Embrace Islamic Finance and Beware of The Capitalist Trap

This article was written in 2008 and is worth to re-visit going forward.

Questions & Answers

Global Credit Crunch And Wider Implications

10-10-08

Adnan Khan

1. What is the financial crisis termed the ‘credit crunch’? What are the potential implications of the financial crisis for the economy?

The credit crunch crisis is the term given to the crisis which led to banks to stop lending to each other creating a freeze on the financial markets, leading to the collapse of Northern Rock, as one example. There are a number of implications as various aspects of the economy are directly or indirectly linked to the crisis:

• Both the US and the Britain have witnessed debt driven growth other the last decade, this is now coming to an abrupt end.

• In Britain the economy is worth £1.3 trillion whilst consumer debt is £1.4 trillion

• The easy availability of credit drove the housing bubble, now the main engine for that - debt is running out of fuel

2. What are the main causes of the financial crisis?

There are a number of causes which caused the crisis some a result of other factors and some more important then others:

• The lending of money to high risk customers, with very little chance of them being able to meet the obligations i.e. sub-prime loans.

• Banks then turning such debt into ‘tradable commodities,’ CDO’s, MBS’s etc. i.e. debt became a product that was brought and sold.

3. Is the main problem poor homeowners in the USA who couldn’t pay their mortgages or are there more fundamental reasons in the way the financial system works?

• The financial side of the economy is now the largest sector in Western economies, this has resulted in governments giving huge concessions e.g. the non-regulation of hedge funds, tax breaks and cuts as well as bailouts.

• The ability of banks and Western governments to continually print money at will, will always create bubbles. For example the US only has $1.4 trillion in circulation, its banks have used that to create a further $11 trillion through fractional reserve banking.

• The philosophy of Capitalism of perpetual economic growth is actually unsustainable and is what causes the periodic crash, recession and crisis when people’s excesses reach boiling point.

• Capitalism believes if all people pursue their self-interests/Greed then the right things will get to the people who want them. Greed is seen as a good thing and necessary for Capitalism to work, hence predatory mortgage lending, exuberant interest rates, dodgy credit ratings all show greed.

4. What has been the response of the governments to address the crisis, is it enough and has it worked?

• Central banks around the world poured money into the markets to shore up the freezing of funds

• The British govt nationalised Northern Rock which was on the verge of collapse

• The US govt arranged the eventual sale of Bear Stearns, the 5th largest investment bank in the US when it was on the verge of collapse

• The US plans on tax rebates in September to a large chunk of the population in the hope the US economy can ‘spend its way’ out of the crisis.

• The British government cut a deal with the banking sector to the tune of £50 billion where it would swap their bad debts for government money, and then use this as collateral in lending.

Government actions have lead to the halting of complete economic collapse as was seen with Northern Rock, However with debt having driven the economies in the West in the last decade, this will have series repercussions - potentially a recession

5. Does the government bailouts not contradict non-interventionist capitalist thought and potentially accentuate the crisis through ‘Moral Hazard.’

The free market has once again been brought into question; there are many that believe the government should intervene due to market failure. Banks most certainly would not have created toxic products if they knew they would have to face the full consequences of their actions.

6. Some have suggested greater regulation and transparency will this work?

This is the standard answer after every crisis; regulation on lending was brought in after the great depression, the stock market crash of 1987 brought in more regulation. No amount of regulation can deal with something which goes down to the very belief of Capitalism - Greed

7. What lessons can we take from this crisis about how western financial markets are fundamentally flawed?

The financial markets in essence is a parallel economy, rather than work in the real world, participants gamble on what is going to happen in the real world - by betting on how businesses are performing and by betting on their profits. This is the fundamental problem with financial markets, they produce nothing real

8. The economist magazine faithfully defended western financial markets, while acknowledging the flaws in the system, by dogmatically stating ‘bubbles, excess and calamity are part of the package of western finance, and still worth it,’ Is it still worth it.

No, and this avoids any discussion on free markets, Financial markets played a miniscule role in the economic development of Britain, US, Germany, Japan and France. They are not necessary to have for the development of nations and are not part and parcel of modern life; they are part and parcel of Capitalism. Communism and Islamic history did not suffer from such crisis (or more at such regular occurrence).

9. What alternatives does Islam offer, given that the Islamic financial system is not based on interest?

• Islamic system is based on the real economy, not parallel economy

• Investment in Islam is in real goods and services not on the value of a business etc

• Finance can be raised through banks who will pool deposits, and invest them around the economy and share in the risk of ventures.

• This is actually what lead to the development of the first corporations

• State grants

10. How will Islamic companies raise finance in order to start up and grow which is important for a thriving and vibrant economy

Through state grants and loans and as stated above through banks. The economic development of the British Empire and the US was primarily thorough state intervention in key sectors of the economy, protecting those markets through tariffs and providing cheap loans and grants and monopoly rights i.e. economic development is generally always centrally driven.

