Cows on economic model

SOCIALISM: You have 2 cows, and you give one to your neighbour.

COMMUNISM: You have 2 cows. The State takes both and gives you some milk.

FASCISM: You have 2 cows. The State takes both and sells you some milk.

NAZISM: You have 2 cows. The State takes both and shoots you.

BUREAUCRATISM: You have 2 cows. The State takes both, shoots one, milks the other, then throws the milk away...

TRADITIONAL CAPITALISM: You have two cows. You sell one and buy a bull.
Your herd multiplies, and the economy grows. You sell them and retire on the income.

SURREALISM: You have two giraffes. The government requires you to take harmonica lessons

AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow has dropped dead.

ENRON VENTURE CAPITALISM: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. Sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release. The public buys your bull.

THE ANDERSEN MODEL: You have two cows. You shred them.

A FRENCH CORPORATION: You have two cows. You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION: You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
You then create a clever cow cartoon image called 'cowkimon' and market it worldwide.

A GERMAN CORPORATION: You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION: You have two cows, but you don't know where they are. You decide to have lunch.

A RUSSIAN CORPORATION: You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows and open another bottle of vodka.

A SWISS CORPORATION: You have 5000 cows. None of them belong to you. You charge the owners for storing them.

A CHINESE CORPORATION: You have two cows. You have 300 people milking them.
You claim that you have full employment, and high bovine productivity, and arrest the newsman who reported the real situation.

AN INDIAN CORPORATION: You have two cows. You worship them.

A BRITISH CORPORATION: You have two cows. Both are mad.

IRAQI CORPORATION: Everyone thinks you have lots of cows. You tell them that you have none. No-one believes you, so they bomb the **** out of you and invade your country. You still have no cows, but at least now you are part of a Democracy....

WELSH CORPORATION: You have two cows. The one on the left looks very attractive.

AUSTRALIAN CORPORATION: You have two cows. Business seems pretty good.
You close the office and go for a few beers to celebrate.

Syariah Insurance

Insurance, some idea is to protect themselves from any unpredictable and unacceptable accident (loss), or just to have saving account or investment for additional advantage (i.e. PruLink, product of Prudential). we have also have Loss Insurance, other than Live Insurance we mention above. Loss Insurance needed to protect our vehicles, house, or other valuable manner. Nowadays, we heard there's something new in Insurance world, called Syaria Insurance. It based from Islamic rule of live, that everything in their live, must based on their rule of live of Holy Qur'an and Al Hadist. The principal of this kind of insurance is that every stakeholders and/or participants must agree each other for all the akad (pre requisite or agreement), condition, every single of them must known and acceptable, so no one will dissapointed to take the services. The interesting piece is that customer have a right to control the premium, that they able to pay, with ofcourse agree with the procentage claim they'll get for the risk.
Insurance Company works as a underwriter (policy holders), as collector (as pool of Tabarru’ Fund), and as Fund Manager which can invest the Tabarru’ fund base on Syariah rule. This Syariah rule is that the surplus will divide fairly with all participants (stakeholders) and company as fund manager also. The Syaria Insurance system collect all the premium from customer participants, to share the risk together, and deliver the claim from those premium money. This collecting premium called Tabarru. Insurance company take fees from this Syaria insurance for their revenue, but they can not use the Tabarru fund to greed themselves, coz this fund is untouchable and become customer's right. So where the company make money? Well.. the company get the fee from this services, such as Underwriter fee, Collector & Payer fee, and Fund Management fee. Also there’s sharing for the investment surplus from the Investment Tabarru’ Fund.

List of Syariah Insurance in Indonesia

Here few companies in Indonesia that start to offering Syariah Insurance, the list will be updated to more recent information periodically

• Allianz Syariah life insurance
• Syariah Insurance Jasindo Takaful
• Takaful Insurance
• Bumiputera Syariah

Sukuk in Practice

Mudaraba Sukuk in practice
Shamil Bank of Bahrain raised 360 million Saudi Riyal investment capital through the Al Ehsa Special Realty Mudaraba, representing an investment participation in a land development transaction with a real estate development company in the Kingdom of Saudi Arabia. The investment objective of the Mudaraba is to provide investors with annual returns arising from participation in the funding of a land financing transaction Profits due to investors will be accrued on the basis of returns attained from investing the subscriptions.

