1.
Credit union
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Credit unions operate alongside other mutuals and cooperatives engaging in cooperative banking, such as building societies. Natural-person credit unions serve individual people, as distinguished from corporate credit unions, Credit unions see themselves as different from mainstream banks, with a mission to be community-oriented and serve people, not profit. Normally, only a member of a union may deposit or borrow money. Surveys of customers at banks and credit unions have consistently shown a significantly higher customer satisfaction rate with the quality of service at credit unions, Credit unions have historically claimed to provide superior member service and to be committed to helping members improve their financial situation. In the context of financial inclusion credit unions claim to provide a range of loan. In the credit union context, not-for-profit is not the same as for a charity or similar organization. Credit unions are not-for-profit because their purpose is to serve their members rather than to maximize profits. But, unlike charities and the like, credit unions do not rely on donations, and are financial institutions that must perforce make what is, in economic terms, a small profit to remain in existence. According to the World Council of Credit Unions, a credit unions revenues must exceed its expenses and dividends in order to maintain capital. F. W. Raiffeisen wrote in 1870 that credit unions are, according to eleven of the German law of cooperatives. They accordingly form a sort of business enterprise of which the owners are the Credit Unions members. In the United States, credit unions incorporated and operating under a credit union law are tax-exempt under Section 501. Federal credit unions organized and operated in accordance with the Federal Credit Union Act are tax-exempt under Section 501, according to the World Council, at the end of 2014 there were 57,480 credit unions in 105 countries. Collectively they served 217.4 million members and oversaw US$1.79 trillion in assets, the European Association of Co-operative Banks reported 38 million members in those four countries at the end of 2010. The countries with the most credit union activity are highly diverse, several African and Latin American countries also had high credit union membership rates, as did Australia and South Korea. He went on to develop a successful urban credit union system. In 1864 Friedrich Wilhelm Raiffeisen founded the first rural credit union in Heddesdorf in Germany, by the time of Raiffeisens death in 1888, credit unions had spread to Italy, France, the Netherlands, England, Austria, and other nations. The first credit union in North America, the Caisse Populaire de Lévis in Quebec, Canada, drawing extensively on European precedents, Desjardins developed a unique parish-based model for Quebec, the caisse populaire
2.
Cheque
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A cheque or check is a document that orders a bank to pay a specific amount of money from a persons account to the person in whose name the cheque has been issued. The person writing the cheque, the drawer, has a banking account where their money is held. Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry large amounts of money, both the drawer and payee may be natural persons or legal entities. Cheques are order instruments, and are not in general payable simply to the bearer as bearer instruments are, in some countries, such as the US, the payee may endorse the cheque, allowing them to specify a third party to whom it should be paid. By the second half of the 20th century, as cheque processing became automated, billions of cheques were issued annually, since then cheque usage has fallen, being partly replaced by electronic payment systems. In an increasing number of countries cheques have either become a marginal payment system or have been phased out. The spellings check, checque, and cheque were used interchangeably from the 17th century until the 20th century, in American English, the usual spelling for both is check. The cheque had its origins in the ancient banking system, in which bankers would issue orders at the request of their customers, such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency to purchase goods, the ancient Romans are believed to have used an early form of cheque known as praescriptiones in the 1st century BC. Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid of the Abbasid Caliphate, transporting a paper saqq was more secure than transporting money. In the 9th century, a merchant in country A could cash a saqq drawn on his bank in country B. In the 13th century in Venice the bill of exchange was developed as a device to allow international trade without the need to carry large amounts of gold. Their use subsequently spread to other European countries, in the early 1500s in the Dutch Republic, to protect large accumulations of cash, people began depositing their money with cashiers. These cashiers held the money for a fee, competition drove cashiers to offer additional services including paying money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment and this concept went on to spread to England and elsewhere. By the 17th century, bills of exchange were being used for payments in England. Cheques, a type of bill of exchange, then began to evolve, initially they were called drawn notes, because they enabled a customer to draw on the funds that he or she had in the account with a bank and required immediate payment. These were handwritten, and one of the earliest known still to be in existence was drawn on Messrs Morris and Clayton, scriveners and bankers based in the City of London, in 1717, the Bank of England pioneered the first use of a pre-printed form
3.
