The Evolution of Banking in Sierra Leone
INSTITUE OF PUBLIC ADMINSTRATION AND MANAGEMENT/ UNIVERSITY OF SIERRE LEONE MODULE: FINANCIAL REGULATION AND PRACTICES COURSE: BSC (HONS) FINANCIAL SERVICES (YEAR 4) ASSIGNMENT: DISCUSS THE EVOLUTION OF BANKING IN SIERRA LEONE NAME: MOHAMED KHALIL KOROMA REG: 4606 NAME OF LECTURER: MR N’JAI CONTENT 1. Introduction 2. 1 Adam Smith and Modern Banking 2. Overview of Sierra Leone banking 3. Our Perception of Banking in Sierra Leone 4. Conclusion INTRODUCTION Mankind has always been seeking security and protection. This need has led him to scientific and tecological development on one hand and banking development on the other.
In modern times the banking has become so necessary that if is excluded from any economic system like ours in Sierra Leone the whole business and economic world will collapse like house of cards. In this banking development the services of three groups of persons in the Sierra Leone economy cannot be ignored: 1. Money Lender 2. Merchants 3. Gold smiths The Bank of Venice is perhaps the first ever regular bank in the banking history and was established in 1157 followed by these banks as under: Bank of Barcelona in 1401 Bank of Genoa (Italy) in 1407
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Bank of Amsterdam in 1609 With the exception of the extremely wealthy, very few people buy their homes in all-cash transactions. Most of us in Sierra Leone need a mortgage, or some form of credit, to make such a large purchase. In fact, many people in advance countries use credit in the form of credit cards to pay for everyday items. The world especially our Sierra Leone economy as we know it wouldn’t run smoothly without credit and banks to issue it. In this article we’ll, explore the birth of these two now-flourishing industries.
Adam Smith and Modern Banking Banking was already well established in the British Empire when Adam Smith came along in 1776 with his “invisible hand” theory. Empowered by his views of a self-regulated economy, moneylenders and bankers managed to limit the state’s involvement in the banking sector and the economy as a whole. This free market capitalism and competitive banking found fertile ground in the New World, where the United States of America was getting ready to emerge. In the beginning, Smith’s ideas did not benefit the American banking industry.
The average life for an American bank was five years, after which most bank notes from the defaulted banks became worthless. These state-chartered banks could, after all, only issue bank notes against gold and silver coins they had in reserve. A bank robbery meant a lot more before, than it does now, in the age of deposit insurance and the Federal Deposit Insurance Corporation – FDIC. Compounding these risks was the cyclical cash crunch in America. Alexander Hamilton, the secretary of the Treasury, established a national bank that would accept member bank notes at par, thus floating banks through difficult times.
This national bank, after a few stops, starts, cancellations and resurrections, created a uniform national currency and set up a system by which national banks backed their notes by purchasing Treasury securities, thus creating a liquid market. Through the imposition of taxes on the relatively lawless state banks, the national banks pushed out the competition. The damage had been done already, however, as average Americans had already grown to distrust banks and bankers in general.
This feeling would lead the state of Texas to actually outlaw bankers, law that stood until 1904. OVERVIEW OF SIERRA LEONE BANKING Sierra Leone gain her independence from England (uk), were Banking emerge from as it was founded in 1694 to act as the Government ‘s Banker and debt t –manager. Since then its role has developed and evolved , cantered on the management of its position at the centre of the UK ‘s financial systems and is a key figure in decision – making, financial regulations and how it is practiced by other nations including Sierra Leone .
At the time of independence in 1961 from the United kingdom the monetary system was controlled by the West Africa Currency Board (WACB). The WACB issued the British West African pound , a colonial currency tied to the pound sterling . in order to create an independent economy for the new country ,the government drafted legislation to create a central bank and a new currency. The enabling legislation was passed on the 27 of March. The Bank of Sierra Leone was established in 1963, is the central bank of issue . he Banking Acts of 1964 provides for the regulations of commercial banks by the central bank, including the control of money supply. Poor revenue collection ,failure to control expenditure and heavy debt servicing requirements as a result of past borrowing characterized government finances in the 1980s and early 1990s. It is responsible by charter for the oversight of the country’s banks and advising the government on financial matters, management of domestic and foreign debts and maintaining of foreign exchange reserve.
