traditional financial institutions

September 30, 2022

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Fabio77

TRADITIONAL FINANCIAL INSTITUTIONS, The traditional financial institutions came into existence several years before the establishment of modem banking system in many countries in the West African sub-region. traditional financial institutions and their function. In the traditional setting, there are ‘money lenders’ who make profits by charging interest on money lent to people. Money lenders have surplus funds for lending and they usually charge very high interest rates.

what are traditional financial institutions?

There is a traditional banking system (‘Local Bank’) which is called various name in various languages. In some cases the members contribute an agreed sum of money into a Fund on a regular basis such as on Sundays, the mark day of the area, or month ending. The contributions can be on a daily, weekly or monthly basis. From the fund, money can be lent to members or other persons and interest is charged. At an agreed period (say during festivals, end of year, etc) the members are re-paid their money together with their share of the interest or profit.

these are as follows

Susu
Ajo or daily pay
Goldsmith
co-operative drifts etc

TRADITIONAL FINANCIAL INSTITUTIONS AND THEIR AIMS

It involves the coming together of a group of people with common interest in the same place of work or community who mutually agree to pool their resources together mender to save, lend and manage money.

Define money and capital market.

Identify the types and functions of the institutions.

Explain the types and features of securities.

Explain the process of and requirements for accessing the capital market

List the benefits of the capital market.

Demonstrate the understanding of the meaning, transaction and trading methods in the secondary market.

These traditional financial institutions usually take the form of co-operative societies known as credit and thrift co-operative societies, which are given different names in different places, e.g.

“ESUSU” or “NSUSU” in Yoruba, or “ETIO-UTU” in Igbo. It takes the form of association of people in the village, office, market, etc. who have mutually accepted to pool their resources together so as to save, manage and lend such money to its members when the need arises.

Functions of traditional financial institutions

It encourages savings: Members, through the pooling of their resources together, are encouraged to save.
Assists members to borrow: Members who are in need of money for whatever reason are permitted to borrow.
It ensures proper management of funds: The saving and lending of funds to members assist the institution to manage their funds properly.
Promotion of investment: Traditional financial institutions may decide to invest in viable business that can yield profit to the organizations
Assistance to members in time of need: Traditional financial institutions can assist members when they air difficulties.