Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts

Thursday, October 20, 2011

Europe can learn from Islamic finance, says Luxembourg's Finance Minister

Entering its 6th year, the IFN 2011 Issuers & Investors Asia Forum,(previously known as the Malaysian Islamic Finance Forum) has emerged as the industry’s leading and largest annual event.

Europe can learn and gain from Islamic finance, given that financial institutions under it, have remained stable against the backdrop of the eurozone debt crisis.

Luxembourg's Minister of Finance, Luc Frieden, in a keynote address at the IFN 2011 Issuers & Investors Asia Forum noted that despite the credit crunch that has impacted Europe's banks, Islamic financial institutions had weathered the global crisis and emerged to be the most well managed.

"Therefore, we can learn a lot from Islamic finance and from Asia, as we have much in common.

"The key elements in Islamic finance that we need in the world today, particularly in Europe, are stability, financial partnership, provision of excessive risk and speculation as well as ethical principles," he added.

He said in Islamic finance, the financial relationship between the lender and borrower, had assured the "partnership mentality", which was found to lead to certain stability.

Explaining the need to avoid excessive risk taking place, Frieden said this is among the key goals of Europe and is an important feature found in Islamic finance.

"The provision against speculation and gambling which is prohibited in Islamic finance, is what we can concentrate on," he added.

He also said the element of ethical principles should not be limited to the Islamic finance industry alone. Frieden gave an assurance that Europe would find a solution to the debt-crisis that had led to volatility in the global economy.

"There's no one easy solution and one meeting can't solve the crisis. We have embarked on a step-by-step process to solve the problems.

"We will find a solution to the Greek issue. The Euro will be a currency you can count on in the future and see growth," he said.

He said Asia and Europe must join forces for the development and prosperity of the global economy.

"Therefore, Asian investors should look at Europe for trade and investment purposes, going forward," he added. Link the star

Sunday, October 02, 2011

Another "Black Swan" Approaching

According to a forecast from the Economic Cycle Research Institute(ECRI) as reported on CNN Money the US economy is heading for another double dip recession. "It's either just begun, or it's right in front of us," said Lakshman Achuthan, the managing director of ECRI. "But at this point that's a detail. The critical news is there's no turning back. We are going to have a new recession."

This new crisis comes just three years after the global financial and economic crisis. As opposed to the 2008 crisis that started in the US with the collapse of Lehman Brothers, this time Europe is at the centre of the crisis- the Euro Zone in particular has rocked the financial markets because their sovereign debt crisis.

Nassim Nicholas Taleb, author of the best-selling book “The Black Swan,” said he’s more concerned about prospects for the U.S. than Europe because the country lacks awareness of its fiscal woes.

“The difference between Europe and the U.S. is the consciousness of the problem,” Taleb, a New York University professor, said at a news conference in Tokyo organized by Bank of America Corp. “There’s no consciousness in the U.S.” about the fiscal deficit, he said.

Global financial-market turmoil intensified this quarter as Europe’s sovereign debt crisis deepened and the U.S. economy showed signs of slowing. Standard & Poor’s cut the U.S.’s credit rating for the first time in August, criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget shortfalls.

Demonstrations have been taking place in Greece, Spain and Portugal against austerity measures and joblessness since early this year. Now the Wall Street of the US has also been hit by the waves of protest- the protesting issues include the 2008 bank bailouts, and high unemployment. Wall Street protesters carried posters which read “Protesters have rights defend 'Occupy Wall Street'” and chanted slogans including, "Stand up. Fight back," "We got sold out. Banks got bailed out" and "We are the 99 percent."

The term “Black Swan,” popularized by Mr. Taleb refers to a statement of impossibility, or to an event so unlikely that it defies comprehension.

In the past decade, there are quite a few examples of financial “Black Swan” events. Among them are the housing bubble and sub-prime mortgage crisis that derailed the banking system, the demise of Lehman Brothers in 2008, the BP oil spill and the Dow Jones flash crash, which had the Dow reeling with a 1000 point move on May 6, 2010.