Submitted by a Mujahid

Theunjustmedia.Com

Start the New Year with 'a' GiFT for your Business

Greetings from GiFT 

and

 wishing all our members and readers a 

Wealthy and Healthy year 2013

GiFT starts the new year with being highlighted in the local news.

Published in Utusan Malaysia on the 3rd January 2013

Uplift your Business Integrity with 

GiFT Business Continuity Program(BCP) 

Published in Utusan Malaysia on the 3rd January 2013

'BCP' Expensive for your business if not properly done 

Posted by:
Rodzman Abdul Rahim,
Chartered Financial Consultant,(ChFC),
Registered Financial Planner(RFP)

THE TRUE FINANCIAL PLANNER

A TRUE Financial Planner DOES NOT PEDDLE/SELL any product from any Takaful ,Insurance,Unit-trust or Will writing Company.
Sadly IN MALAYSIA the true independent Financial Planners that are Exclusive Skilled Qualified Professionals do not receive the attention of the regulators.  

People enlist the help of a financial planner because of the complexity of performing the following:
Providing financial security and ensuring that all goals of personal finance are met
Finding direction and meaning in one's financial decisions;
Understanding how each financial decision affects other areas of finance; and
Adapting to life changes to feel more financially secure.

The best results of working with a comprehensive Independent financial planner, from an individual client or family's perspective are:
To create the greatest probability that all financial goals (anything requiring both money and planning to achieve) are accomplished by the target date, and
To have a frequently-updated sensible plan that is proactive enough to accommodate any major unexpected financial event that could negatively affect the plan, and
To make intelligent financial choices along the way (whether to "buy or lease" whether to "refinance or pay-off" etc.).

The client should establish that the planner is competent and worthy of trust, and will act in the client's interests rather than being primarily interested in selling the client financial products for his own benefit. 
As the relationship unfolds, an individual financial planning client's objective in working with a comprehensive independent financial planner is to clearly understand what needs to be done to implement the financial plan created for them. 

A financial planner's step-by-step written IMPLEMENTATION PLAN of ACTION items, created after the plan is completed, HAS MORE VALUE to many clients than the plan itself. The comprehensive written lifetime financial plan is a technical document utilized by the financial planner, the written implementation plan of action is just a few pages of action items required to implement the plan; a much more "usable" document to the client.

Article by:
Rodzman AR
Chartered Financial Consultant,ChFC,
Shariah Registered Financial Planner,SRFP,
Registered Financial Planner,RFP.

Fattening Your Savings

Let's FATTEN your SAVINGS

Rule No.1
Buy only what you need not what you want.
We have to make sure if its a need or a want ? A need is something that we could not live by on to another day.All you need are basic necessities like food on the table,heat,normal clothing,basic transport and of course health.
Other that THINK hard before making that purchase .....

Rule No.2
Buy only with the passive money.
If you have no money to spare do not buy anything that you do not need.If you really want to,then use money from dividends coming from investments or from savings created specifically for future purchases.

Rule No.3
Never use money borrowed from the bank.
These days we tend to spend from the credit given to us by the bank either by easy payments schemes,personal loans,or credit cards.Like it or not as good as it seems on offers,look out for hidden charges from fine prints that most of us never take time to read.

Rule No.4
If you are not sure refer to Rule No.1
Do some window shopping if you really go crazy over something that you want.Do not buy anything but just have a good night sleep and the next morning see how we have gone without it and still survive !
Still not sure go back to RULE No.1

Article by Contributed by:
Rodzman AR,
Chartered Financial Consultant (ChFC),
Syariah RFP,
Registered Financial Planner ( RFP )

Beware of the CC Trap.....................

It's been a great week and in Malaysia we are having another week with almost alternate days of holidays.
That's where you will see signs of SALES every corner of the road with big discounts.
Only buy what you need with cash available and never never use money from your credit card although it may very,very tempting.
The twist to personal finance management is always a challenge during this time of the year where its festive season all over the world.
The trick is to manage your personal just like a small business.

Income - Expenses = Profit                    

Profit in a personal capacity means surplus.If there is a deficit than my friend you might be at the mercy of the bank or worst the 'loan sharks' these days the plastic cards known as THE CREDIT card.

• Have a business
• Thinking of quitting your job
• Thinking of Retirement
• Starting a Business                                           
• Lots of Money 
• Lots of Assets and cash Poor
• How to stop working with lots of cash reserves
• Risk mitigation using Takaful or Self Insured
• Estate Distribution woes
• Stuck and no Financial Map
• Problems in personal finance    

      You may have tons of issues. Let's pause ,take a look, analyse and see how we could help you !

Need help!

