http://www.economist.com/business-finance/displaystory.cfm?story_id=15954434&source=features_box_main
Treasury bills for sale!!!
T-Bills can provide lots of benefits to investors and fund managers
MMA has started brokering the sale of treasury bills of the central government. “Treasury bills (or T-bills) mature in one year or less. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sold at a discount of the par value to create a positive yield to maturity”. Treasury Bills have been used for centuries by governments not only to finance government debt, rather it has many other financial benefits and can be used for several other purposes.
A handy tool for fixing a lot of problems in economy
For an investor, Treasury bills can be regarded as the safest ( technically risk free) alternative for investing. It is guaranteed by the Central Government and has virtually no risk. All other investments options including buying shares, private equity, doing a business are all highly risky compared to treasury bills. Those investors usually looking for stable income and low risk such as the pensioners, government institutions, various NGOs can utilize treasury bills to park their excess cash and earn a good return.
As a tool to manage the economy, Treasury bills act as an indicator of cash rate. It gives signals to the market about the ideal market rate for deposits and lendings. If tendered properly and the rate determined purely on supply and demand, it will drive the interest rates determined by the Banks. Hopefully we will be able to obtain finance cheaply with the introduction of proposed amendment to issuing policies as to open the market for private individuals and companies.
Finally something good
I have been concerned about the “Sleeping Watchdog” for quite sometime now. So far, in my opinion, This is the best step taken by the governor to stabilise our economy. I hope that this is a beginning of a series of events past due to be taken to strengthen our financial system. Opening up the foreign currency market, strengthening the laws, establishing a credit information bureau, encouraging use of electronic methods of payments, harmonising the payment systems of all commercial banks are yet some basic steps to be taken to develop our financial system. I hope these will be done sooner than later.
hdfc standard life
HDFC Standard Life Unit Linked Plans
Developed nations are more concerned about corruption
Corruption and bribery is taken more seriously in developed countries. Maldives slipped few places in 2009 perceived corruption index published by Transparency International. For more information about the index, please have a look at the video on the right. Bribery costs a lot to any nation. Huge sums are paid to seal the deals which could rather be used for development instead. When are we going to strengthen Anti-corruption Commission? I was very disappointed when all politicians including MDP and DRP parliamentarians quarreling each other on TV stations blaming each other on our Republic day. Nobody was talking about strengthening the other PILLARS of democracy including Anti-Corruption Commission, Auditor General, Prosecutor General, Human Rights Commission, Judiciary etc.
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14931567&source=hptextfeature.
Banking in Maldives
If we are to say something about the Banking industry of Maldives, we can say it is still in infant stage. even though some Banks has been operating since 1970s, Maldivians are yet to experience the efficiency and quality of modern banking. There are 6 Banks currently operating in Maldives, Bank of Maldives is the only Bank owned by Maldivians. HSBC is the only real commercial bank. All other Banks are branches of respective state Banks. Therefore there is no real competition in Banking industry.
Competing itself
Bank of Maldives PLC is the only Bank operating focused on providing retail banking services in Maldives. HSBC, SBI, BOC, HBL and Mauritius Commercial Banks are all concentrating on Corporate Banking. The consequences of which is poor retail banking services for the Maldivians. There is some competition in Corporate Banking, but only a few are capable of financing big development projects. Small Banks including BOC, HBL and MCB is not capable of financing resort development due to their size. Therefore we can strongly argue even the corporate banking sector is not competitive enough to derive economic efficiency and benefit the entrepreneurs expect.
Dissatisfied customers
Due to the lack of competition in the industry, customers have no real choice in choosing their Banker. BML is the only provider of Visa debit cards which can be widely used in conducting financial transactions. There are couple of businesses offering merchant services and credit cards including Cyprea, Villa and BOC, however their service is very limited. For instance, BOC Visa Debit card is just another ATM card. Customer cannot use it for paying for their purchases.
A very limited Internet Banking service is provided by BML. Transferring funds costs too much for an individual customer. The others are worse than BML while some of them have not even planned to provide the service in a near future. There are so many complaints from customers towards Card Center. Forged or erroneous transactions appear in the statement too often
Depositors have less choice or no choice at all where to keep their savings. Because if you keep somewhere other than BML, you must carry cash all the time. Deposit rates are so low that the spread between the deposit rate and lending rates of the Banks stretch by more than 9%. ( 12% for loans and 2-3% for deposits). Perhaps its better if we keep the money under the mattress as we did before.
A profitable industry
I wonder why none of the wealthy individuals have invested in Banking sector. Developing a resort costs $200M. Operating a small Bank will probably need same amount of capital for a start. Wouldn’t it be profitable to run a Bank? Huge amounts of profits are generated every year by the Banks even with their inefficient services. If a good Banks starts focusing on real efficiency and friendly service, I bet it will offer better dividends than running a resort. So why aren’t the rich Maldivians interested in investing in the Banking sector?
Future looks almost the same
An under-developed Banking industry has been there for more than 40 years. We have not seen Maldivians leading the Banks. Government is not much concerned about the growth of financial sector the results of which has already cost a lot to the citizens in terms of poor banking service. Foreign Banks are not concerned about retail Banking and MMA has probably nothing to motivate the foreigners to do so. The future, how bad we want to see bright, is not so promising.
Drugs: Virtually Legal
This is a link to an article on Drugs which analysed various measures taken around the world to deal with the drug problem. The trend is legalising personal use. Very informative article with lots of real world examples and expert opinions.
http://www.economist.com/world/international/displayStory.cfm?story_id=14845095&source=hptextfeature.
A comment on Power of Stakeholders
The following is a comment made on the Power of Stakeholders. Since its very long, I thought it might night bit extra attention.