Since events of these magnitudes are all previously unheard of in history, their repercussions ripple for years to come.


Now we need to heed to the warning that another Black Swan is unfolding.


As Nassim Nicholas Taleb,the author of The Black Swan wrote:

“We have never lived before under the threat of a global collapse. The financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one fails, they all fall. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur . . . I shiver at the thought.”

America's laissez-fare ideology of capitalism practised during the subprime crisis and the European state welfare model that has gone so wrong in Greece are under pressure to redefine and create a new social compact. Capitalism is the system that has created the extraordinary wealth and enabled the modern development of the western civilisation. But the free market has also created the biggest wealth gap between the rich and poor. If states have to intervene to bail out banks deemed too-big-to-fail and save countries from bankruptcy as in the case of Greece, then a new balance between the state and market is needed.

Q&A: Greek debt crisis. link
Late -2000s financial crisis. wikepedia

Tuesday, September 13, 2011

CIMA's Islamic Finance Certificate

Bait al-Mashura, a specialised company in providing Islamic finance consultations, has been authorised by Chartered Institute of Management Accountants (CIMA) to hold exams and grant certificates in Islamic finance. Bait al-Mashura managing director and CEO Dr Osama Q al-Derae’i said certificates of CIMA are based on self-paced study and distance learning principle.
More of this article on Gulf Times.

The 'CIMA Certificate in Islamic Finance' was officially launched in December 2007 in the UK and Bahrain, followed by Malaysia and Singapore in 2008.

Islamic finance is a trillion dollar industry and has become part of the global financial system. Educating financial professionals on Islamic finance has become a business priority for many countries, given that the Islamic finance industry is growing at an estimated 15-20 per cent annually.

Thursday, September 08, 2011

Islamic Banking in Nigeria Fraught with Problems

Nigeria has become a battleground for Islamic finance, further dividing Africa's most populated country. Nigeria is one of the world's largest oil producers. The country has a history of bitter civil wars fought on ethnic and religious lines.

Nigeria, the seventh most populous country in the world has some 70 million Muslims. In order to capitalize on the growing popularity of one of the world's fastest-growing financial sectors, the Central Bank of Nigeria has introduced Islamic banking into the country.

CNN's Christian Purefoy discussed the sector's potential with Hajara Adeola, managing director of Lotus Capital, one of the groups helping to pave the way for Islamic finance in Nigeria.

Adeola says there is a growing appetite for this form of banking.

"It is working in Nigeria and there is a lot of interest in doing Islamic banking, in West Africa in particular," she says.

Spread across the Middle East and other parts of the world, a slew of Islamic financial institutions have been offering interest-free services that advocates say can provide a more sustainable alternative to conventional banking practices.

The industry, which exists in more than 50 countries, is estimated to be worth around $1 trillion and has the potential to eventually be worth $5 trillion, according to ratings agency Moody's. The full article.

Sunday, August 14, 2011

An Economic Storm Ahead

That's the warning given by World Bank chief Robert Zoellick about the global economy on Saturday in Australia.

Zoellick said the eurozone's sovereign debt issues were more troubling than the "medium and long-term" problems which saw the United States downgraded by Standard and Poor's last week, sending global markets into panic.

"We are in the early moments of a new and different storm, it's not the same as 2008," said Zoellick, referring to the global financial crisis.

More of this article here.

Sunday, August 07, 2011

Sri Lanka's first Islamic bank: Amana Bank

Amãna Bank, Sri Lanka’s first licensed commercial bank to operate fully under the principles of Islamic banking, opened for business last week.

Amãna Bank will be offering a range of financial products and services including Current Accounts, Savings Accounts, Children’s Savings Account, Term Investment Accounts, Home Financing, SME Banking, Corporate Banking, Trade Services and Treasury Services.
Link: Sunday Times

Sunday, January 30, 2011

Fixing the Greed of Capitalism

Unfettered greed arising out of the free market capitalistic system is at its worst as we have seen in recent times. Bernie Madoff, a former chairman of the US NASDAQ stock market operated the biggest PONZI scheme, the biggest investment scandal in history. He has swindled thousands of investors of US$ 65 billion. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed under the US law.

