Law and Practice of Banking Assignment - 1

1.
A country financial system consist of entities that help to facilitate flow of funds from
those that have fund to invest to those who need funds to invest.
Discuss roles of banks in financial system.
Accepts deposit : The bank takes deposits in the form of saving, current, and fixed deposits.
The surplus balances collected from the firm and individuals are lent to the temporary
requirements of the commercial transactions.
Provides loan and advances : Another critical function of this bank is to offer loans and
advances to the entrepreneurs and business people, and collect interest. For every bank, it is
the primary source of making profits. In this process, a bank retains a small number of deposits
as a reserve and offers (lends) the remaining amount to the borrowers in demand loans,
overdraft, cash credit, short-run loans, and more such banks.
Credit cash: When a customer is provided with credit or loan, they are not provided with liquid
cash. First, a bank account is opened for the customer and then the money is transferred to the
account. This process allows the bank to create money.
Discounting bills of exchange: It is a written agreement acknowledging the amount of money to

be paid against the goods purchased at a given point of time in the future. The amount can also
be cleared before the quoted time through a discounting method of a commercial bank.
Overdraft facility: It is an advance given to a customer by keeping the current account to

overdraw up to the given limit.
Purchasing and selling of the securities: The bank offers you with the facility of selling and
buying the securities.
Locker facilities: A bank provides locker facilities to the customers to keep their valuables or
documents safely. The banks charge a minimum of an annual fee for this service.
Paying and gathering the credit : It uses different instruments like a promissory note, cheques,
and bill of exchange.
2.Describe laws governing the banks and financial institutions in Tanzania
The Tanzania Postal Bank (Repeal and Transitional Provisions) Act, 2015
An Act to repeal the Tanzania Postal Bank Act with a view to provide
for its incorporation under the Companies Act; to provide for
the vesting of assets and liabilities and transfer of employees of
the Tanzania Postal Bank to TPB Bank Limited; to provide for
transitional provisions and other related matters.
The Bank of Tanzania Act, 2006

An Act to provide for more responsive regulatory role of the Bank of Tanzania
in relation to the formulation and implementation of monetary policy; to
provide for the supervision of banks and financial institutions and to provide
for other related matters.
The Banking and Financial Institution Act, 2006

An Act to provide for comprehensive regulation of banks and
financial institutions; to provide for regulation and supervision
of activities of savings and credit co-operative societies and
schemes with a view to maintaining the stability, safety and
soundness of the financial system aimed at reduction of risk of
loss to depositors; to provide for repeal of the Banking and
Financial Institutions Act, (Cap.342) and to provide for other
related matters.
Foreign exchange act 1992

An act make better Provisions for more efficient administration and management of dealings
and other acts in relation to gold, foreign currency, Securities, payment, debts, imports, exports,
transfer or settlement of property and for purposes incidental to and connected to those.
THE MICROFINANCE ACT, 2018

An Act to provide for the licensing, regulation and supervision of
microfinance business; and to make provisions for related
matters.
3.Discuss the roles of central bank in facilitating banking business
Currency regulator or bank of issue: Central banks possess the exclusive right to manufacture
notes in an economy. All the central banks across the world are involved in issuing notes to the
economy.
This is one of the most important functions of the central bank in an economy and due to this
the central bank is also known as the bank of issue.
Earlier all the banks were allowed to publish their own notes which resulted in a disorganised
economy. To avoid this situation the government around the world authorised the central banks
to function as the issuer of currency, which resulted in uniformity in circulation and balanced
supply of money in the economy.
Bank to the government: One of the important functions of the central bank is to act as the bank
to the government. The central bank accepts deposits and issues funds to the government. It is
also involved in making and receiving payments for the government. Central banks also offer
short term loans to the government in order to recover from bad phases in the economy.
In addition to being the bank to the government, it acts as an advisor and agent of the
government by providing advice to the government in areas of economic policy, capital market,
money market and loans from the government.
In addition to that, the central bank is instrumental in formulation of monetary and fiscal policies
that help in regulation of money in the market and controlling inflation.
Custodian of Cash reserves: It is a practice of the commercial banks of a country to keep a part
of their cash balances in the form of deposits with the central bank. The commercial banks can
draw that balance when the requirement for cash is high and pay back the same when there is
less requirement of cash.
It is for this reason that the central bank is regarded as the banker’s bank. Central bank also
plays an important role in the credit creation policy of commercial banks.
Custodian of International currency: An important function of the central bank is to maintain a

minimum balance of foreign currency. The purpose of maintaining such a balance is to manage
sudden or emergency requirements of foreign reserves and also to overcome any adverse
deficits of balance of payments.
Lender of last resort: The central bank acts as a lender of last resort by providing money to its
member banks in times of cash crunch. It performs this function by providing loans against
securities, treasury bills and also by rediscounting bills.
This is regarded as one of the most crucial functions of the central bank wherein it helps in
protecting the financial structure of the economy from collapsing.
Clearing house for transfer and settlement: Central bank acts as a clearing house of the
commercial banks and helps in settling of mutual indebtedness of the commercial banks. In a
clearing house, the representatives of different banks meet and settle the inter bank payments.
Controller of credit: Central banks also function as the controller of credit in the economy. It
happens that commercial banks create a lot of credit in the economy that increases the inflation.
The central bank controls the way credit creation by commercial banks is done by engaging in
open market operations or bringing about a change in the CRR to control the process of credit
creation by commercial banks.
Protecting depositors interests: Central bank also needs to keep an eye on the functioning of
the commercial banks in order to protect the interests of depositors.
REFERENCE.
www.bot.go.tz
The economics of money banking and financial markets by Frederick S. Mishkin 9th edition
www.cfi.com

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1.

Discounting bills of exchange: It is a written agreement acknowledging the amount of money to

Overdraft facility: It is an advance given to a customer by keeping the current account to

2.Describe laws governing the banks and financial institutions in Tanzania

The Bank of Tanzania Act, 2006

The Banking and Financial Institution Act, 2006

Foreign exchange act 1992

THE MICROFINANCE ACT, 2018

3.Discuss the roles of central bank in facilitating banking business

Custodian of International currency: An important function of the central bank is to maintain a

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