Give me a twit or visit us at http// www.greenifinancial.com

Succession Planning and Its Impact on the Performance of Small Micro Medium Enterprises within the Manufacturing Sector in Johannesburg

The study found that there was a gap between perceived and actual status of succession planning in the SMMEs studied. It further revealed that there was no preference to recruiting from outside versus developing inside talent in preparation for succession planning. This finding can provide guidance to other SMME owners while making their succession planning, while it provides opportunities for managers. Most of the top managers surveyed indicated that they will be retiring in next 5 years and indicated that company had no succession plan or exist strategy. This finding has serious implications for the SMMEs studied and must take succession planning very seriously, otherwise they will come to a halt suddenly when the leadership leaves the enterprise for whatever reason, either due to natural death or otherwise. SMMES studied did not put plans in place to groom, train and develop top managers. As a way forward some strategies that can be followed to address the key variables are:

Business Strategy: An organisational structure should be implemented so that employees know who is next in line and what is expected of them, so that if anything is to happen to top management that company can still carry on. Exiting top management and shareholders should have contingency plans in place to ensure that the business can outlive them and that they have a proper exit strategy in place to carry over shares to the new management or new shareholders. The business strategy can add great value to a company if it needs to be sold.

Skills development: Identified top managers should be groomed and developed to ensure that they know what is expected to fill the vacant positions. It is of paramount important to ensure that these potential managers are fitted with all the necessary knowledge and skills to manage the top management of their companies.

Succession Planning: Implementing a formal succession plan is very important to ensure that all aspects have been looked at if something is to happen. The succession plan should also be reviewed annually to ensure managers’ suitability for positions and to ensure that all aspects have been accounted for. In conjunction to a good succession plan it is also necessary to have a good performance management system to ensure that potential top managers are identified from within or to see were individuals can be improved or where skills should be recruited from outside. Duties should be delegated in such a way that the business can operate if one or more key persons are absent thus employees should be multifunctional and flexible.

It is evident from this study that the manufacturing sector has not changed from those recorded in earlier studies. The conclusion from this study served as a wakeup call to the SMMEs which took part.

The gaps that can be observed in the two preceding graphs show the perceived importance of the variables by the companies and what is actually implemented. The significance gap level of 0.5 was used and the following findings were made in respect of each variable:

Business Strategy: There was a gap of 0.73 in respect to what the companies perceived to what is to their advantage and what they are implementing. This variable represented the statements in regard to the company’s utilization of an exit strategy for their shareholders and top management, and whether their succession planning is aligned with the business strategy that they follow. It can be inferred that the respondents perceives highly of what needs to be done but the implementation is not up to the level expected.

Governance: There was no significant gap between responses in regards to the companies’ governance. The GAP is very small so the assumption can be made that respondents implemented governance measures according to what they perceive as good practice. Governance is used to see in what way the business is controlled by shareholders, procedures and managers.

Skills development: The study established that there was a gap of 0.53 in regard to the implementation and perceived advantage of skills development. Skills development is of paramount importance to succession planning as the new up and coming generation needs the proper training and development to function as the new leaders and to ensure the sustainability of the company.

Succession Planning: Succession planning had a significant gap level of 0.63 which illustrate that companies perceive succession planning as a measure to ensure sustainability in their companies, and that they recognize succession planning as a value adding component of their business. Although they do acknowledge that succession planning is value adding but they do not follow the necessarily follow steps to move from their current state to the preferred state.

Common issues found in case studies

Common issues that were identified within the case study, was that there is a lack of succession planning in most SMMEs. As most of these companies are still owned and managed by their founding members it creates a problem of sustainability. These shareholders will also be reaching pensionable age within the following few years and it is important to ensure that all plans are drown up before hand, to ensure that these companies remain operational and functional even when the owner isn’t personally able to manage.

References

Ajay K Garg & Erich Van Weele (May 2012), Succession Planning and Its Impact on the Performance of Small Micro Medium Enterprises within the Manufacturing Sector in Johannesburg, International Journal of Business and Management: Canadian Center of Science and Education (Vol. 7, No. 9). 

'The Economy Stole My Retirement'

By SARAH E. NEEDLEMAN And EMILY MALTBY

Danny Sullivan dreams of gardening and spending time with his grandchildren, but that's just a fantasy. Retirement is out of his reach, at least for the foreseeable future.

The weak economy has been tough for small-business owners across the board, but for millions of entrepreneurs in their 60s and 70s, the consequences have been particularly frustrating. Sarah Needleman has details on The News Hub.

The 62-year-old founder of a small catering company spends his days helping stock bars with beer and ice, wooing potential new clients and juggling the 20 to 30 different events his firm handles daily.

"I am so tired," he says. "I don't know that I'll ever be able to retire."