The 2008 United States financial crisis led to global financial meltdown which evoked fears of another Great Depression like in the 1930s. In this most recent financial crisis that started in the the US, Investment banks and commercial banks lent trillions of dollars for housing purchases to borrowers ill-equipped to repay when the housing prices crashed. There was no 'invisible hand' espoused by Adam Smith to maintain a fair and just order in the market. The driving force of the present free market model - at least in the US is Milton Friedman's theory that business corporations are only to make profit and greed is part of the equation.

With the emerging economies of China, India and Brazil fast catching up with the developed world, there is growing pressure for a new economic world order. Can the Western liberal free market capitalism co-exist with the economic styles of the emerging economies?

Below is an interesting discussion in Davos 2011, on the future of the Business Enterprise. Now we are going back to the roots of business that Adam Smith would have envisaged. Once again business leaders have raised the issue- social responsibility of business corporations is critical to rein in the corporate greed. Business needs to create more than just one value-i.e.,profit for the shareholders.

The new mantra for developing countries that need the assistance of the world financial institutions like the IMF seems to be: public/private sector partnership.

Wednesday, March 10, 2010

Optimism for Islamic Insurance-Takaful

The 5th Asian Takaful Conference is underway in Singapore from 9-10 Mar 2010. The Conference Theme: "Reality Check on Growth and Promise of Takaful as a Dynamic Force"

Industry executives are optimistic about the growth prospects of Islamic insurance or takaful which offers a mutual, co-operative type of insurance.

Total takaful contributions only account for just one percent of the global insurance market.

But this is expected to increase significantly, thanks to growing interest among Muslims and non-Muslims alike in shariah-compliant investment and insurance products. (Link)

Thursday, January 07, 2010

Takaful or Islamic Insurance pays off

As reported in Business Times Malaysia Wednesday, HSBC Amanah Takaful (Malaysia) Sdn Bhd, the Islamic insurance arm of HSBC Bank Malaysia Bhd, saw its regular premium collections double in the last six months, after shifting to traditional insurance products from single premium investment-linked plans. Chief executive officer Zainuddin Ishak said the move had allowed the takaful operator to collect RM30 million in regular premiums in a six-month period compared with RM15 million in the preceding six months.

This news comes on the heels of the recent announcement about the imminent relocation of Mukhtar Hussain, the global head of HSBC Amanah, the Islamic banking division of the HSBC Group, to Kuala Lumpur, the Malaysian capital, raising the question whether the Malaysian capital is set to become the headquarters for HSBC’s Islamic finance business? Hussain has hitherto been located in Dubai, the traditional global headquarters of HSBC Amanah.

Hussain will be the CEO of HSBC Malaysia Berhad in addition to being the global head of HSBC Amanah Bank and the chairman of HSBC Amanah Malaysia.

This is a recognition by the HSBC Group that the Malaysia International Islamic Financial Centre (MIFC) is one of the major hubs for Islamic finance and that Malaysia is an important promoter of islamic finance.


The principles of takaful, or Islamic insurance are:

1)Policyholders cooperate among themselves for their common good.
2)Every policyholder pays his subscription to help those that need assistance.
3)Losses are divided and liabilities spread according to the community pooling system.
4)Uncertainty is eliminated in respect of subscription and compensation.
5)It does not derive advantage at the cost of others.

Wednesday, December 30, 2009

Pork barrel politics in Maldives?

