Financial Services & Records
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Financial Services & Records






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    Financial Services & Records Financial Services & Records Presentation Transcript

    • Chapter 5 Financial Services & Records
    • Financial Services
      • Financial Institutions
      • Type of sources
      • Commercial banks
      • Consumer finance companies
      • Credit unions
      • Savings and loan associations
      • Others
        • Insurance companies
        • Credit card companies
        • Pawn-brokers
    • Commercial Bank
      • Often referred to as full-service institution
      • Offer broad range of services – checking account, savings account, trust facilities, almost all types of loan
      • Banks are examined by the Bank Negara
      • Also examined by their own internal auditors & by outside auditors on orders from the bank’s board of director
    • Consumer Finance Companies
      • Often referred as small loan companies, personal finance companies, licensed lenders
      • Following the mergers among financial institution in Malaysia, the finance companies are absorbed under the commercial banks
      • Principal distinguishing features:
        • Characteristics of the loans
        • Their customers
        • Their method of operation
    • Consumer Finance Companies (cont.)
      • a) Principal types of loan
        • Installment loan of small loan (less than commercial bank)
        • Through sales finance companies (their subsidiary), they buy installment contract from local retailers
        • With small loan offered, the risk is higher, thus charging higher interest rate
        • Since the loan amount is small, the operational cost & other expenses are almost fixed, hence, the cost in terms of percentage from the loan is higher
    • Consumer Finance Companies (cont.)
      • b) Customers
      • different occupational group from commercial bank
      • offered to less income stability or less occupational stability group
      • customers represent higher risk
      • security accepted for loan is often of lesser value or difficult to appraise (eg. household goods)
    • Consumer Finance Companies (cont.)
      • c) Service & method of operation
      • Usually located for the customer’s convenience, & are likely to have many small branches in one city
      • Do not accept deposits, or have safe-deposit boxes
      • Offices relatively small, few workers, often located in malls & convenient location
    • Credit Union
      • Is a cooperative financial institution
      • An association of people who save money together & make loans to each other at relatively low interest rate
      • Later offer loan for non-members with higher interest rate
      • Organised by people who share a common bond – eg. Employee working for the same employer
      • They participate in the ownership & control of the credit union
    • Credit Union (cont.)
      • Characteristics of Credit Union
        • Adhere to basic principals as other cooperative institutions
        • Savings & loans are their main function
        • Acquire capital from membership savings that are invested as the credit union shares
        • Each member, irrespective of amount of shares, is entitled to one vote in the election of its board of directors
        • Additional dividends may be declared after expenses are paid & legal reserves set aside
        • Are operated mainly for the benefit of their membership
    • Savings & Loan Association
      • Are depository institution
      • Originally organised to accept savings deposits & provide mortgage financing
      • Later provide commercial loan & consumer loan, competing with commercial bank
      • The most common loan involves mortgage lending, even though they offer wide variety of loans
      • Active in second mortgage & home equity lending
      • Is also a cooperative bank
    • Others
        • Insurance Companies
        • The main purpose insurance policy is to provide financial security for dependents, but it also contain savings & investment features such as for retirement planning
        • It is a nondeposit institution
        • Credit card company
        • Companies offering credit card for general purpose (purchasing & cash-loan)
        • Usually offered through banks or private agencies (eg. Petronas-VISA)
        • Made arrangement with businesses to accept the credit card instead of cash
    • Others (cont.)
        • Pawnshops
        • Make loans based on the value of tangible possessions eg. jewellery
        • Obtaining cash-loan quickly by low & middle income families
        • A non-deposit institution
        • Higher fees charged than other financial institutions
    • Financial Services
        • Some common services
        • Checking & savings accounts
        • Safe deposit facilities
        • Trust services
        • Loan & credit cards
        • Mortgages
        • Electronic banking
        • Investment department
        • Commercial bank offered most of the services compared to other financial institutions
    • Financial Services (cont.)
        • Checking account
        • Checks acts as a substitute for cash in financial transactions
        • More convenient & less risk of loss
        • Savings account
        • Accounts where person deposits money
        • Flexibility in withdrawal at the convenience of the depositor
        • Benefits in terms of security of money deposited & interest incurred
    • Financial Services (cont.)
        • Safe deposit facilities
        • Safe deposit boxes provide the best security for valuable items & documents, on a yearly rental basis
        • At the time the box is rented, the person signed a signature card & got a key to the box
        • Access to the box is permitted to those signed the card & who has the key. The bank will have another key. To allow entry to a box needs a combination of two keys
        • Trust services
        • Offer a trusted custodian of money or property services
    • Financial Services (cont.)