The weak economy has been tough for small-business owners across the board, with their total revenue inching up by just 3% since 2007 and declining in fields such as construction (-12%), real-estate services (-3%) and retailing (-2%), according to financial-software maker Intuit Inc. But for entrepreneurs in their 60s and 70s, the consequences have been particularly vexing.

Many of them are stuck in "business purgatory," unable to retire and forced to hang on for a recovery that economists say could still be a long way off.

Mr. Sullivan has struggled to sell Arguello Catering Inc., the Redwood City, Calif., business he started 21 years ago, at a price anywhere near the $850,000 or so he figures he needs to stop working. He reckons that about 70% of his nest egg is tied up in the 25-employee company.

Its annual revenue has fallen to roughly $2 million from $3 million before the recession, Mr. Sullivan says. He has tried, without success, to boost the business's value by branching into new markets, expanding hours of operation and adding healthier menu options. He says he got three offers for Arguello this year, but they were far too low.

Nearly half of the 799 small-business owners surveyed in August by The Wall Street Journal and Vistage International, an executive-mentoring organization, expect to retire after age 65, with 38% saying that their planned retirement date is later than they had predicted five years ago. In addition, 56% said most of their retirement nest egg is tied to their business.

Stuck in 'Business Purgatory'

View Slideshow

Jason Henry for The Wall Street

Danny Sullivan has struggled to sell Arguello Catering, the Redwood City, Calif., business he started 21 years ago.

Baby boomers, in many cases, were blindsided by the recession and its effect on their retirement plans, says George Vozikis, director of the Institute for Family Business at California State University in Fresno.

"Boomer entrepreneurs grew up believing in the American dream that you could start a business and eventually sell it for a good return or pass it onto your kids," adds Aaron Chatterji, associate professor at Duke University's Fuqua School of Business in Durham, N.C. "Because of the financial crisis and subsequent recession, that is more difficult today."

Judy Lawton, 69, says she would like to sell the small staffing company she started 27 years ago. She figures she needs to sell it for close to $2 million to live comfortably. But her company was hit hard by the job-market slump, and its revenue is down by about 60% from before the recession.

Ms. Lawton says she continues to work 12-hour days, meeting with prospective clients sometimes until late at night. She says she can't afford to expand her business, which is down to 13 employees from 35 a few years ago. She recently sold her office building for $3.1 million to help pay off a $900,000 Small Business Administration-backed loan that she secured to survive the recession.

Ms. Lawton listed her business for sale last year through a broker, but all of the offers she received were "insulting," she says: as little as $250,000, plus installments that would vary depending on performance. So far, she has turned them down.

"You don't work for almost 28 years at [building] a company and give it away," says Ms. Lawton, adding she won't settle for what she considers a low offer, given the strong reputation and client base she has cultivated.

She hasn't taken a vacation in years because she can't afford to travel. "The economy has stolen my retirement," she says.

When the economy is tight, putting money away for retirement is much harder, says Gibb Dyer, professor of entrepreneurship at Brigham Young University's Marriott School of Management in Provo, Utah. At the same time, "it's more difficult to sell your business because it's valued less," he adds.

"The average business coming to market has lower earnings [than] it did in 2007-2008, therefore the prices are lower," says Barry Evans, partner at Acquisition Services Group, a business brokerage in San Diego. "If a business has lost 20% of its earning power in the past few years, it will sell for at least 30% less today."

The median selling price for U.S. small businesses during the first half of this year was $150,000, down 25% from $200,000 in the first half 2008, according to BizBuySell.com, an online small-business marketplace. The firm's findings, reported by business brokers, are based on listings and recent sales in 70 major U.S. markets.

In the first half of the year, 3,332 small businesses exchanged hands down 40% from the first half of 2008, it found.

Andy Birol, a small-business consultant in Pittsburgh, says many of his older clients are at a crossroads: "They either have to sell for far less than they need or deserve to get out, or they have to muster up the energy to recommit themselves to the business," he says. "They're conflicted."

Fourteen years ago, when Dan Cawley, 60, started real-estate brokerage Cawley Chicago Commercial Real Estate Co. in Downers Grove, Ill., he planned to gradually sell shares to his employees so he could retire by 70. But the recession hit just at the wrong time.

Last year, the company started offering property-management and consulting services and business has improved.

"The employees, they were concerned about the financial viability of the company," he says. "I wasn't even sure if we'd survive. This grandiose plan was blowing up."

Today, Mr. Cawley spends his 10-hour workdays training his sales team, meeting with landlords and property owners and running staff meetings. He also travels the country to build relationships in other states.

He has delayed his retirement plan for five years. He hopes to sell his first installment of shares next year.

"Every dime is in the company," he says. "I have no alternative savings, except Social Security. And I certainly can't live on that."

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Emily Maltby atemily.maltby@wsj.com