As we see happening in several representative democracies of the world, Maldives too has embraced the concept of pork barrel politics at the expense of broader public good. The term "pork barrel" - which originated in United States refers to "appropriations secured by Congressmen for local projects." Typically, "pork" involves funding for government programs whose economic or service benefits are concentrated in a particular area but whose costs are spread among all taxpayers. (Wikipedia)

The Rf11.9 billion mid-term budget for 2010 has been passed by the parliament, the legislative body, after including Rf800 million which was added following a parliamentary committee review. This is in addition to the Rf4 billion deficit in the budget proposed to parliament by the government. The Minister of Finance has informed the parliament that he will not be responsible to secure funds for the additional expenditure included by the parliament.

A responsible government budget is necessary to maintain economic stability of the country. If the government spends more than it gets and continues to print money to make up for shortfalls, it will eventually lead to inflation and set off a serious decline of the rufiyaa.

With the separation of powers, the Legislature or the Parliament makes the laws, and supervises the activities of the other two arms- the Executive and the Judiciary-with a view to changing the laws when appropriate.

Now that the parliament has forced the hand of the of government compromising the separation of powers and adding to increasing political chaos, how does the parliament wish to hold the government accountable for the Rf800 million included by them? Parliament wants the government to spend this money- public money on among other things to restore civil servants pay and subsidise private media.

If the opposition in the parliament is doing this to derail government efforts to secure financing from international institutions, it creates a more dangerous tendency. It may lead the way for members of the parliament to practice the US style pork-barrel politics, to carry out their pet projects using government funds in return for their constituents loyalty.

Although we now have the framework for a representative democracy-i.e., elected individuals representing the people, our society is more sharply divided on political party lines. The political parties engage in a bitter adversarial struggle to regain power or to remain in power. Rather than a simple dynamics - involving only voters, candidates, and issues - we get a dynamics based on competing factions. Political parties compete for funding, support and for voter loyalty; grassroots movements, special-interest groups, and wealthy elite factions compete amongst one another to influence public opinion and government policy, etc. People have no control over what their "representatives" do. Wealthy elites, with their ability to fund campaigns - and in various ways to influence candidates, the economy, the press, and government officials - end up having a distinct advantage in the competition among factions.

Sunday, November 29, 2009

Dubai as finance hub faces first test

Dubai's ambitions to become an international financial centre are in doubt after the shock announcement that its main state-owned firm wants to suspend debt payments, analysts said on Sunday.

"What happens next and, more pertinently, how critical decisions are disclosed will cement its continuing credibility and its place as a financial centre," said Cubillas Ding, senior analyst at Celent research and consultancy group.

"Dubai's untested financial legal system is now facing its first real test in relation to how it deals with the international community. No one wants to play in a playground where the rules are unclear," he said.

Dubai International Financial Centre, a 110-acre (44.5 hectare) free trade zone which opened in 2004, prides itself on its website as "the world's fastest growing international financial centre."

More on this AFP article.

Saturday, October 31, 2009

The Perils of Climate and Capitalism

We have come a long way from the subsistence fishing of our forebears and many of the values and social norms that served us well have changed. We are facing different challenges now- environmental threats due to global warming and sea level rise, an illegal drug epidemic, appalling living conditions in the capital Male', a highly polarised political atmosphere, religious extremism and intolerance are some of the major problems.

Our forefathers should be lauded for the manner they endured the rigors of harvesting the sea to thrive on a livelihood dependent on fishing. Fishing was the principal industry which was the mainstay of our national economy until the development of the tourism industry which started in the early 1970s. Thrift was the way of life for our forefathers. For them, living by the values of thrift meant that they earned more than what they spent. Our society's needs at that time were the basic necessities relevant to living a simple life.

Just like other capitalistic countries of the world that embraced consumerism through the process of industrialisation, eventually Maldives made consumerism as an integral part of its economy. The Maldives economy depends heavily on foreign imports and the major portion of the country’s revenue is derived from: import duties, tourism tax, dividends from state-owned enterprises and land lease rent. All of these revenue sources are influenced the development of tourism. Tourism is the main driver of our economy today.

