Shareholder

Shareholder

From Wikipedia, the free encyclopedia

A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. A company’s shareholders collectively own that company. Thus, such companies strive to enhance shareholder value. Stockholders are granted special privileges depending on the class of stock, including the right to vote (usually one vote per share owned, but sometimes this is not the case) on matters such as elections to the board of directors, the right to propose shareholder resolutions, the right to share in distributions of the company’s income, the right to purchase new shares issued by the company, and the right to a company’s assets during a liquidation of the company. However, stockholder’s rights to a company’s assets are subordinate to the rights of the company’s creditors. This means that stockholders typically receive nothing if a company is liquidated after bankruptcy (if the company had had enough to pay its creditors, it would not have entered bankruptcy), although a stock may have value after a bankruptcy if there is the possibility that the debts of the company will be restructured.

Stockholders or shareholders are considered by some to be a partial subset of stakeholders, which may include anyone who has a direct or indirect equity interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization. Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders.

Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.

However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, majority shareholders of closely held corporations have a duty to not destroy the value of the shares held by minority shareholders[1].

The largest shareholders (in terms of percentages of companies owned) are often mutual funds, especially passively managed exchange-traded funds[citation needed].

Shareholders play an important role in raising finance of any organizations. So these figures pose a great opportunity for all those who are looking for a lucrative option to invest money. All good organization provides all necessary proofs to share holders that they are investing at a right place. Fair and reliable audit figures from income statement and balance sheet enhances chances to make shareholder believe in overall performance.
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Conventional Banks

Conventional Banks

financial services

Is Grameen Bank Different
From Conventional Banks?

Muhammad Yunus
February
, 2008


Grameen Bank methodology is almost the reverse of the conventional banking methodology. Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is deprived of the financial services of the conventional banks.

Conventional banking is based on collateral, Grameen system is collateral- free.

Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a system where one who does not possess anything gets the highest priority in getting a loan. Grameen methodology is not based on assessing the material possession of a person, it is based on the potential of a person. Grameen believes that all human beings, including the poorest, are endowed with endless potential.

Conventional banks look at what has already been acquired by a person. Grameen looks at the potential that is waiting to be unleashed in a person.

Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor women.

Overarching objective of the conventional banks is to maximize profit. Grameen Bank’s objective is to bring financial services to the poor, particularly women and the poorest  to help them fight poverty, stay profitable and financially sound. It is a composite objective, coming out of social and economic visions.

Conventional banks focus on men, Grameen gives high priority to women. 97 per cent of Grameen Bank’s borrowers are women. Grameen Bank works to raise the status of poor women in their families by giving them ownership of assets. It makes sure that the ownership of the houses built with Grameen Bank loans remain with the borrowers, i.e., the women.

Grameen Bank branches are located in the rural areas, unlike the branches of conventional banks which try to locate themselves as close as possible to the business districts and urban centers. First principle of Grameen banking is that the clients should not go to the bank, it is the bank which should go to the people instead. Grameen Bank’s 25,211 staff meet 7.45 million borrowers at their door-step in 81,334 villages spread out all over Bangladesh, every week, and deliver bank’s service. Repayment of Grameen loans is also made very easy by splitting the loan amount in tiny weekly installments. Doing business this way means a lot of work for the bank, but it is a lot convenient for the borrowers.

There is no legal instrument between the lender and the borrower in the Grameen methodology. There is no stipulation that a client will be taken to the court of law to recover the loan, unlike in the conventional system. There is no provision in the methodology to enforce a contract by any external intervention.

Conventional banks go into ‘punishment’ mode when a borrower is taking more time in repaying the loan than it was agreed upon. They call these borrowers “defaulters”. Grameen methodology allows such borrowers to reschedule their loans without making them feel that they have done anything wrong (indeed, they have not done anything wrong.)

When a client gets into difficulty, conventional banks get worried about their money, and make all efforts to recover the money, including taking over the collateral. Grameen system, in such cases, works extra hard to assist the borrower in difficulty, and makes all efforts to help her regain her strength and overcome her difficulties.

In conventional banks charging interest does not stop unless specific exception is made to a particular defaulted loan. Interest charged on a loan can be multiple of the principal, depending on the length of the loan period. In Grameen Bank, under no circumstances total interest on a loan can exceed the amount of the loan, no matter how long the loan remains unrepaid. No interest is charged after the interest amount equals the principal.

