Money, Banking, Financial Institutions and Credit
Money
Money is anything generally acceptable as a means of payment and settlement of debt. Functions: medium of exchange, unit of account, store of value, standard of deferred payment. Qualities: acceptability, portability, divisibility, durability, homogeneity, scarcity and stability.
Cameroon's money: the CFA franc (XAF), issued by the Bank of Central African States (BEAC) for the six CEMAC countries and pegged to the euro at 1 euro = 655.957 FCFA. Notes run from 500 to 10,000 FCFA; coins from 5 to 500 FCFA.
The banking system
- Central bank (BEAC): issues notes, bankers' bank, lender of last resort, holds reserves, advises governments. It does not keep accounts for individuals.
- Commercial banks: Afriland First Bank, Société Générale Cameroun, BICEC, Ecobank, UBA. Services: current and savings accounts, transfers, overdrafts and loans, foreign exchange, safe custody, guarantees, mobile banking.
- Microfinance institutions: licensed and supervised by COBAC, serving small savers and traders who cannot meet bank conditions.
- Development institutions: BDEAC, the Cameroon Bank for SMEs, the Treasury.
Credit
Credit transfers purchasing power now against payment later. Forms: trade credit, bank overdraft, bank loan, hire purchase, leasing, mortgage, consumer credit. Lenders apply the five Cs: character, capacity, capital, collateral, conditions.
Worked example
A trader borrows 500,000 FCFA at 12% per annum for 9 months. Simple interest I = P × R × T = 500,000 × 0.12 × 9/12 = 45,000 FCFA; total repayable 545,000 FCFA. Reasoning: the rate is annual, so time must be expressed in years (9 months = 0.75 year). Repaid in 6 months, interest would be 30,000 FCFA.
Traps
- Saying the central bank lends to individuals.
- Confusing interest (cost of borrowing) with profit (reward to the entrepreneur).
- Forgetting trade credit comes from a supplier, not a bank.
- Mixing up a savings account (interest, passbook) with a current account (cheque facility, usually no interest).