As is the case with other capitalist consumer based economies of the world, Maldives too has become a consumer obsessed society following an unsustainable economic model. The more our society consumes, the better for our economy. Globalization has also made it possible for goods and services previously out of reach in developing countries to be much more readily available. Items that at one point in time were considered luxuries—from cars, air conditioning, televisions to cell phones,—are now viewed by many people as necessities. Some of them have have become fashion accessories and status symbols. Scientists have now warned the global community that our environment faces catastrophic consequences due to our excessive consumption leading to global warming and sea level rise. Our planet is in peril and radical changes in our industrial development and in our social behaviour of consumption habits are necessary to create sustainable economic growth.

The Maldivian government has declared its intention to make the country carbon-neutral within a decade. British climate change experts Chris Goodall and Mark Lynas are working to develop a package of measures that aims to eliminate the use of fossil fuel in Maldives by 2020.

The plan includes a new renewable electricity generation and transmission infrastructure with 155 large wind turbines, half a square kilometre of rooftop solar panels, and a biomass plant burning coconut husks. Battery banks would provide back-up storage for when neither wind nor solar energy is available.

The cost for the package of low-carbon measures is estimated to be about $110m a year for 10 years. The scheme should pay for itself quite quickly, because the Maldives will no longer need to import oil products for electricity generation, transport and other functions. If the oil price were to rise to $100 per barrel, the payback period would be as short as 11 years. At current prices, it would take roughly twice as long to break even. (Link)

Carbon dioxide is the main greenhouse gas produced when fossil fuels (oil, gas and coal) are burnt. Presently almost all aspects of our lifestyles from transport, power generators to household appliances rely on oil and that creates the the greenhouse gases detrimental to our environment.

In the past people lived within their means, accumulating individual savings, planning for education and a better future. Now it has become a feature of the capitalist economies to make consumer credit available to to buy houses, to start small and medium businesses or to take student loans. Maldives is following this path of economic development. The ability to borrow money can help to improve the livelihood of people by providing them access to financial resources which they do not possess. But as economists like to point out that consumer credit is a double-edged blade: It can lead to greater opportunity and freedom, but, if promoted deceptively and used recklessly, it can lead to disaster, as has so painfully been revealed by the American subprime loan crisis. The unprecedented loan defaults of the subprime home mortgages, which caused the collapse of the US housing market at the epicentre of the recent financial crisis triggered the current global recession. Click here for a multimedia guide that illustrates cause, and implications of the current financial crisis.

While financial advisers in advanced economies still emphasize the timeless principles of thrift, planning, and living within one's means, they also say the use of productive credit, or credit used to enhance one's financial future, as wholly acceptable. In their view, productive credit included debt incurred in purchasing a home or even such goods as sewing machines, or furniture. In contrast, the use of consumptive credit, or credit which satisfied an immediate need or wish that had little to no future value, is unacceptable.

This is turning out to be only a feel-good theory. By the time American students leave college, many of them often come out with twenty or thirty thousand dollars in debt even before they start a career.

The capitalist world's consumer conformism mentality creates artificial needs promoted by a multi-million dollar advertising media who work for powerful corporations only interested in making more profits. Every individual is made to become a perpetual consumer who is hungry for more.

While the International Monetary Fund (IMF) often quotes the principle of privatising state owned companies as a standard prescription to developing countries who need their assistance, developed countries have now shown us that the state has to intervene to save the private companies, many of them too-big-to-fail. Recent financial crisis in US and Britain has revealed that a number of their top banks and corporations cannot stay afloat due to the shortage of 'liquid cash' and the only way to save these too big-to-fail corporations is to nationalise them. These corporations and banks demand that the state should bail them out. The state is being forced to bail these enterprises out on condition that they shall sell the bulk of their shares to the state. This means that these capitalist states are being forced to move in the direction of central planning and management of the economy of the socialist model.

This course of action is just the opposite of what the IMF prescribes to the developing countries.

Amartya Sen who has won the Nobel Prize for Economics has written some thoughts on the limitations of the market based capitalism in an essay in the New York Review of Books.