Conventional banks do not pay attention to what happens to the borrowers’ families as results of taking loans from the banks. Grameen system pays a lot of attention to monitoring the education of the children (Grameen Bank routinely gives them scholarships and student loans), housing, sanitation, access to clean drinking water, and their coping capacity for meeting disasters and emergency situations. Grameen system helps the borrowers to build their own pension funds, and other types of savings.

Interest on conventional bank loans are generally compounded quarterly, while all interests are simple interests in Grameen Bank.
In case of death of a borrower, Grameen system does not require the family of the deceased to pay back the loan. There is a built-in insurance programme which pays off the entire outstanding amount with interest. No liability is transferred to the family.

In Grameen Bank even a beggar gets special attention. A beggar comes under a campaign from Grameen Bank which is designed to persuade him/her to join Grameen programme. The bank explains to her how she can carry some merchandise with her when she goes out to beg from door to door and earn money, or she can display some merchandise by her side when she is begging in a fixed place. Grameen’s idea is to graduate her to a dignified livelihood rather than continue with begging
Such a programme would not be a part of a conventional bank’s work.

Grameen system encourages the borrowers to adopt some goals in social, educational and health areas. These are knows as “Sixteen Decisions” (no dowry, education for children, sanitary latrine, planting trees, eating vegetables to combat night-blindness among children, arranging clean drinking water, etc.). Conventional banks do not see this as their business.

In Grameen, we see the poor people as human “bonsai”. If a healthy seed of a giant tree is planted in a flower-pot, the tree that will grow will be a miniature version of the giant tree. It is not because of any fault in the seed, because there is no fault in the seed. It is only because the seed has been denied of the real base to grow on. People are poor because society has denied them the real social and economic base to grow on. They are given only the “flower-pots” to grow on. Grameen’s effort is to move them from the “flower-pot” to the real soil of the society.

If we can succeed in doing that there will be no human “bonsai” in the world. We’ll have a poverty-free world.
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source : http://www.grameen-info.org/bank/GBdifferent.htm

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Money and Credit

Money and Credit

Help you about Finance, banking

Bank credit and monetary inflation, which had resumed its upward trend under Federal sponsorship in late 1949, had attained new high levels by mid-1950. This accomplishment had proceeded strictly according to the banking and finance laws as they existed on the books. Federal credit, which was directed into all phases of the nation’s economy, was combined with a policy of artificial controls and government operation by deficit financing. The extensive credit expansion was reflected in such items as increased government-guaranteed real-estate loans, new highs in consumer credit, high-price policies for foods and raw materials, increased business loans, increased inventory values, extensive borrowing by finance companies, and much available Federal credit at low rates. These conditions were supplemented by the availability of substantial amounts of funds from savings banks, insurance companies, savings and loan associations, pension funds, and large trust funds. The prevailing attitude indicated an over-all disregard for inflation or its consequences. In early 1950, and coincident with this trend, plans were made to introduce into Congress legislation which would provide for Federally guaranteed and supervised loans for small business on a liberal basis.

Under the mandate of the law and in harmony with the policies of managed-money exponents it was pointed out in 1950 that socially devised central banks of a quasi-public nature were now required to re-enforce the nation’s private banking structure. Modifications of the Federal Reserve Act of 1913, many of which were made after 1930, were stated to have worked toward this end. It was further held that under this new banking structure the efficient performance of banking functions has provided just the right amount of credit expansion. It was also contended that enough credit expansion meant not so much as to foster inflation and not so little as to induce deflation. The Federally controlled central bank was portrayed as the correct arbitrary instrument for arbitrary control to maintain just the right amount of money and credit for a sound, progressive economy. Mention was omitted of the influences of Federal lending agencies upon the nation’s credit.

Inflation.

The policy of debt management and operation of Federal gratuities, since the end of World War II hostilities, had extended their influence into stimulating the nation’s inflationary forces to such a degree that most existing or operating managed controls failed to function. The extra stimulus given to panic buying and hysterical hoarding which resulted from the Korean crisis of mid-1950, confused most issues of control and balance advocated by the many appointed government managers of credit. Inflationary forces swept the national economy in late 1950 and economic fire fighters appeared in many places.

Credit Control.

On Aug. 18, 1950, the Board of Governors of the Federal Reserve System and the Federal Open Market Committee published a policy statement. In it they proposed an increase in discount rates, the restraint of bank credit, increased taxation and the principle that all citizens must voluntarily stop inflation of their own will.

In a manner similar to that followed by the public, which under the pressure of inflationary fears had run to buy and hoard, the members of Congress rushed to turn out emergency legislation as a corrective measure.