Automated teller machine
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According to the ATM Industry Association, there are now close to 3 million ATMs installed worldwide. Authentication is provided by the customer entering a personal identification number which must match the PIN stored in the chip on the card or in the financial institutions database. Using an ATM, customers can access their deposit or credit accounts in order to make a variety of transactions such as cash withdrawals, check balances. If the currency being withdrawn from the ATM is different from that in which the account is denominated the money will be converted at an official exchange rate. Thus, ATMs often provide the best possible exchange rates for foreign travellers, the idea of out-of-hours cash distribution developed from bankers needs in Asia, Europe and North America. Little is known of the Japanese device other than it was called Computer Loan Machine, the device was operational in 1966. In the US patent record, Luther George Simjian has been credited with developing a prior art device, specifically his 132nd patent, which was first filed on 30 June 1960. The roll-out of this machine, called Bankograph, was delayed by a couple of years, an experimental Bankograph was installed in New York City in 1961 by the City Bank of New York, but removed after six months due to the lack of customer acceptance. The Bankograph was an automated envelope deposit machine and did not have cash dispensing features and it is widely accepted that the first ATM was put into use by Barclays Bank in its Enfield Town branch in north London, United Kingdom, on 27 June 1967. This machine was inaugurated by English comedy actor Reg Varney and this instance of the invention is credited to the engineering team led by John Shepherd-Barron of printing firm De La Rue, who was awarded an OBE in the 2005 New Year Honours. Shepherd-Barron stated, It struck me there must be a way I could get my own money, I hit upon the idea of a chocolate bar dispenser, but replacing chocolate with cash. The Barclays-De La Rue machine beat the Swedish saving banks and a company called Metiors machine by a nine days. The online version of the Swedish machine is listed to have been operational on 6 May 1968, the collaboration of a small start-up called Speytec and Midland Bank developed a fourth machine which was marketed after 1969 in Europe and the US by the Burroughs Corporation. The patent for this device was filed on September 1969 by John David Edwards, Leonard Perkins, John Henry Donald, Peter Lee Chappell, Sean Benjamin Newcombe & Malcom David Roe. Both the DACS and MD2 accepted only a token or voucher which was retained by the machine while the Speytec worked with a card with a magnetic stripe at the back. They used principles including Carbon-14 and low-coercivity magnetism in order to make more difficult. The idea of a PIN stored on the card was developed by a British engineer working on the MD2 named James Goodfellow in 1965, the essence of this system was that it enabled the verification of the customer with the debited account without human intervention. This patent is also the earliest instance of a complete currency dispenser system in the patent record and this patent was filed on 5 March 1968 in the US and granted on 1 December 1970
4.
Islamic banking and finance
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Islamic banking is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics. As such, a correct term for Islamic banking is sharia-compliant finance. Sharia prohibits acceptance of specific interest or fees for loans of money, Investment in businesses that provide goods or services considered contrary to Islamic principles is also haraam. As of 2014, sharia-compliant financial institutions represented approximately 1% of total world assets, an early market economy and an early form of mercantilism, sometimes called Islamic capitalism, was developed between the eighth and twelfth centuries. The monetary economy of the period was based on the widely circulated currency the gold dinar, organizational enterprises independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards, the word riba literally means “excess or addition”, and has been translated as interest, usury, excess, increase or addition. According to Shariah terminology, it implies any excess compensation without due consideration, according to Islamic economists Choudhury and Malik by the time of Caliph Umar, the prohibition of interest was a well-established working principle integrated into the Islamic economic system. This interpretation of usury has not been accepted or applied in the Islamic world. The Investor is called Rab ul Maal and the party is termed as Mudarib. Further works specifically devoted to the subject of interest-free banking were authored by Muhammad Uzair, Abdullah al-Araby, Nejatullah Siddiqi, al-Najjar, in the middle of the 20th century some organizational entities were found to offer financial services complying with Islamic laws. The first, experimental, local Islamic bank was established in the late 1950s in a area of Pakistan which charged no interest on its lending. A remarkable effort in sharia-compliant savings banking was undertaken in 1963 in rural Egypt by economist Ahmad Elnaggar to appeal to people who lacked confidence in state-run banks, the experiment was shut down by the government in 1968, but was considered by many a success. By this time there were nine such banks in the country, in 1972, the Mit Ghamr Savings project became part of Nasr Social Bank which, currently, is still in business in Egypt. The influx of petro-dollars and a general following the Yom Kippur War and 1973 oil crisis gave great help to the development of the Islamic banking sector. And since 1975 it has spread the globe, in 1975, the Islamic Development Bank was set up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, was established in 1979, in 1980, government of Pakistan brought in regulatory framework under the caption Modaraba companies and Modarabas and rule made thereunder. The ensuing financial panic led to the bankruptcy of some companies, in 1990 an accounting organization for Islamic financial institutions, was established in Algiers by a group of Islamic financial institutions. By 1995,144 Islamic financial institutions had been established worldwide, including 33 government-run banks,40 private banks, by 2008 Islamic banking was growing at a rate of 10–15% per year and with signs of consistent future growth
5.