He wrote: "Historically, capitalism did not emerge until new systems of law and economic practice protected property rights and made an economy based on ownership workable. Commercial exchange could not effectively take place until business morality made contractual behavior sustainable and inexpensive—not requiring constant suing of defaulting contractors, for example. Investment in productive businesses could not flourish until the higher rewards from corruption had been moderated. Profit-oriented capitalism has always drawn on support from other institutional values.

The moral and legal obligations and responsibilities associated with transactions have in recent years become much harder to trace, thanks to the rapid development of secondary markets involving derivatives and other financial instruments. A subprime lender who misleads a borrower into taking unwise risks can now pass off the financial assets to third parties—who are remote from the original transaction. Accountability has been badly undermined, and the need for supervision and regulation has become much stronger.

And yet the supervisory role of government in the United States in particular has been, over the same period, sharply curtailed, fed by an increasing belief in the self-regulatory nature of the market economy. Precisely as the need for state surveillance grew, the needed supervision shrank. There was, as a result, a disaster waiting to happen, which did eventually happen last year, and this has certainly contributed a great deal to the financial crisis that is plaguing the world today. The insufficient regulation of financial activities has implications not only for illegitimate practices, but also for a tendency toward over speculation that, as Adam Smith argued, tends to grip many human beings in their breathless search for profits."

While capitalism has swept aside other economic systems like the feudalism, socialism and communism and has enormous potential for positive change, it has not solved problems of inequality and poverty. Infact, while capitalism continues to provide opportunities for creating more wealth, the gap between the rich and the poor is also widening.

Social entrepreneurship is an emerging business trend, where the creative vision of the entrepreneur is applied to today’s most serious problems: feeding the poor, housing the homeless, healing the sick, and protecting the planet. This is the world of social business.

Creating a World Without Poverty tells the stories of some of the earliest examples of social businesses, including Mohammad Yunus’s own Grameen Bank. It reveals the next phase in a hopeful economic and social revolution that is already under way—and is the worldwide effort to eliminate poverty by unleashing the productive energy of every human being.

Among the several challenges we face in Maldives; playing our part to avoid further destruction to the environment has now become the imminent priority on the world stage.

Sunday, July 12, 2009

Bringing focus on the dangers of unbridled capitalism

Pope Benedict XVI has brought focus on the "grave deviations and failures" of capitalism exposed by the financial crisis and issued a strong call this week for a "true world political authority" to oversee a return to ethics in the global economy. The Pope's call came just before the Summit in Italy of the G8 heads of Government, attended by 39 heads of government and international institutions. The Pope's concerns to find new "forms of Redistribution of Wealth" is likely to fuel debate on the failure of rich nations, notably Italy and France, to honour past aid commitments to poor nations.

The Pontiff's call was also to find a sustainable business development model in the broadest sense, and doing business with a social responsibility. It is capitalism in a globalised world where the market forces are regulated by a strong oversight authority. Enterprises are needed to seek a new way of understanding business that would respect the dignity of workers and foster the "common good by prioritising ethics and social responsibility over dividend returns" said the Pope.

The prevailing economic paradigm in most of the countries of the world including Maldives is capitalism.

Eight months after President Nasheed took office, our government is still pre-occupied with the old issues including investigating the corrupt practices of the Gayoom government that remained in power for thirty years. For the legislative agenda of the Nasheed government to become effective, the government needs to pass several bills to fulfil their election pledges, including the decentralisation of power to the provinces. These bills that are necessary to bring structural, social and economic reforms are getting hindered by the opposition party holding the majority in the parliament . They have placed their own party politics over the national interest and the future direction of the country.

Moving away from the crony capitalism of the previous government, the Nasheed government is embarking on initiatives to privatise state-controlled industries and empower the private sector to do business. But such private sector empowerment allowing for a more business-friendly environment and the government pulling out of doing business is not a panacea to root out corruption or solve all of our problems.