Musharaka Sukuk in Practice
US$550 million sukuk transaction for Emirates airline, the seven-year deal was a structured on a Musharaka contract. The Musharaka or joint venture was set up to develop a new engineering centre and a new headquarters building on land situated near Dubai's airport which will ultimately be leased to Emirates. Profit, in the form of lease rentals, generated from the Musharaka venture will be used to pay the periodic distribution on the trust certificates.
Sitara Chemical Industries Ltd, a public limited company, made a public issue of profit-and-loss sharing based term finance certificates (TFC’s) worth Rs 360 million which were subscribed in June 2002. The TFC’s had a fixed life tenor of five years and profit and loss sharing was linked to the operating profit or loss of the Chemical Division of the company.
Kuwait Finance House (KFH), Liquidity Management Center (LMC) and Al Muthanna Investment Company (MIC), the mandated lead arrangers launched US$ 125 million Lagoon City Musharaka sukuk to support the Lagoon City residential and commercial real estate development as part of Kheiran Pearl City project.

Ijara Sukuk in Practice
In December 2000, Kumpulan Guthrie Berhad (Guthrie) was granted a RM1.5 billion (US$400 million) Al-Ijara Al-Muntahiyah Bit-Tamik by a consortium of banks. The original facility was raised to re-finance Guthrie’s acquisition of a palm oil plantation in the Republic of Indonesia. The consortium was then invited to participate as the underwriter/primary subscriber of the Sukuk Transaction.
US$350 million sukuk Trust Certificates by Sarawak Corporate Sukuk Inc. (SCSI) Sarawak Economic Development Corporation (SEDC) raised financing amounting to US$350 million by way of issuance of series of trust certificates issued on the principle of Ijara sukuk. The certificates were issued with a maturity of 5 years and under the proposed structure, the proceeds will be used by the issuer to purchase certain assets from 1st Silicon (Malaysia) Sdn Bhd. Thereafter, the issuer will lease assets procured from 1st Silicon to SEDC for an agreed rental price for an agreed lease period of 5 years.

Murabaha Sukuk in Practice
Arcapita Bank, a Bahrain-based investment firm has mandated Bayerische Hypo-und Vereinsbank AG (“HVB”), Standard Bank Plc (“SB”) and WestLB AG, London Branch (“WestLB”) (together the “Mandated Lead Arrangers”), to arrange a Five Year Multicurrency (US$, € and £) Murabaha-backed Sukuk. Sukuk will have a five-year bullet maturity and proposed pricing three month LIBOR +175bps.

Salam Sukuk in Practice
Aluminum has been designated as the underlying asset of the Bahrain Government al Salam contract, where by it promises to sell aluminum to the buyer at a specified future date in return of a full price payment in advance. The Bahrain Islamic Bank (BIB) has been nominated to represent the other banks wishing to participate in the Al Salam contract. BIB has been delegated to sign the contracts and all other necessary documents on behalf of the other banks in the syndicate. At the same time, the buyer appoints the Government of Bahrain as an agent to market the appropriate quantity at the time of delivery through its channels of distribution. The Government of Bahrain provides an additional undertaking to the representative (BIB) to market the aluminum at a price, which will provide a return to al Salam security holders equivalent to those available through other conventional short-term money market instruments.

Istisna Sukuk in Practice
Tabreed’s five-year global corporate Sukuk (on behalf of the National Central Cooling Company, UAE) provided a fixed coupon of 5.50%. It is a combination of Ijara Istisna and Ijara Mawsufah fi al dhimmah (or forward leasing contracts). The issue was launched to raise funds to retire some existing debt, which totals around US$136 million, as well as to finance expansion.
The Durrat Sukuk will finance the reclamation and infrastructure for the initial stage of a broader US$ 1 billion world class residential and leisure destination known as 'Durrat Al Bahrain', currently the Kingdom of Bahrain's largest residential development project. The return on the Sukuk is 125 basis points over 3 months LIBOR payable quarterly, with the Sukuk having an overall tenor of 5 years and an option for early redemption. The proceeds of the issue (cash) will be used by the Issuer to finance the reclamation of the land and the development of Base Infrastructure through multiple project finance (Istisna) agreements. As the works carried out under each Istisna are completed by the Contractor and delivered to the Issuer, the Issuer will give notice to the Project Company under the Master Ijara Agreement and will lease such Base Infrastructure on the basis of a lease to own transaction.