        • Loan & Credit card
        • Credit offered to individuals
        • Cash-loan: personal loans, advance from credit card taken from the bank issuing the credit card
        • Credit-purchase: hire-purchase loan, purchasing using credit card
        • The credit card companies make arrangement with the banks for the banks to offer their credit card to bank‘s clients
        • Mortgages
        • Loan for obtaining property or real estate (home, land)
        • Need collateral of the property
    • Financial Services (cont.)
        • Electronic banking
        • Automated teller machine (ATM) – withdrawal, deposit, loan repayment, transfer of money using a plastic card. Fee would be charged if the card is used at a different bank than the issuer bank
        • Internet banking
        • Investment department
        • Banks also invest part of their money in hig-quality government & corporate bonds
        • Securities offered through banks are more convenient & less costly than through stock brokerage firms
    • Financial Services (cont.)
        • Islamic Banking
        • refers to a system of banking that is consistent with Islamic Law ( Sharia’ ) principles & guided by Islamic economics
        • Islamic law prohibits usury, i.e. the collection & payment of interest, also commonly called riba
        • Islamic law also prohibits investing in businesses that are unlawful, or haram (such as businesses that sell alcoholic drinks, or business that are contrary to Islamic values)
    • Financial Services (cont.)
        • Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Syariah, that is Fiqh al-Muamalat (Islamic rules on transactions)
        • The basic principle is the sharing of profit & loss and the prohibition of riba (usury)
        • Most common Islamic concepts:
          • safekeeping ( Wadiah )
          • cost plus ( Murabahah )
          • profit sharing ( Mudharabah )
          • joint venture ( Musharakah )
          • leasing ( Ijarah )
    • Financial Services (cont.)
      • Wadiah (Safe-keeping)
      • The bank is a keeper & trustee of funds
      • Funds deposited in the bank are guaranteed by the bank to refund the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it
      • The depositor, at the bank's discretion, may be rewarded with a hibah (gift) as a form of appreciation for the use of funds by the bank
      • The bank compensates depositors for the time-value of their money (i.e. pays interest) but refers to it as a gift because it does not officially guarantee payment of the gift
    • Financial Services (cont.)
        • Murabahah (cost plus)
        • In an Islamic mortgage transaction, instead of loaning the buyer money, a bank buy the item from the seller, and re-sell it to the buyer at a profit, & the buyer pay to the bank in installments
        • No additional penalties charged for late payment as profit cannot be made explicit
        • To protect itself against default, strict collateral is needed
        • The asset (home or land) is registered to the name of buyer from the start of the transaction but mortgaged to the bank
        • Loans for vehicles are handled in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid)
    • Financial Services (cont.)
        • Murabahah (cost plus) (cont.)
      • The purchase & selling price, other costs, and the profit margin is stated at the time of the sale agreement
      • The bank is compensated for the time value of its money in the form of the profit margin
      • It’s a fixed-income loan for the purchase of a real asset (such as real estate or a vehicle), with a fixed rate of profit determined by the profit margin
      • The asset remains as a mortgage with the bank until the Murabahah is paid in full
    • Records
      • Principal records most people should maintain
      • Income statement
        • Summary of income & expenses for selected time period
        • Provides 1st important step in financial planning & budgeting
      • 2. Balance sheet
        • Listing of assets & liabilites that determine the financial worth
        • Summary of a person‘s financial condition
    • Records (cont.)
      • 3. Personal inventory
        • Compilation of personal possessions, listing such factors as date of purchase & original cost
        • Birth certificate
        • Marrige license
        • Will‘s document
      • 4. Tax records
        • Consist of income data & list of deductions of income during the year
        • Copies of previous tax return
    • Records (cont.)
      • 5. Homeownership records
        • Record on purchasing of home or other property, documents on mortgage loan
      • 6. Insurance records
        • Policies documents, schedule of policy due dates, the insurance annual statement
      • 7. Banking records
        • Accounts book, bank statement, credit card bill, checking accounts, bank transactions
    • Records (cont.)
      • 8. Investment records
        • Record of sales & purchases of investment – stock, bond, unit trust
        • Retained for tax purposes
        • Helped evaluating the investment
      • 9. Working file
        • documents such as bills –utility bills
        • worksheets for family budget