Question

Provide a summary of the importance of financial companies, using the following issues:

1- The difference between financial and non-financial companies
2- The difference between banks and insurance companies (in terms of accounting and financing)
3- What do financial companies offer to the Palestinian economy?
4- By taking a sample, what is the composition of ownership in the banks and the insurance companies in Palestine?

Word Limit;

Upper word limit: 1,300 words for a whole assignment

Lower word limit: 800 words for a whole assignment

Answer 1

Answer 1

A finance company is an organization that makes loans to individuals and businesses. Unlike a bank, a finance company does not receive cash deposits from clients, nor does it provide some other services common to banks, such as checking accounts.

Non-Financial Companies are Healthcare, Technology, Industrial, sector related companies. Those businesses which don't take in deposits or make loans.

Answer 2

Banks accept short-term deposits and make long-term loans. This means that there is a mismatch between their liabilities and their assets. In case a large number of their depositors want their money back, for example in a bank run scenario, they might have to come up with the money in a hurry.

For an insurance company, however, its liabilities are based on certain insured events happening. Their customers can get a payout if the event they are insured against, such as their house burning down, does happen. They don’t have a claim on the insurance company otherwise.

While it is possible to cash in certain insurance policies prematurely, this is done based on an individual’s needs. It is unlikely that a very large number of people will want their money at the same time, as happens in the case of a run on the bank.

Another difference between banks and insurance companies is in the nature of their systemic ties. Banks operate as part of a wider banking system and have access to a centralized payment and clearing organization that ties them together. This means that it is possible for systemic contagion to spread from one bank to another because of this sort of interconnection.

Insurance companies, however, are not part of a centralized clearing and payment system. This means that they are not as susceptible to systemic contagion as banks are.

Considering that a bank pays its depositors an interest rate that is competitive, it might have to hike its rates if economic conditions warrant. Generally, this risk is mitigated since the bank can also charge a higher interest rate on its loans. Changes in interest rates could also adversely impact the value of a bank’s investments.

nsurance companies are also subject to interest rate risk. Since they invest their premium monies in various investments, such as bonds and real estate, they could see a decline in the value of their investments when interest rates go up. And during times of low-interest rates, they face the risk of not getting a sufficient return from their investments to pay their policyholders when claims come due.

Answer 3

The financial sector plays an important role in the functioning of the economy through intermediation. Simply put, the financial sector sits between savers and borrowers: it takes funds from savers (for example, through deposits) and lends them to those who wish to borrow, be they households, businesses or governments

Various Financial companies like Micro Finance Institutions,Money Changers,Leasing companies,Specialized Lending Institutions are source of credit / funds required by service, manufacturing and trading organizations.Foreign Exchange managment , Investments are all supported by these institutions.

The PMA announced in 2015 the launch of the first phase of the ATM/POS National Switch.Bank of Palestine, Bank of Jordan, Cairo Amman Bank, Arab Bank, Quds Bank, The National Bank, Palestine Investment Bank, Palestine Islamic Bank, Arab Islamic Bank, Jordan Ahli Bank, Jordan Kuwaiti Bank, and Housing Bank of Trade and Finance were connected through the PMA National Switch at this stage and the customers of these banks will be able to use the ATM machines of the mentioned banks with affordable transaction fees.

the introduction of the national Switch will encourage the banks to issue more debit and prepaid card and will also encourage the distribution of the point of sale machines.” This is part of PMA’s recent efforts to gradually replace the use of cash in Palestine with advanced payment methods, including digital checks, electronic wallets, and mobile payments.PMA implemented the necessary measures to develop the credit bureau service infrastructure and officially launch it, on April 18th 2008.Sijil-ly system- a computerized database which collects demographic and financial data on borrowers and their guarantors. The system provides this information to banks and FI’s via a banking network.

Answer 4

There are 15 Commercial Banks active in Palestine  6 local banks  7 Jordanian banks  1 Egyptian bank  1 British bank

Prior to 1994, the occupied Palestinian territories were served by two Israeli banks and one Jordanian registered bank.

Following Insurance companies operate

Al-Mashriq Insurance Co.

Palestine Insurance Co.

American Life Insurance Co.

National Insurance Co.

Trust International Insurance Co.

Ahlia Insurance Group

Palestine Mortgage Insurance Fund

Al-Takaful Palestinian Insurance Co.

Global United Insurance Co

Tamkeen Insurance Co.

Arab Life and Accident Insurance Company

Mainly Palestine listed.