Despite the since independence Sierra Leone ‘economy has been characterized by financially disadvantageous exchange rate and government budget deficits which led to sizable deficit balance to payment deficit and inflation. Also IMF has been making numerous interventions to savage this situation. In the 1990s, there were six commercials banks operating in the country. Standard chartered Bank and Barclays bank of Sierra Leone are both foreign banks that was locally incorporated ,with sierra Leonean staff . the nternational Bank of trade and Industry opened in 1982 , with funds from Lebanese and Sierra Leonean investors. The National development bank was established in 1968 to finance agricultural and industrial projects. The National cooperative development Bank was also established in 1971 serve as a central bank for all cooperative and makes modest loans to individual farmers for cooperative for agricultural improvements. Sierra Leone also has Post Office Savings banks . Most of these banks was closed during the rebel attack of the late 1990s.
GDP per Capita of Sierra Leone grew 32% in the sixties reaching a peak growth of 107% in the seventies . But this proved unsustainable and it consequently shrank by 52% in the eighties and further 10% in the nineties After the 10 year civil war the emerge of foreign banks in to the country aid the speed of banking and great competition . The Sierra Leone commercial bank is creating opportunities in the micro finance borrowing using a group guarantee methodology with loans to be provided to group.
Sierra Leone is having seventeen commercial banks including community banks operating in the country other financial institutions like the discounts houses such as first Discount House and Home Finance Company are increasing hereby competition . Commercials Banks provide Financial Services to customers in keeping money safe and allowing withdraw when needed ,issuance of check books so that bills can be paid and other kinds of payment can be delivered by post and provide personal loans ,commercials loans and mortgages.
The central bank is lowering its benchmark lending rate by 300 basis point to 20 percent in the bid to improve liquidity amid a slowing inflation rate . The reserve repo rate set at 22 percent, the re discount rate at 24 percent and standing facility at 27 percent, to revitalize the economy As result of the conducive atmosphere doing business 2011 ranked remained unchanged 143rd this year according to the latest DB 2011 report, this shows that banking is playing a significant role in Sierra Leone.
OUR PERCEPTION OF BANKING IN SIERRA LEONE In Sierra Leone, coins and paper notes, however, needed to be kept in a safe place. Our homes didn’t have the benefit of a steel safe, therefore, most wealthy and savings minded people held accounts at various banks in the country. Numerous people, like business owners or workers whom one hoped were both devout and honest, always occupied the various banking floors in Sierra Leone, adding a sense of security.
There are records from the various commercial banks and the Bank of Sierra Leone that suggests banks loaned money out, in addition to keeping it safe. The fact that most banks are also the financial centres of our city and head quarter towns is the major reason that they were ransacked during our war. Coins and paper notes could be hoarded more easily than other commodities, such as 300-pound goods, so there emerged a class of wealthy merchants in Sierra Leone that took to lending these coins and paper notes, with interest, to people in need.
Banks generally handled large loans, as well as loans to various businesses and government, and these new money lenders in Sierra Leone have taken up the rest. CONCLUTION In order to create an independent economy for the new country, the government drafted legislation to create a central bank and a new currency. The enabling legislation was passed on 27 March 1963 and the bank began operations on 4 August 1964. At the same time, the Leone was inaugurated, using a decimal system of currency.
The current governor of the Bank of Sierra Leone is Sheku Sambadeen Sesay, who was appointed by president Ernest Bai Koroma on July 1, 2009. He succeeded Samura Kamara who took over as Sierra Leone Minister of Finance. The current deputy Governor is Andrina Rosa Coker, who was appointed by President Ernest Bai Koroma on October 6, 2008. REFERENCE – Bank of Sierra Leone website. – Andrew Beattie, former managing editor and long time contributor at Investopedia. com. – Wandering Wordsmith archive.