are allowed once a week
- Notice of seven (7) days must be given to the bank before higher withdraws are made.
- A pass book is provided but not a cheque book which the holder must present to the book when withdrawing or depositing the money.
- Interest is offered on deposit is held on a saving account
- A person holding the account cannot send someone to withdraw money on his behalf; he must be there .
- In case of post office savings account one can draw from any post office within the country of issue.
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FIXED DEPOSIT ACCOUNT:
This is an account opened with a certain amount of deposits which remain fixed for specified period of time. Here no further withdrawals or deposits are allowed before the expire of the period.
- It is opened with not less than a certain minimum amount
- A fixed rate of interest is paid on these account
- They are very good for those who have large sums of money which they do not intend to use in the near future.
- Notice must be given before withdraws takes place.
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FACTORS CONSIDERED BEFORE CHOOSING A BANK ACCOUNT
INTEREST OFFERED: One should consider the interest enjoyed from a particular bank account. Fixed deposit account offers a high interest rate compared to others.
EASE OF WITHDRAW: A current account is the best for easy withdraw of money. One can write an open cheque in someone‘s name and withdraws the money across a bank counter. It is not easy to withdraw money from fixed deposit accounts, unless the period has matured.
THE NEED TO SAVE: These with a major need of saving at regular intervals can use a saving account. A saving account may restrict withdrawals unlike a current account where one may withdraw all the money on the account.
ABILITY TO TRANSFER MONEY: Money transfer is very easy with a current account. A person with a current account can give a cheque to another with an account in a different bank and money will easily be transferred to the payees account through the bank clearance system.
SECURITY: It may not be possible to forge and withdraw money from a fixed deposit account since withdraws are only restricted to a particular period known as MANUARY DATE; which remains a secret to the account holder. Cheque can easily be forged unless they are fully crossed.
POSSIBILITY FOR LOANS: One should consider the possibility of getting loans from the bank. A current account holder can easily get loans from the bank compared to other accounts. This is because the book can easily monitor his transactions with the bank and determine whether he is capable of handling the loan effectively.
THE AMOUNT INVOLVED: One should consider the amount of money available to open a bank accounts. A saving account is the best for small amount. Some banks in Uganda require only 10,000/= to open a savings account yet they may require about 200,000/= for a current account so large amount may be saved under current or fixed deposit account.
ALLOWANCE FOR OVERDRAFTS: One can withdraw more than he has on a current account this is referred to as an overdraft. Overdraft are not extended to savings account holders and fixed deposit holders.
POSSIBILITY OF PAYING MANY PEOPLE: For organization which needs to pay several people using a bank current account is the best. Several people can be paid using only one cheque with a list showing how much to pay to each person named. A credit transfer system or a standing order may call for this method of paying. It may not be possible to pay several people using a savings account or a fixed deposit account.
RUN ON THE BANK
This is a situation when many bank customers wish to withdraw their money from their accounts. This may be due to loss of confidence of customers in that particular bank or due to great demand for money at a particular period for instance when parents need money for school fees, or at big days like Christmas, Idd day and others. Also should people suspend the closure of a particular bank by the central they may rush to withdraw their money from that bank.
PROBLEMS FACING BANKING
- LOSS OF CONFIDENCE: Many people have lost confidence in banking due to continuing closing.
- LACK OF INFORMATION: Many people especially in rural areas are ignorant of the importance of banking.
- POVERTY: The majority of Tanzania is peasant and poor who may not have any surplus money for saving after spending on basic needs.
- LACK OF COMMITMENT: Lack of committed qualified staff has led to closing of many banks in the country.
- MORAL DECAY: Moral decay among the bank staff has forced some to collaborate with the public to forge and withdraw money and this has led to heavy losses to these banks.
- RELUCTANCY TO PAY BACK LOANS: Many borrowers from banks are untrustworthy and do not pay their loans making the banks to sell on their securities (property) This makes people lose confidence in the bank.
- POLITICAL INSTABILITY: Political instability has disnglish-swahili/courage” target=”_blank”>couraged investors towards banking business, especially in those areas experiencing political instabilities e.g Wars
- INFLATION: Inflation in the country has disnglish-swahili/courage” target=”_blank”>couraged many people from saving.
- HIGH INTEREST RATES: Businessmen are sometimes disnglish-swahili/courage” target=”_blank”>couraged to take bank loans due to the high interest rates yet lending is the source of income to commercial banks.
- LACK OF MODERN EQUIPMENT: Some banks lack modern equipment of count and enter the figures which contribute to congestion in these banks.
- FORGERY: Modern technology in the country has ennglish-swahili/courage” target=”_blank”>couraged some people to forge money which may lead to heavy losses to the unfortunate banks, which may receive such money as deposits.
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CONCENTRATE IN URBAN CENTER: Bank concentrate in urban areas neglecting rural areas, hence limiting the scope of banking.
MEANS OF PAYMENTS;
- Currency notes
- Coins
- Cheque
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REGISTERED POST
This is sending cash, cheque, draft or other documents by specified envelopes provided by the post office or by any envelope which should be crossed vertically or horizontally
A fee is charged for registration and compensation is offered of the letter is lost in the post.
Registered letter are not delivered through the post box instead a note (on agree card) is put in the addresses / Receivers post box which we must produce a long with a proof of identity when clearing the envelope to wrong hands.
POST ORDERS
This is special documents sold by the post office in fixed denomination of e.g. sh. 10, 20, 50, and 100. A person wishing to pay a sum of money from any post office. A sender sends a post order by using registered envelope in order to avoid mishandling. A post order can be crossed like a cheque and then deposited into a bank. The fee for post order is known as POUNDAGE.
MONEY ORDER
This is sending money by filling in an application from which must be handled over to the post office with the amount to be sent, plus a small fee. A post office gives a sender a receipt which it is sent to a receiver who will present to the paying post office.
PROMISSORY NOTES
This is a document when one person promises to pay another person or his order a special sum of money at a certain date.
BILLS OF EXCHANGE
A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person to it addressed to pay on demand or certain period or to the order of that person or to bearer.
Is a written document signed by a drawer who sold goods on credit to a drawer who bought goods on credit from the drawer?
HONOURING A BILL: If the drawer pays the amount being shown on the bill.
DISHONDOURING OF A BILL: If a person fail to pay the amount being shown on it.
ENDORSING A BILL OF EXCHANGE
The main aim of a bill of exchange is to acknowledge a debt by exchange accepting a bill a drawer does not actually settle a debt be merely agree to pay at a future date.
A drawer on receipt of the acceptance has two options which are:
- He can keep it with the maturity date when he can present it to the drawer in order to get money.
- He can transfer the right to receive money to someone else the act is called endorsement which means singing back of that bill so that money should be paid to someone else.
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DISCOUNCOUNTING A BILL OF EXCHANGE
Discounting a bill of exchange means selling the bill to the bank in order to receive money, A drawer may endorse the bill to a money lending institution (bank) which would pay him the money (the value of the bill) less interest(Discounting charges) for the value unexpired period.
NEGOTIABLE INSTRUMENTS
The following documents are negotiable instruments:
- Bills of exchange
- Cheque
- Promising notes
- Travelers cheque
- Bank draft
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