The Defense Production Act of Sept. 8, 1950, was created to bring about a stable economy. Emergency provisions were to be set up and administered by Federal appointees. This act endeavored to establish priorities and allocations for facilities and materials, provide financial assistance and expand productive capacity, stabilize wages and prices, settle labor disputes, control credit, and in general place the nation as a whole in an economic strait jacket. Meanwhile the Government itself continued to increase Federal debt, loans, and expenses, which furthered inflation through the operations of its various agencies, corporations, and bureaus. It also continued arbitrary price supports and subsidies.

The new Federal contracts necessary for the military expansion usually amounted to large sums of money. The Labor Department exercised its authority over these contracts by injecting a clause which fixed the minimum wages to be paid in such production at the level it designated. At the same time both the military men and Congress became astounded at the 1950 increased costs of materials and equipment. These expenditures for the fiscal years 1949 and 1950 had been over $12,000,000,000 for each year, while the 1951 estimates had become astronomical in size.

In the meantime the Federal Reserve Banks of the nation still had to accept Federal bonds at par, and interest rates remained pegged near 2 per cent. Under these general conditions the Defense Production Act was devised to control the economy and stop inflation.

Executive Order No. 10,161, issued by the President of the United States on Sept. 9, 1950, definitely assigned these legislated controls by delegating their administration to the various governmental departments and agencies. In mid-December Charles E. Wilson, head of the General Electric Corporation, was selected to act as head of the production-control program second only to the President of the United States.

The Federal Reserve Board of Governors and the banking system in general were fitted into the plan by Regulation V, on loan guarantees for defense production; Regulation W, on consumer credit; and Regulation X, on residential real-estate credit. These regulations are discussed in more detail at the end of this article. Thomas B. McCabe, Chairman of the Board of Governors of the Federal Reserve System, in an address before the National Association of Supervisors of State Banks on Sept. 21, 1950, at Boston, emphasized the stressed items relative to banking controls, that regulations of consumer credit, real-estate credit, and others were selective controls which applied in general to specific areas of credit. He admitted that they were important but emphasized that they would not perform miracles. Greater importance was placed by Mr. McCabe upon the monetary and fiscal policy followed by all banking institutions and the extent to which they were effective. This, combined with the support they should receive from Federal and state agencies and supervisory authorities, would reach into areas outside that covered by the legislated controls. This view was amplified and reasserted in an address before the Committee for Economic Development on November 15, at New York. Again in December, at a conference of the American Bankers Association in Chicago this viewpoint was reiterated, but Mr. James E. Shelton, President of the Security First National Bank of Los Angeles also pointed out to the conference that inflation was the direct product of the Federal Government, started in the thirties and fostered by Federal agencies and policies. An attempt to shift the blame to the banks was not received sympathetically.

Deficit Financing.

Banking throughout the nation in 1950 had participated in financing increased consumer credit, easy (guaranteed) housing credit, new issues of both Federal and state credit, and extensive increased fixed loans to agriculture and business. Where such credit was restrained, complaints by business to Congress brought threats of a new Federal lending agency. Paucity of civilian supplies during the World War II period, and pent up individual demands backed by large supplies of cheap money, now released buying pressures upon the newly produced available supplies. This, combined with personal savings and business reserves that were inadequate to meet these new expenditures, resulted in more 1950 debt or deficit spending by business, Federal, state and local governments, private citizens, and foreigners. Over-all demands for bank credit in 1950 were heavy, and Government securities used as provided for by law acted as one of the important facilitating vehicles. The 1950 conflict of opinion on policy in banking and finance, which concerned the interest rates advocated by the Treasury Department in contrast to money rates advocated by the Federal Reserve Board, terminated late in the year with increased rates. The Federal Reserve System’s point of view had prevailed at least temporarily.

While matters of policy relative to inflation had been viewed with varying attitudes from different positions in both public and private financial circles, Federal corporations and credit agencies had increased their easy money loans in 1950 with funds procured from the U.S. Treasury, which was also very much in debt. These loans amounted to about $12,733,000,000 at the end of 1949 and about $13,350,000,000 by the end of the first quarter of 1950. Federal budget expenditures reported had continued for the first half of 1950 at a rate which varied between $2,496,000,000 and $4,296,000,000 per month. The nation’s banks continued to hold about $84,000,000,000 in Federal securities, and yields on taxable Treasury bonds were held at about 2.34 per cent. Total money in circulation, which was backed basically by Federal debt, had increased slightly from about $26,941,000,000 in January to about $27,156,000,000 by June, while deposit currency (demand deposits) had indicated an increasing trend when they exceeded $96,000,000,000.

