Banking

Banking refers to the operations and services provided by financial institutions that facilitate financial transactions for individuals and businesses, primarily through the processes of lending and borrowing money.

Banking Institutions (Types of Banks)

• Central Bank: Regulates and oversees the financial system, implements monetary policy, and ensures financial stability.
• Commercial Banks: Provide services such as loans, deposits, and investment advice to individuals and businesses.
• Cooperative Banks: Cater to the financial needs of specific groups or communities.
• Development Banks: Fund large-scale projects to drive economic development.
• Savings and Credit Banks: Support savings mobilization and provide loans to individual savers.

Services and Functions of Commercial Banks

Commercial banks offer essential services, including safeguarding money, providing loans, facilitating trade, and assisting in buying and selling shares on the stock exchange.

Financing Home and Foreign Trade

Commercial banks finance domestic and international trade by offering credit options, including loans for long-term needs and overdrafts for short-term cash flow gaps.

Differences Between Loans and Overdrafts

Loans are used for long-term investments and typically require collateral, while overdrafts are for short-term needs with interest only on the overdrawn amount.

Factors Considered Before Granting a Loan or Overdraft

Banks assess loan purpose, required amount, collateral, and the borrower's creditworthiness before approval.

Bank Facilities and Operations

• Credit Transfers: Allows electronic funds transfer within or between branches for fast, reliable payments.
• Standing Orders: Enables fixed-amount payments at regular intervals, such as rent or insurance premiums.
• Direct Debit: Used for variable amounts, initiated by the creditor, providing flexibility for payments like utility bills.

Types of Accounts

• Deposit Account: Suitable for earning interest on funds not needed immediately.
• Savings Account: Ideal for holding funds securely, with lower minimum deposits.
• Current Account: Provides easy access to funds for frequent transactions, often used by businesses.

Building Societies

Building societies offer long-term savings and mortgage services, handling share accounts, providing property loans, and managing stock purchases on behalf of clients.

National Savings and Credit Bank Services

The National Savings and Credit Bank promotes savings and offers services such as ordinary savings, fixed deposits, investment accounts, money transfer, and foreign exchange transactions.

The Cheque System

A cheque is a written order instructing a bank to pay a specified amount from the drawer's account to a designated payee.

Types of Cheques

• Open Cheque: Cashable by anyone, lacks security, can be cashed over the counter.
• Bearer Cheque: Payable to whoever presents it to the bank, lacks security.
• Order Cheque: Specifies a payee for added security, allows endorsement for transfer.
• Crossed Cheque: Must be deposited into a bank account, enhancing security.

Types of Cheque Crossings

• General Crossing: Two parallel lines across the cheque with “Account Payee Only,” restricting cashing directly.
• Special Crossing: Specifies the payee’s branch, ensuring it can only be accessed at that branch.

Dishonoured Cheques

Cheques may be dishonoured due to insufficient funds, signature mismatches, or post-dating, often marked “Refer to Drawer.”

The Cheque Clearing System

The cheque clearing system, originally centralized but now electronic, balances credits and debits between banks to facilitate transfers.

Credit Cards

Credit cards allow consumers to make purchases on credit and pay later, increasing convenience and enabling large transactions without cash.

Automatic Teller Machine (ATM)

ATMs provide 24/7 cash withdrawal, balance checks, mini-statements, and bill payments, accessible with a card and PIN for convenient banking.

Customer Guidelines for ATM Use

Customers should protect their PIN and ensure privacy when using ATMs to prevent unauthorized access.

The Central Bank (Bank of Zambia)

The Bank of Zambia manages Zambia's financial system, issues currency, manages national debt, and supervises commercial banks, also advising the government on monetary policy.

Customer Rights in Banking

Customers have rights to confidentiality, timely bank statements, secure funds, non-discriminatory service, and clarity on interest rates and changes.