If we are to learn anything from the 2008/9 financial meltdown of the United States, the bastion of free market capitalism, we now know that unless adequate oversight regulations are enforced timely the same financial market that makes people rich can also ruin livelihoods with millions of people losing their jobs, bankrupt companies and even countries. The financial collapse that began in the Wall Street due to greed, reckless risk-taking, and dangerous speculation of investors, traders and bankers, quickly spread all across the globe bringing the worst recession since The Great Depression of the 1930s. The US federal oversight authorities failed to act for far too long until the economic roof fell on their head.

The Nasheed government needs to maintain strong oversight institutions in Maldives entrusted with the authority and responsibility to monitor our stock market with proper disclosure and good governance. Such oversight authorities should hold financial market players like the banks and financial brokers accountable, thus reducing the room for market manipulation. A well educated citizen who understands the financial markets is the best tool to avoid huge losses and financial havoc.

Maldives can only achieve the ideals of a strong democracy by building a strong economy that values innovation and provides opportunity to its citizens.

The present government needs to lay down a firm foundation of the institutional framework for good governance and create a system that provides a more equitable distribution of wealth. Unless the citizens reap the benefits from such reform process, it is likely that our country could slip back into crony capitalism and the "business as usual" system with another change of government. If that happens we will be back to the old system that promoted widespread corruption and allowed open borders for illegal drug traffickers who made tons of money while addicting and killing our youth.

Thursday, July 09, 2009

IMF projects weak ecocomic recovery

Releasing an update of its April World Economic Outlook on Wednesday, the International Monetary Fund has projected a slightly improved economic forecast for the global economy, thanks to the macroeconomic and financial policies said the IMF.

According to the IMF's latest forecast, the world's economic growth during the 2009–2010 period is now projected to be 0.5 percentage points higher than that projected in the April 2009 World Economic Outlook, reaching 2.5 percent in 2010. Although the global economy is beginning to pull out of the worst recession of the post war period, the IMF also warns that the recovery will be uneven and sluggish.

Link to the IMF article.

Monday, February 16, 2009

Islamic Finance: a safer bet?

The global economic crisis has handed the proponents of Islamic finance a “golden opportunity” to show that it is a better alternative to Western-style capitalism. That, at least, was what Malaysian Deputy Prime Minister Najib Razak told participants at an Islamic economic conference in Kuala Lumpur last month.

Islamic finance, argued Datuk Seri Najib, could become a model for change because it prohibits many of the risky activities that triggered the current crisis. He may have a point.(link)

Maldivian government has been in talks with the biggest Islamic Bank in Bahrain to set up an islamic bank in Maldives.

What happened to this project?

If this project goes through, Maldivians can obtain finance to build their homes without the fear of being thrown out of their homes when the unpaid compounded interest runs higher than the principal loan taken. We need the Nasheed government and sharia scholars specialized in islamic banking to make islamic banking a reality in Maldives.

Capitalism is taking a battering in the West because of the greed of top level executives who have caused some of the biggest banks in America and Britain to go into insolvency, forcing the governments to step in and bail them out.

At a time when many of the industrialised countries are going through the worst recession since the Great Depression, it is worth looking at new perspectives for financing development of small countries like Maldives. Layoffs and unemployment are devastating for small communities like us with limited opportunity for alternative employment.

Monday, September 29, 2008

Wen Jiabao's revealing interview

Wen Jiabao, the Premier of China is one of the most influential international figures of this generation. He is also on Facebook and gave an interview to Fareed Zakaria’s GPS - an hour long program that takes a comprehensive look at foreign affairs and policies shaping our world.

Wen Jiabao discussed several topics of extreme relevance to the global community, showing the man's intellectual prowess and sharp focus.

On a day when the US Congress is feverishly working to unfreeze the free market system on Wall Street by injecting $ 77billion into the market, the advise from the Socialist flag bearer was worth listening to. Asked about the prevailing economic philosophy for Wen Jiabao who did Jiabao quote? Who other than Adam Smith, suggesting that the free hand of capitalism should be balanced by Government regulations to keep things fair and orderly.