Venture Capital.

In the field of banking concerned with financing long-term operations in 1950, new securities offered for cash in the United States had by August reached a level of about $13,601,680,000 and more than $9,269,731,000 was for noncorporate purposes. Corporate issues for cash which resulted from the sale of stock were able to provide only about $591,922,000 through common stock and $405,026,000 through preferred stock. Financing through long-term loans, bonds and retained earnings had continued to prevail in 1950. Institutional lenders were very active, and investment banking continued to find its activities in competition with these institutions and Federal agencies. The last quarter of 1950 provided considerable disturbance in the field of banking and finance. This was related to inflation, the nature of credit controls, and the extent of taxation. Credit restraints had taken a definite form in the Defense Production Act. Executive Order No. 10,161 had started action, and December brought a declaration of national emergency by the President. The nation’s prosperity figures, voiced by the council of economic advisers, were now regarded by both public and private banking leaders as highly inflated. Savings and fixed income provided little purchasing power, and debts were high as 1950 closed.

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Microsoft ® Encarta ® 2008. © 1993-2007 Microsoft Corporation. All rights reserved.

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Banking And Finance

Banking And Finance

Finance stimulate

Banking and finance in the United States in 1950 were confronted with many problems, one of which was a revived inflation. The legislation of the 1930’s and 1940’s had planted the seeds of inflation in the policies and laws which were established to promote easy credit for both private banking institutions and government agencies through Government guarantees, subsidies, and deficit financing. Investment credit was faced with tax penalties and the consumer was faced with rising prices influenced by a Government policy of spend and support. The 1950 dollar reached a new high in cheapness and a new low in its purchasing power. National fear for economic and political security, fostered by long-established Federal policies, forced new emergency legislation in 1950 to control the whole civilian economy, including finance and banking functions. A trend of bank mergers and consolidations for purposes of survival continued in 1950. Bank assets attained new highs in dollar figures, but earnings still depended upon investments in Government bonds. Bank stocks remained among those investments which received the lowest dividend payments. Private debt and consumer credit attained new highs in 1950, and the commercial banks held a large share of this credit. Savings and investments produced a mediocre performance for the year 1950, which was claimed to have produced an all-time high in national income. Venture capital remained practically nonexistent, while fixed loans and debt increased. Agricultural assets looked large when reported in their inflated values but agriculture also had large debts and costs at fixed inflated values. The Federal Government continued to guarantee and make loans and had become the largest debtor in the world. Government finance agencies and corporations operated in all phases of the banking business during 1950, with the U.S. Treasury providing the funds and upkeep. New laws pertinent to banking and finance were enacted, but they neither amended already established laws effectively, nor decreased Government expenditures and deficit financing, nor relieved controls in the field of finance that would stimulate saving or effectively counteract inflation.

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Soft loans

Soft loans

Hight Interest rate at financial

A soft loan is a repayable loan that is offered on more attractive terms than would be available from a commercial lender or to a business that would not be able to access a commercial loan.

Soft loans are similar to repayable grants. However, this does not necessarily mean they are interest free or even low interest. These loans are generally available to businesses that are unable to access loans from conventional sources (banks). They do not generally require security, although they may require some personal financial commitment from the business owners. Because the business risk profile is often high, the interest rate charged is often relatively high.

source : http://www.financesoutheast.com/guidetofinance/index.aspx?id=146
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Islamic banking

Islamic banking

Islamic Financial Dealing

Islamic banks appeared on the world scene as active players over two decades ago. But “many of the principles upon which Islamic banking is based have been commonly accepted all over the world, for centuries rather than decades”.

The basic principle of Islamic banking is the prohibition of Riba- (Usury – or interest):

“While a basic tenant of Islamic banking – the outlawing of riba, a term that encompasses not only the concept of usury, but also that of interest – has seldom been recognised as applicable beyond the Islamic world, many of its guiding principles have. The majority of these principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

“The universal nature of these principles is immediately apparent even at a cursory glance of non-Muslim literature. Usury was prohibited in both the Old and New Testaments of the Bible, while Shakespeare and many other writers, particularly those writing in the 19th century, have attacked the barbarity of the practice. Much of the morality championed by Victorian writers such as Dickens – ranging from the equitable distribution of wealth through to man’s fundamental right to work – is clearly present in modern Islamic society.

