Home Finance What is banking-History of banking, sub-continent, word bank and evolution of banking

What is banking-History of banking, sub-continent, word bank and evolution of banking

Banking needs in past mentioned:

Money wealth is very important and necessary to satisfy human wants. Man has been needy in every era due to which, consequently, the collection and supply (receipts; and payments) of money has been an essential part of human life.

Different commodities have been used as money in different ages (e.g) precious stones, metals, animals, different eatables and minerals banking need etc.

The concept of money, its sources and uses have been passing through from the innovative stages along with the development of human culture.

Even a good number of people directly started dealing in money (e.g) merchants, goldsmiths and moneylenders etc.

The concept of loan, interest, written documents, cheque and bill of exchange etc.

Define these terms:

  1. History
  2. Banking in Sub-Continent
  3. World Bank
  4. Definitions
  5. Evolution of bank
  6. Conclusion
  7. FAQ’s

HISTORY OF BANKING:

History of banking, Opinion differs in regard to the origin of the word “Bank”. Italian word “Banco” or ”Bancus” These words means a bench upon which Italian money changers used to sit with their coins to transacts business.

French word “Banqui” or “Banca”.These words also mean a bench. German word “Back” which means a joint-stock firm or fund.

This word was Italianised into “Banco”, certainly when the Germans were masters of a great part of Italy.

But whatever be the origin of “bank”, the word came to be used in Europe from the middle ages in connection with the business of a bank.

Historical Picture of Banking

Source: Wikipedia

In the history of Banking industry has been present in different forms right from the beginning of human life. About three thousand years ago, there was a nation called “Sumerian” who started giving loans to the people.

These loans were repayable in the form of cash or commodities. Sumerian used lumps of gold and silver as money.

For the first time, So the banks were established in Venice and Genoa in the 12th & 14th century.

In the 14th century, a modem bank was in set up in Florence where the banks accept the deposits from people in order to relent the needy.

BANKING IN SUB-CONTINENT:

It is very much evident that during 2000 B.C, the history of banking there was a developed banking system in the sub-continent, however, which was mostly managed by sahukars or moneylenders.

It is also notable that during this period, institutions carried on the banking business and accounts.

Muhammad Taghlaq was the first king who introduced token currency in India. He issued metal coins and currency notes from Royal mint.

Later, Mughal rulers and Shershah Suri further streamlined this system.

There is also sufficient evidence that during the fifth-century people used Hun-dies as a credit instrument.

sub-continent

The modern banking in India was started certainly with the establishment of the bank of Calcutta in 1806. In 1809 therefore it was redesigned as a bank of Bengal.

After this, So Bank of Bombay (In 1840) and bank of Madras (In 1843) were formed.

These three banks remained at the apex of modern banking till there amalgamation as Imperial Bank of India in 1921, which become the state bank of India in 1955.

The bank of India was founded in 1906 with paid-up capital of Rs.50 lakh. Therefore Receive bank of India was established as the first Central bank of India in 1935.

In 1946 there were only 93 scheduled banks to clarify were working in India having 3106 branches in all over the India.

FINANCIAL INSTITUTION WORD BANK:

 Different banking sector specialists have an unknown attitude about the extraction of the word “Bank”. In other words, Italian experts argue that it has been derived from Italian words (Bancus) or (Banco).

word bank

 According to french specialist, it has been extracted from the french word (Banque). Whereas Germans say that the word “Bank” has been derived from the German word “Back” to clarify which means the joint-stock of Money”.

The word bankrupt has derived from Italian words, “Banco” and “Rapta”.

DEFINITION:

“A bank is a financial institution whose main motive is to want money on deposit from people and to give advance loans on interest to some others.” 

Banking companies ordinance – 1962                    

Pakistan banking companies ordinance, 1962, defines this meaning as under.

“A money management company means the accepting, for the purpose of giving money as a loan or investment of deposits of money from the public refundable on demand or otherwise and withdraw-able by cheque, draft or otherwise.”

Evolution of bank:

Banking is not something new. It has a very past events which dates from the days of Greece and Rome. But in banking different kinds of bank.

Evolution of bank

The current time finance has passed through a different phase of development because of different types of banking. Following forerunner has played the main role of the evolution of modern finance institution.

  • Kings
  • Merchants
  • Moneylenders
  • Gold Smiths

KINGS:

The role of kings had been vital in the introduction and development of the banking system. The kings framed rules and made laws of lending or borrowing money for the purpose of businesses transactions.