Credit card
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The card issuer creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance. A credit card is different from a card, where it requires the balance to be repaid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, a credit card also differs from a cash card, which can be used like currency by the owner of the card. Credit cards have a printed or embossed bank card number complying with the ISO/IEC7812 numbering standard, the card numbers prefix, called the Bank Identification Number, is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first six digits for MasterCard and Visa cards, the next nine digits are the individual account number, and the final digit is a validity check code. Both of these standards are maintained and further developed by ISO/IEC JTC 1/SC 17/WG1, Credit cards have a magnetic stripe conforming to the ISO/IEC7813. Many modern credit cards have a chip embedded in them as a security feature. In addition to the credit card number, credit cards also carry issue and expiration dates, as well as extra codes such as issue numbers. Not all credit cards have the sets of extra codes nor do they use the same number of digits. The concept of using a card for purchases was described in 1887 by Edward Bellamy in his utopian novel Looking Backward. Bellamy used the credit card eleven times in this novel, although this referred to a card for spending a citizens dividend from the government. Charge coins and other items were used from the late 19th century to the 1930s. They came in various shapes and sizes, with materials made out of celluloid, copper, aluminum, steel, each charge coin usually had a little hole, enabling it to be put in a key ring, like a key. These charge coins were given to customers who had charge accounts in department stores, hotels. A charge coin usually had the account number along with the merchants name. The charge coin offered a simple and fast way to copy a charge account number to the sales slip and this sped the process of copying, previously done by handwriting. It also reduced the number of errors, by having a form of numbers on the sales slip. Because the customers name was not on the coin, almost anyone could use it
6.
Postal savings system
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Postal savings systems provide depositors who do not have access to banks a safe and convenient method to save money. Many nations have operated banking systems involving post offices to promote saving money among the poor, in 1861, Great Britain became the first nation to offer such an arrangement. It was supported by Sir Rowland Hill, who advocated the penny post, and William Ewart Gladstone, then Chancellor of the Exchequer. At the time, banks were mainly in the cities and largely catered to wealthy customers, rural citizens and the poor had no choice but to keep their funds at home or on their persons. The original Post Office Savings Bank was limited to deposits of £30 per year with a balance of £150. Interest was paid at the rate of 2.5 percent per annum on whole pounds in the account, later, the limits were raised to a maximum of £500 per year in deposits with no limit on the total amount. Within five years of the establishment, there were over 600,000 accounts. By 1927, there were twelve million accounts—one in four Britons—with £283 million on deposit, the British system first offered only savings accounts. In 1880, it became a retail outlet for government bonds, and in 1916 introduced war savings certificates. In 1956, it launched a bond, the Premium Bond. Post Office Savings Bank became National Savings Bank in 1969, later renamed National Savings and Investments, while continuing to offer National Savings services, the General Post Office, created the National Giro in 1968. More recently, the Post Office Ltd. offers savings accounts based on its brand, and is operated by the Bank of Ireland, a bank and Family Investments. The Post Office branded services are similar to some of NS&Is services, Post Office Ltd also provides a Post Office card account that accepts only direct deposits of certain state pension and welfare payments, permitting cash withdrawals over the counter. This last account is offered in partnership with the Department for Work and Pensions until 2010, through investment banking, many other countries adopted such systems. Many were later abolished or privatized, though some countries offer postal savings, Brazil instituted a postal banking system in 2002, where the national postal service formed a partnership with the largest private bank in the country to provide financial services at post offices. The current partnership is with Bank of Brazil, in the Peoples Republic of China, the Postal Savings Bank of China was split from China Post in 2007 and established as a state-owned limited company. It continues to provide banking services at post offices, frances La Poste, similar to the UKs Post Office, offer banking services called La banque Postale. Deutsche Postbank, Germany has a banking system, Deutsche Postbank was a subsidiary of Deutsche Post until 2008
7.