Hybrid Sukuk in practice
Islamic Development Bank issued the first hybrid Sukuk of assets comprising 65.8% Sukuk al-Ijara, 30.73% of Murabaha receivables and 3.4% Sukuk al-Istisna. This issuance required the IDB’s guarantee in order to secure a rating and international marketability. The $ 400 million Islamic Sukuk was issued by Solidarity Trust Services Limited (STSL), a special purpose company incorporated in Jersey Channel Islands. The Islamic Corporation for the Development of Private Sector (ICD) played an intermediary role by purchasing the asset from IDB and selling it to The Solidarity Trust Services Limited (STSL) at the consolidated net asset value.

ISLAMIC BONDS (SUKUK): ITS INTRODUCTION AND APPLICATION

Recent innovations in Islamic finance have changed the dynamics of the Islamic finance industry. Specially in the area of bonds and securities the use of Sukuk or Islamic securities have become increasingly popular in the last few years, both as a means of raising government finance through sovereign issues, and as a way of companies obtaining funding through the offer of corporate sukuk. Beginning modestly in 2000 with total three sukuk worth $336 millions the total number sukuk by the end of 2006 has reached to 77 with over US$ 27 billion funds under management. By the end of 2007 the total figure is expected to exceed US$35 billion.
Sukuk has developed as one of the most significant mechanisms for raising finance in the international capital markets through Islamically acceptable structures. Multinational corporations, sovereign bodies, state corporations and financial institutions use international sukuk issuance as an alternative to syndicated financing.
What are sukuk? how are they structured? and how they are different from the conventional bond and the conventional securitization processes is discussed in this paper in some detail.
What is Sukuk
Sukuk in general may be understood as a shariah compliant ‘Bond’. In its simplest form sukuk represents ownership of an asset or its usufruct. The claim embodied in sukuk is not simply a claim to cash flow but an ownership claim. This also differentiates sukuk from conventional bonds as the latter proceed over interest bearing securities, whereas sukuk are basically investment certificates consisting of ownership claims in a pool of assets.
Sukuk (plural of word sak) were extensively used by Muslims in the Middle Ages as papers representing financial obligations originating from trade and other commercial activities. However, the present structure of sukuk are different from the sukuk originally used and are akin to the conventional concept of securitization, a process in which ownership of the underlying assets is transferred to a large number of investors through certificates representing proportionate value of the relevant assets.
Sukuk and Bond
A bond is a contractual debt obligation whereby the issuer is contractually obliged to pay to bondholders, on certain specified dates, interest and principal, whereas, the sukuk holders claims an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to share in the revenues generated by the sukuk assets as well as being entitled to share in the proceeds of the realization of the sukuk assets.
A distinguishing feature of a sukuk is that in instances where the certificate represents a debt to the holder, the certificate will not be tradable on the secondary market and instead is held until maturity or sold at par.

Malaysia establishes International Syariah Research Academy (ISRA)

KUALA LUMPUR: Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz has affirmed that while the financial market in Malaysia has been affected by the global financial crisis, the overall financial system remains sound and liquidity is ample.

She said the banking institutions were operating with strong capital and liquidity buffers, and have continued to provide financing to the economy, noting that while the domestic stock market had been affected by the global financial meltdown, it had stabilised and improved.

“We have not been insulated from this global development. The spillover effect has been felt across the board by most developed nations,” she said.

Speaking to reporters after the launch of the International Syariah Research Academy (ISRA) here yesterday, Zeti said the central bank had the flexibility to adopt the necessary policies and measures in the current challenging environment. She said this when asked if the central bank would be reviewing the overnight policy rate (OPR).

“At every meeting, we review the OPR. Inflation has already peaked. By the middle of next year, it will be below 4% and later lower than that,” she said.

When asked if the central bank would introduce stimulus packages similar to those announced by other central banks, she said: “At this stage, the policies are aimed at sustaining consumption demand and providing a positive environment for investment activities to take place.”