Adam Smith is, of course, known as the father of modern day economics, and regularly quoted for his words supporting the free-market and “the invisible hand”: lt is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their selflove, and never talk to them of our own necessities but of their advantages.

A large part of Smith's book - The Theory of Moral Sentiments - deals with ethics, morality, and the role of government, regulation and application of “morality” to free markets - a historical point often lost in debates over free market virtues.

What’s Jiabao reading? Stoic Marcus Aurelius apparently is one of his favorite philosophers, a thoughtful Roman emperor who advocated social responsibility and internal progressive social reforms even as he persecuted wars and treated some dissenters ruthlessly.

Read the full transcript of interview from CNN.

Wednesday, September 17, 2008

Worrying extremes of the free market

The US Federal Reserve announced that it will lend AIG (American Insurance Group) up to $85bn in emergency funds in return for a government stake of 79.9 per cent and effective control of the company - an extraordinary step in the bastion of the free market capitalism, meant to stave off a collapse of the giant insurer that plays a crucial role in the global financial system.

Of AIG's 116,000 staff in 130 countries, almost half are reportedly in Asia, where wholly-owned subsidiary American International Assurance Company Limited (AIA) manages most of the operations in Southeast Asia, China and Australia.

Even after the US Federal Reserve rescued AIG, hundreds of worried and nervous customers converged on the company's Singapore subsidiary on Wednesday, many looking to end their contracts -- some having flown in from abroad.

Singapore's de facto central bank, the Monetary Authority of Singapore, said AIA has enough assets to meet liabilities to policyholders, who should "not act hastily to terminate their insurance policies".


The AIG crisis unleashed another day of turmoil on global markets on Tuesday sparked by the weekend failure of Lehman Brothers, a leading US investment bank and the rushed takeover of Merrill Lynch by Bank of America.

In March, the Fed helped JPMorgan Chase buy Bear Stearns, one of the world's largest investment banks by providing a $29bn credit line. Earlier This month, the Treasury seized control of troubled US mortgage giants Fannie Mae and Freddie Mac.

These are unprecedented steps but we are also living in unprecedented times.

In a global world, what happens in the USA quickly affects other markets all round the world as we have witnessed in the stock markets losses this week. We have also seen that no country is practising unrestrained capitalism- i.e, the economic system governed by free market than by state regulation. The US Regulatory Authority, the Fed decided to bail out AIG, Bear Stearns, and Mortgage Houses Fannie Mae an Fredie Mac because they involved huge public investments and their collapse would result in untold global financial losses and loss of public confidence.

Like most other countries, Maldives follows the capitalistic model of economy with oversight by the state regulatory authority, the Maldives Monetary Authority(MMA). The important question for Maldives in the ever changing global capitalistic system is; " Is Maldives ready and prepared to react timely to give the warning signals to its investors about the financial health of publicly traded companies like the Bank of Maldives Plc (BML), State Trading Organization Plc (STO) or the Maldives Tourism Development Corporation (MTDC) to avoid financial hardship and chaos in a small community?"

Friday, February 29, 2008

Open economies always do better

Here are some excerpts taken from an article on New Zealand Herald written by Mike Moore, a former prime minister and Director-General of the World Trade Organisation.


'Why is it that countries that should be wealthy, that have resources, have continued to underperform? Poverty is a man-made thing so we can fix it, but how and what works and what fails? What's the common denominator in success and failure?

Open economies always do better. Trade and competition drive up results and help to combat corruption, as well as allocate resources more efficiently. Private ownership, spread through society, works.

The tragedy of large-scale privatisation in countries such as Russia was the brutal insider wealth grabs. A free market without solid, trusted institutions, property rights, independent courts, a professional public service and democracy is not a free market but a black market.

Firm, predictable civil institutions create a vital factor to promote success. Trust. Trust in the courts, in contracts, is a serious issue. Good governance is fundamental.'

The full article.