Central bank
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A central bank, reserve bank, or monetary authority is an institution that manages a states currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries, Central banks in most developed nations are institutionally designed to be independent from political interference. Still, limited control by the executive and legislative bodies usually exists, prior to the 17th century most money was commodity money, typically gold or silver. However, promises to pay were widely circulated and accepted as value at least five hundred years earlier in both Europe and Asia. The Song dynasty was the first to issue generally circulating paper currency, in 1455, in an effort to control inflation, the succeeding Ming Dynasty ended the use of paper money and closed much of Chinese trade. The Bank of Amsterdam, established in the Dutch Republic in 1609, is considered to be the forerunner to modern central banks. The Wisselbanks innovations helped lay the foundations for the birth and development of the banking system that now plays a vital role in the worlds economy. Along with a number of local banks, it performed many functions of a central banking system. Lucien Gillard calls it the European guilder, and Adam Smith devotes many pages to explaining how the bank guilder works, the model of the Wisselbank as a state bank was adapted throughout Europe, including the Bank of Sweden and the Bank of England. Established by Dutch-Latvian Johan Palmstruch in 1668, Sveriges Riksbank is often considered by many as the worlds oldest central bank, the lenders would give the government cash and also issue notes against the government bonds, which could be lent again. A Royal Charter was granted on 27 July through the passage of the Tonnage Act 1694, the bank was given exclusive possession of the governments balances, and was the only limited-liability corporation allowed to issue banknotes. The £1. 2M was raised in 12 days, half of this was used to rebuild the Navy and these modern central banking functions evolved slowly through the 18th and 19th centuries. The currency crisis of 1797, caused by panicked depositors withdrawing from the Bank led to the government suspending convertibility of notes into specie payment. The bank was accused by the bullionists of causing the exchange rate to fall from over issuing banknotes. Nevertheless, it was clear that the Bank was being treated as an organ of the state, henry Thornton, a merchant banker and monetary theorist has been described as the father of the modern central bank. An opponent of the real bills doctrine, he was a defender of the bullionist position, thorntons process of monetary expansion anticipated the theories of Knut Wicksell regarding the cumulative process which restates the Quantity Theory in a theoretically coherent form. Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, many consider the origins of the central bank to lie with the passage of the Bank Charter Act of 1844. Under this law, authorisation to issue new banknotes was restricted to the Bank of England, at the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold or up to £14 million in government debt
8.
Cooperative banking
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Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world, Credit unions have the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. They are typically the smaller form of cooperative banking institution, in some countries they are restricted to providing only unsecured personal loans, whereas in others, they can provide business loans to farmers, and mortgages. Larger institutions are often called cooperative banks, some are tightly integrated federations of credit unions, though those member credit unions may not subscribe to all nine of the strict principles of the World Council of Credit Unions. Like credit unions, cooperative banks are owned by their customers and follow the principle of one person. Unlike credit unions, however, cooperative banks are regulated under both banking and cooperative legislation. They provide services such as savings and loans to non-members as well as to members, many cooperative banks are traded on public stock markets, with the result that they are partly owned by non-members. Member control is diluted by these outside stakes, so they may be regarded as semi-cooperative, Cooperative banking systems are also usually more integrated than credit union systems. Local branches of cooperative banks select their own boards of directors and manage their own operations, Credit unions usually retain strategic decision-making at a local level, though they share back-office functions, such as access to the global payments system, by federating. Some cooperative banks are criticized for diluting their cooperative principles, principles 2-4 of the Statement on the Co-operative Identity can be interpreted to require that members must control both the governance systems and capital of their cooperatives. A cooperative bank that raises capital on public stock markets creates a class of shareholders who compete with the members for control. In some circumstances, the members may lose control and this effectively means that the bank ceases to be a cooperative. Accepting deposits from non-members may also lead to a dilution of member control, the special banks providing Long Term Loans are called Land Development Banks, in the short, LDB. The history of LDB is quite old, the first LDB was started at Jhang in Punjab in 1920. This bank is based on Co-operative. The main objective of the LDBs are to promote the development of land, agriculture, the LDBs provide long-term finance to members directly through their branches. Building societies exist in Britain, Ireland and several Commonwealth countries and they are similar to credit unions in organisation, though few enforce a common bond. However, rather than promoting thrift and offering unsecured and business loans, borrowers and depositors are society members, setting policy and appointing directors on a one-member, one-vote basis
9.
Public finance
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Public finance is the study of the role of the government in the economy. The purview of public finance is considered to be threefold, governmental effects on efficient allocation of resources, distribution of income, the proper role of government provides a starting point for the analysis of public finance. In theory, under circumstances, private markets will allocate goods. If private markets were able to provide efficient outcomes and if the distribution of income were socially acceptable, in many cases, however, conditions for private market efficiency are violated. For example, if people can enjoy the same good at the same time. National defense is one example of consumption, or of a public good. Market failure occurs when private markets do not allocate goods or services efficiently, the existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. Externalities, public goods, informational advantages, strong economies of scale, Public provision via a government or a voluntary association, however, is subject to other inefficiencies, termed government failure. Under broad assumptions, government decisions about the efficient scope and level of activities can be separated from decisions about the design of taxation systems. In practice, government budgeting or public budgeting is substantially more complicated, Government can pay for spending by borrowing, although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues, the accumulation of deficits over time is the total public debt. Deficit finance allows governments to smooth tax burdens over time, deficits can also narrow the options of successor governments. Public finance is closely connected to issues of distribution and social equity. Governments can reallocate income through transfer payments or by designing tax systems that treat high-income and low-income households differently, the public choice approach to public finance seeks to explain how self-interested voters, politicians, and bureaucrats actually operate, rather than how they should operate. Collection of sufficient resources from the economy in an appropriate manner along with allocating, resource generation, resource allocation and expenditure management are the essential components of a public financial management system. Public Finance Management basically deals with all aspects of resource mobilization, just as managing finances is a critical function of management in any organization, similarly public finance management is an essential part of the governance process. Public finance management includes resource mobilization, prioritization of programmes, the process, efficient management of resources. Rising aspirations of people are placing more demands on financial resources, at the same time, the emphasis of the citizenry is on value for money, thus making public finance management increasingly vital
10.