“Although the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century.” (Islamic Finance: A Euromoney Publication, 1997)

It is evident that Islamic finance was practiced predominantly in the Muslim world throughout the Middle Ages, fostering trade and business activities. In Spain and the Mediterranean and Baltic States, Islamic merchants became indispensable middlemen for trading activities. It is claimed that many concepts, techniques, and instruments of Islamic finance were later adopted by European financiers and businessmen.

The revival of Islamic banking coincided with the world-wide celebration of the advent of the 15th Century of Islamic calendar (Hijra) in 1976. At the same time financial resources of Muslims particularly those of the oil producing countries, received a boost due to rationalization of the oil prices, which had hitherto been under the control of foreign oil Corporations. These events led Muslims’ to strive to model their lives in accordance with the ethics and philosophy of Islam.

Disenchantment with the value neutral capitalist and socialist financial systems led not only Muslims but also others to look for ethical values in their financial dealings and in the West some financial organisations have opted for ethical operations.

Islam not only prohibits dealing in interest but also in liquor, pork, gambling, pornography and anything else, which the Shariah (Islamic Law) deems Haram (unlawful). Islamic banking is an instrument for the development of an Islamic economic order. Some of the salient features of this order may be summed up as:

  1. While permitting the individual the right to seek his economic well-being, Islam makes a clear distinction between what is Halal (lawful) and what is haram (forbidden) in pursuit of such economic activity. In broad terms, Islam forbids all forms of economic activity, which are morally or socially injurious.
  2. While acknowledging the individual’s right to ownership of wealth legitimately acquired, Islam makes it obligatory on the individual to spend his wealth judiciously and not to hoard it, keep it idle or to squander it.
  3. While allowing an individual to retain any surplus wealth, Islam seeks to reduce the margin of the surplus for the well-being of the community as a whole, in particular the destitute and deprived sections of society by participation in the process of Zakat.
  4. While making allowance for the ways of human nature and yet not yielding to the consequences of its worst propensities, Islam seeks to prevent the accumulation of wealth in a few hands to the detriment of society as a whole, by its laws of inheritance.
  5. Viewed as a whole, the economic system envisaged by Islam aims at social justice without inhibiting individual enterprise beyond the point where it becomes not only collectively injurious but also individually self-destructive.

The Islamic financial system employs the concept of participation in the enterprise, utilizing the funds at risk on a profit-and- loss-sharing basis. This by no means implies that investments with financial institutions are necessarily speculative. This can be excluded by careful investment policy, diversification of risk and prudent management by Islamic financial institutions.

It is possible, that investment in Islamic financial institutions can provide potential profit in proportion to the risk assumed to satisfy the differing demands of participants in the contemporary environment and within the guidelines of the Shariah.

The concept of profit-and-loss sharing, as a basis of financial transactions is a progressive one as it distinguishes good performance from the bad and the mediocre. This concept therefore encourages better resource management.

Islamic banks are structured to retain a clearly differentiated status between shareholders’ capital and clients’ deposits in order to ensure correct profit-sharing according to Islamic Law.

source :http://www.islamic-banking.com/ibanking/whatib.php

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Commercial banks

Commercial banks
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|

commercial bank for businesses

Commercial banks are so named because they specialize in loans to commercial and industrial businesses. Commercial banks are owned by private investors, called stockholders, or by companies called bank holding companies. The vast majority of commercial banks are owned by bank holding companies. (A holding company is a corporation that exists only to hold shares in another company.) In 1984, 62 percent of banks were owned by holding companies. In 2000, 76 percent of banks were owned by holding companies. The bank holding company form of ownership became increasingly attractive for several reasons. First, holding companies could engage in activities not permitted in the bank itself—for example, offering investment advice, underwriting securities, and engaging in other investment banking activities. But these activities were permitted in the bank if the holding company owned separate companies that offer these services. Using the holding company form of organization, bankers could then diversify their product lines and offer services requested by their customers and provided by their European counterparts. Second, many states had laws that restricted a bank from opening branches to within a certain number of miles from the bank’s main branch. By setting up a holding company, a banking firm could locate new banks around the state and therefore put branches in locations not previously available.

Commercial banks are “for profit” organizations. Their objective is to make a profit. The profits either can be paid out to bank stockholders or to the holding company in the form of dividends, or the profits can be retained to build capital (net worth). Commercial banks traditionally have the broadest variety of assets and liabilities. Their historical specialties have been commercial lending to businesses on the asset side and checking accounts for businesses and individuals on the liability side. However, commercial banks also make consumer loans for automobiles and other consumer goods as well as real estate (mortgage) loans for both consumers and businesses.

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