These laws facilitated both lender and borrower in their dealings at that time. Some of the kings named king Hammurabi if Iraq, king Croesus of Turkey, king Ramous of Egypt and king is Ashok of Indus valley are popular in this regard.

MERCHANTS:

In the past (12th to 14th century), the merchants were considered as very rich and respectable people due to good repute of dealings in money.

In the beginning of the 14th century, many Jew merchants in Italy migrated to England.

Those are financially strong. These had a good reputation both at home and abroad, where they got business connections.

That was so financially sound that even the British rulers were used to take a loan from them.

merchants

The also started financing of foreign trade. When merchants purchased goods from other traders they did not pay money but issued simple slips with their signature.

The traders who accepted these receipts, started using them as a mean of making payments

Trust in Merchants:

Because of their strong financial backgrounds and fair dealing in money, they were considered as trustworthy people. Therefore, the general public started and continued financial transactions with them.

Transfer of Merchants:

In the 14th century, many Italian merchants shifted to England, where they started the business of lending money on interest basis.

Because of their sound financial position, even the king also used to borrow money from them. They have done a lot of services in the field of banking.

financial money lender

Credit Instruments:

With the expansion in business, the merchants began to give written acknowledgement to the people, which put them in a position to withdraw their money from the agents or friends of merchants.

Latter these written acknowledgements were considered as credit instruments. The slips issued by purchasers have gradually given birth to modern credit instruments.

A bank draft and bill of exchange, traveller cheque are the examples of such instruments.

MONEY LENDERS:

Money Lenders / Seth were rich people who started to lend their surplus money to needy people on internet basis. Moneylenders were used to call as Seth during the reign of Mughals.

Expansion of Business:

 In the beginning, they provided lending facilities from their own resources. But with the expansion in business, they started to borrow money for lending purposes.

It means they began to borrow from the people with surplus money and lent this money to needy persons.

They borrowed money at low rate of interest and lent it at a higher rate. The difference between low and high rate of interest was their profit.

Advanced Form of Lender’s Business:

The most important function of the modern bank is to accept deposits and to lend money. So modern bank is the advanced form of moneylenders.

The dual functions of accepting deposits and advancing loans with modern bankers have the origin in the banking business of ancient money lenders.

Tracing the evolutionary history of modern commercial banking the renowned economist G. Crowther has rightly stated in his book “An outline of money” that:

 “The present-day banker has three ancestors: goldsmith, merchants and money-lender. A modern bank is something of these”.

GOLD SMITHS:

Due to confidence in the integrity and solvency of goldsmiths, the people considered them as honest and trustworthy. In banking history, they were the people who nurtured the banking system started by merchants.

Safe Custody:

The goldsmiths had Strong iron safe, lockers and boxes for the safety of precious metals. Because of good arrangements of safety, the people began to keep their valuable i.e gold and silver with them.

The goldsmiths were used to issues receipts for the received goods and articles.

Beginning of cheque:

 After some time the goldsmiths issued written permissions (receipts) in favour of depositors to get their money and other valuables back.

These receipts started to pass from hand to hand in settlement of different transactions with full acceptance. It was an olden shape of modem cheque.

Expansion in Business:

 When the goldsmiths found that most of the money deposited with them lying idle and people were not in the habit of drawing their deposits.

 On the other hand, they were being constantly requested for loan against good securities on an interest basis.

They thought it profitable to land and this proved fruitful for the goldsmiths. Later, instead of charging interest from depositors, they began to give interest on money deposited with them.

Modern Banking:

With the passage of time, the banking activities have greatly increased. Now they deal large numbers of matters such as obtaining funds, advancing loans and making an investment in different sectors.

Because of these activities, the bank is considered an indispensable element of economic development.

Conclusion:

In which, conclusion is the banking history and all related terms are mentioned in above blog and related queries are discussed.

If the conclude important all banking needs are discussed and give the solutions of banking errors.

FAQ’s

1.Who invented banking?

Banking is a financial institution. The concept of money, its sources and uses have been passing through from the innovative stages along with the development of human culture.
Even a good number of people directly started dealing in money (e.g) merchants, goldsmiths and moneylenders etc.

2.What banking means?

“A money management company means the accepting, for the purpose of giving money as a loan or investment of deposits of money from the public refundable on demand or otherwise and withdraw-able by cheque, draft or otherwise.”

3.What is banking in sub-continent?

It is very much evident that during 2000 B.C, there was a developed banking system in the sub-continent, which was mostly managed by sahukars or moneylenders.
The modern banking in India was started with the establishment of the bank of Calcutta in 1806. In 1809 it was redesigned as a bank of Bengal.

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