“As you know, for a few years now, our economy has been domestic driven, so while external sectors will be affected by this global economic slowdown, we need to ensure that growth does occur in the domestic economy, and we have every opportunity to see that happen. While growth will slow down, we will still see growth,” she said.

Zeti said that while half the global economy was likely to go into recession next year, the other half would experience growth, albeit at a slower pace.

“The key to this is sustained consumption demand and some investment activity,” she said.

“The banking sector is important. So far, we see that the sector, which has been resilient and still has strong buffers, will show growth in lending, which is vital for the growth process,” she said.

Earlier in her speech, Zeti said Bank Negara had embarked on an initiative to promote more consistent application of the Islamic financial contract and greater standardisation of Islamic financial practices known as the “syariah parameters” project. She said the initiative aimed to determine the essential features of Islamic financial products derived from underlying syariah contract such as murabahah, istisna’, mudarabah, musharakah, ijarah and wadi’ah.

“These features will serve as a guide for the application of the syariah contract for the Islamic financial products, which can be applied when designing new products or in the enhancement of the existing products.”

“The syariah parameters, once promulgated, would be a standardised point of reference for the practices being adopted among Islamic financial institutions, Islamic finance professionals and practitioners when entering into Islamic financial contracts,” she said.

The syariah parameters are expected to be issued in 1Q09.

Zeti said the establishment of ISRA as a specialised research entity served as a critical infrastructure for driving innovation in Islamic finance.

ISRA would be instrumental in spearheading the development of competitive Islamic financial instruments by combining syariah and business strategies in product structuring and development.

“The mandate of ISRA is to conduct applied research in the area of syariah and Islamic finance which are relevant to market requirements and to contribute to a higher level of engagement amongst practitioners, scholars, regulators and academicians on syariah issues surrounding Islamic financial practices,” she said.

Source: www.theedgedaily.com

Lessons Islamic finance can learn from current crisis

By Habib Toumi, Bureau Chief
Published: November 25, 2008, 23:15

Manama: The Islamic financial industry must remember the importance of risk diversification, good liquidity management, and sound corporate governance if it is to continue to enjoy a framework for stability against the background of global financial turmoil, the governor of Bahrain Central Bank has warned.

“Although the Islamic financial services industry has been insulated to-date from the effects of the global financial crisis, there are many lessons that Sharia-compliant institutions can learn,” Rasheed Al Maraj said at the opening session of the 2008 World Islamic Banking Conference.

“Until very recently, many commentators and analysts believed that the economies of the GCC were an oasis of calm in the ongoing global financial turmoil,” said Al Maraj.

However, since the collapse of Lehman Brothers in mid-September, it has become clear that no part of the world can be immune to the present crisis. We have seen a vastly changed financial landscape, and there is little doubt that the availability of funds and the costs of borrowing are being affected in all parts of the world,” he added.

In recent months, as the global financial crisis has deepened, many commentators have pointed out that Islamic financial institutions have escaped relatively unscathed from the severe downturn.

Post mortem

However, the fact that Sharia-compliant institutions have avoided significant losses resulting from the global financial crisis does not mean that there are no lessons they can learn from the fallout.

“Many conventional banks believe that lending to sub-prime borrowers represented a viable new business line in which there would be an appropriate risk reward trade-off,” Al Maraj said.

“The first movers in this market might have found a profitable niche. But once many banks tried to become players in the same market, credit standards became lax and loans were made to borrowers who had little chance of repaying them. Although some banks recognised the risks, they did not do enough to mitigate them at a sufficiently early stage.”

According to the governor, the sub-prime episode provides an illustration of the herding instinct which has been a recurrent feature of financial markets since their very beginning.

Some banks discover a profit opportunity, other banks follow, and before long the oversupply of credit has led to losses.

“Newer entrants to the industry have merely tended to copy the strategies they see being successfully pursued by their more established rivals,” he said. “As a result, the industry’s assets have become heavily weighted towards the property sector. Events in other parts of the world have recently reminded us that this sector can and does experience significant cycles of activity.

“The industry needs to develop a greater diversity of business models, more diverse and stable income sources, and more robust risk management and stress testing techniques.,” he added.