Transaction account
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A transaction account, checking account, current account or demand deposit account is a deposit account held at a bank or other financial institution. It is available to the account owner on demand and is available for frequent, access may be in a variety of ways, such as cash withdrawals, use of cheques and debit by electronic transfer. In economic terms, the funds held in an account are regarded as liquid funds. Transaction accounts are operated by businesses and personal users. Depending on the country and local demand economics they may not earn any or they can earn very high interest rates, in the United Kingdom, Hong Kong, India and a number of other countries, they are commonly called current or cheque accounts. Because money is available on demand they are sometimes known as a demand accounts or demand deposit accounts. In the United States, NOW accounts operate as transaction accounts, most current accounts come with a cheque book and offer the facility to arrange standing orders, direct debits and payment via a debit card. Current accounts may also allow borrowing via an overdraft facility, in Holland in the early 1500s, Amsterdam was a major trading and shipping city. People who had acquired large accumulations of cash began to deposit their money with cashiers to protect their wealth and these cashiers held the money for a fee. Competition drove cashiers to offer services, including paying out money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment, in the 18th century in England, preprinted checks, serial numbers, and the word cheque appeared. By the late 18th century, the difficulty of clearing checks gave rise to the development of clearing houses, all transaction accounts offer itemized lists of all financial transactions, either through a bank statement or a passbook. Canada has an Email Money Transfer service In India, NEFT, customers may need to attend a bank branch for a wide range of banking transactions including cash withdrawals and financial advice. There may be restrictions on withdrawals, even at a branch. For example, withdrawals of cash above a threshold figure may require notice, many transactions that previously could only be performed at a branch can now be done in others ways, such as use of ATMs, online, mobile and telephone banking. Cheques were the method of making withdrawals from a transaction account. Automated teller machines enable customers of an institution to perform financial transactions without attending a branch. This enables, for example, cash to be withdrawn from an account outside normal trading hours
11.
Fractional-reserve banking
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Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, and holds reserves equal to a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide, however, a bank can experience a bank run if depositors wish to withdraw more funds than the reserves held by the bank. In most countries, the central bank regulates bank credit creation, imposing reserve requirements and this can limit the amount of money creation that occurs in the commercial banking system, and helps to ensure that banks are solvent and have enough funds to meet demand for withdrawals. However, rather than controlling the money supply, central banks usually pursue an interest rate target to adjust the rate of inflation. In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths and these notes gained acceptance as a medium of exchange for commercial transactions and thus became an early form of circulating paper money. This generated income for the goldsmiths but left them with notes on issue than reserves with which to pay them. A process was started that altered the role of the goldsmiths from passive guardians of bullion, charging fees for safe storage, if creditors lost faith in the ability of a bank to pay their notes, however, many would try to redeem their notes at the same time. If, in response, a bank could not raise funds by calling in loans or selling bills. Such a situation is called a run and caused the demise of many early banks. The Swedish Riksbank was the worlds first central bank, created in 1668, the emergence of central banks reduced the risk of bank runs which is inherent in fractional-reserve banking, and it allowed the practice to continue as it does today. In the course of enacting such policy, central banks have from time to time attempted to manage interest rates, reserve requirements, in most legal systems, a bank deposit is not a bailment. In other words, the funds deposited are no longer the property of the customer, the funds become the property of the bank, and the customer in turn receives an asset called a deposit account. That deposit account is a liability on the sheet of the bank. Relatively few depositors demand payment at any time, and banks maintain a buffer of reserves to cover depositors cash withdrawals. A bank can raise funds from additional borrowings, by selling assets, thus the fear of a bank run can actually precipitate the crisis. Fractional-reserve banking allows banks to credit in the form of bank deposits. The banks also provide loans to borrowers, and act as financial intermediaries for those funds