Interesting how the article and the consequent comment seem to perceive BML’s stance on CSR. Indeed it is not the most favourable rate of interest when you are being charged 12%, nor is it good for you when you have to provide 100% collateral for your loan. But then again its only one side of the coin.
Looking into the roots of CSR – the objective is to take a socially responsible stance at present which in turn would provide a better return in the future. Given the economy’s YOY inflation rate, the risks associated with rural lending, the quality of assets for which the loan is provided, and the feasible return of the project it is understandable that 12% is not a rip off! If we look at any developing country with national debts at the rate of our level, 12% of interest is rather a godsend. We do not have to look too far as in Sri-Lanka interest rates on similar loans are over 20%!!!!
To stress on the ethical side of issues, to start we do have several banks which operate in the Maldives. In terms of experience SBI, BOC and HBl has operated longer than BML in Maldives. In terms of size not all banks are a match but all the banks which operate in the Maldives have way greater asset backing, technical knowledge and operational expertise than BML. In terms of operation and asset roll-over within the Maldives, accounting on those vital few merchant customers that are a fundamental source of funds for the bank, rest assured SBI has such funds (equal if not greater than) to match those of BML. So given the above facts, and further given that no bank other than BML lends to rural projects (with the exception of SBI lending to fund Buruma and Champa’s Maldive Gas if to be called rural for it operates in Thilafushi), I am not to decide BML lending to rural developments being an ethical decision or not!
In terms of the legal aspect – no law in Maldives determines a bank’s asset portfolio. So for BML to lend to rural projects given the costs involved being solely thier decision. While the costs involved with operating loans to rural areas are huge, the opportunity cost (demand from metropolitan Male’ for more feasible and supervised lending such as construction) does exist, I think BML’s stance to lend to rural projects clearly and outrightly reflects a corporate social responsibility being fulfilled and catered to.
To address the video, for him to not be able to pay the loan according to the terms of the contract – he has violated the contract made. For him to make the decision of buying a second hand engine given its risks was his decision, the bank’s role being simply financing the venture while by no means evaluating engines or dhonis not being the specialisation of the bank. As any person who had dealt with a loan would know, identifying such a cause in advance with a feasible repayment schedule would ensure a refinancing on the loan. As no lay person would do business just to incur losses, the bank did what was it deems suit along the contract and along its day to day operation of operating an institute which at the end of the day provides a return for it’s shareholders.
A good article from the Economist website
“Freeing central Europe’s captive nations has proved far easier than freeing its captive minds”…..”The biggest disappointment is the continuing power and wealth of the old system’s elite, who have proved much better at running the capitalism they decried than the socialism they preached. Party bosses and their secret-police henchmen successfully squirrelled money abroad, using it to buy assets cheaply in the chaotic years of the 1990s.”…very much related to changes we are seeing in Maldives. Seems like all developed nations went through a similar path.
http://www.economist.com/displayStory.cfm?story_id=14793753.
Power of stakeholders
Written by Ahmed Athif
How many businesses in Maldives identify their stakeholders and take account of their interest and power in making the strategic decisions. By definition stakeholders are those who are affected and be affected by the actions of organisations activities such as shareholders, employees, creditors and regulators etc. The stakeholder’s ability to influence on organisations strategic objectives depend on their power and interest. Understanding the stakeholder groups and taking account of their needs is vital for any successful organisation. The business models are changing and they are taking higher interest in addressing to stakeholders. The global corporations are evolving to serve the best interest of all stakeholders instead of just maximising the profit but this might not be the case for us.
It is true that there are few listed companies at the moment and the capital market is in the infant stage. The shareholders in listed companies have less knowledge and normally do not bother on the affairs of the company and its performance which results public companies continue to make decision purely on profit motive rather than best interest of other stakeholders. But business corporations & government must take account of their stakeholders interest in their strategic planning and incorporate in their vision, mission and goals to be successful in the modern world.
For example, the government’s decision to privatise Giyaasudin School created lot of chaos and public pressure. I think if careful thought processes has been undertaken to analyse the importance of stakeholders and how the decision are going to affect those involved such unpleasant activities could have been minimised.
The parents and students might not have much power in influencing the decisions but they have high interest in those decisions. According to Mendelow’s power interest matrix, these stakeholders should be “kept informed” and failure to do so might encourage them to make collective effort and increase “power” and eventually become “key players” who would influence the strategic decisions.
Mendelow’s Power Interest matrix
Therefore, organisations including government institutions’ should not undermine the power of stakeholders and engaging them in strategic planning process is the key to success.
Your journey – Our business
Many local businesses prime objective is to maximise profit and hence ignore the importance of the society in which they operate. Acting in the best interest of the stakeholders is far from reality.
“Our business: Your Journey” is a slogan of a huge local company and I found it as intimidating and feel that the whole purpose of their existence is making profit. It shows lack of stakeholder engagement in the strategic decisions. How would you feel if a hospital comes with a slogan as “your sickness – our business?”
Corporations have a social responsibility and should go beyond just maximising wealth. The businesses owe a great deal to the community and the environment which they operate and must act responsibly.
Lending to Rural Development
BML’s annual report 2008 stated that lending to rural development as Corporate Social Responsibility (CSR). But these loans for rural development are at a very high interest and repaying them is a huge burden. The rural society is working very hard to survive in time of recession and struggling to make ends meet. Bank could have arranged an easy repayment terms if they proudly want to publish it as CSR or why not put an extra effort in CSR?
Here is a case of local fishermen whose was lucky enough to get bank finance and ended with nothing.
Keep them satisfied
The traditional view of maximising profit must be extended to maximising the interest of stakeholders at large. Stakeholders are not just limited to major shareholders. Since the corporations are also the part of the larger society the actions and strategic decisions should address the interest of stakeholders. This will help organisations to maximise profit and also keep the stakeholders satisfied.
