Sunday, September 07, 2014
Tuesday, February 12, 2013
http://www.utusan.com.my/utusan/Ekonomi/20130212/ek_04/Memahami-simptom-simptom-stress-dalam-kewangan
Dr. Mohd Nahar Mohd Arshad
Petikan dari Utusan Malaysia, 12 Febuari 2013
Tidak ada belenggu yang lebih menjerat melainkan
apabila seseorang itu hidup berlebih dari kemampuannya. Asas utama dalam
membina kestabilan kewangan ialah untuk berbelanja mengikut kadar kemampuan
diri. Namun, dengan trend yang membudayakan
hidup berhutang untuk berbelanja, ramai yang gagal pada perkara asas
ini.
Isu ini biasanya berlaku kepada golongan
berpendapatan tengah di mana mereka mempunyai akses kepada kredit dan pada masa
yang sama terpaksa mengimbangkan antara keinginan dan kemampuan. Hidup secara
bersederhana wajar menjadi panduan tetapi apabila keinginan menguasai diri,
kemudahan kredit yang ada sering disalah guna sehingga menjerumuskan diri ke
kancah hutang.
Jadi
bagaimanakah kita dapat mengetahui bahawa kita sebenarnya hidup melebihi
dari kadar kemampuan? Tidak mempunyai tunai mencukupi untuk memenuhi
keperluan-keperluan asas adalah petanda terakhir kepada musibah kewangan diri.
Namun, terdapat beberapa petanda awal yang perlu kita sedari sebelum musibah di
atas melanda.
Tidak mempunyai simpanan kecemasan
adalah petanda awal yang perlu diambil perhatian. Ya, menabung dengan
sikit-sikit lama-lama menjadi bukit itu sesuatu yang hambar, tetapi ia bukanlah
sesuatu yang kompleks untuk sukar dilaksanakan. Pun begitu, masih ramai yang
kecundang dalam perkara ini.
Berapa banyakkah jumlah untuk simpanan
kecemasan? Mempunyai simpanan sebanyak tiga bulan kadar perbelanjaan adalah
sesuatu yang munasabah, manakala mempunyai simpanan enam bulan kadar perbelanjaan adalah sesuatu
yang ideal. Bayangkan sekiranya anda hilang pekerjaan, selama manakah anda
dapat menampung gaya hidup sekarang?
Maka, kegagalan untuk menyimpan sedikit
dari jumlah pendapatan merupakan antara petanda kepada musibah kewangan yang
bakal menanti.
Petanda seterusnya ialah apabila bayaran
hutang rumah lebih dari jumlah pendapatan seminggu. Misalnya, seseorang yang
mempunyai pendapatan bulanan sebanyak RM4,000, peruntukan hutang rumah
sewajarnya tidak lebih dari RM1,000. Jika lebih, stress kewangan akan meningkat
berikutan desakan untuk memenuhi keperluan-keperluan lain.
Jumlah baki kad kredit kekal sama dengan
tahun lepas merupakan petanda stress kewangan yang berikutnya. Jika jumlah nya
terus meningkat dari bulan ke bulan, seseorang itu sudah terjerumus dalam
krisis kewangan.
Ini merupakan petanda stress kewangan
yang penting kerana hutang kad kredit adalah mahal dan melibatkan perbelanjaan
gaya hidup seperti percutian. Tidak seperti hutang rumah yang boleh
meningkatkan ekuiti seseorang, hutang kad kredit biasanya melibatkan
perbelanjaan untuk sesuatu yang kurang produktif.
Petanda stress kewangan seterusnya ialah
apabila seseorang itu membeli barangan yang mahal melalui tawaran pembiayaan
tanpa faedah dengan harapan dia mampu melunaskannya nanti.
Samada tawaran ini melibatkan “beli
sekarang dan bayar tanpa faedah sehingga tahun depan” atau “tiada bayaran
bulanan selama enam bulan”, meskipun
menarik tetapi boleh memerangkap.
Masalah biasanya bermula apabila
seseorang itu gagal melunaskan bayaran secara penuh mengikut masa yang
ditentukan. Caj riba yang dikenakan biasanya tinggi serta menjadi lumrah di mana
caj dikira bermula dari tarikh pembelian mula dibuat.
Petanda yang berikutnya ialah apabila
seseorang itu menggunakan satu kredit kad untuk membuat bayaran kad kredit yang
lain melalui pemindahan baki. Ya, pemindahan baki dapat mengurangkan beban caj
yang dikenakan tetapi jika pindahan baki dibuat untuk meningkatkan had siling
hutang, itu adalah petanda yang tidak sihat.
Petanda yang terakhir ialah apabila
seseorang itu berfikir, Aku tidak sepatutnya membeli barangan ini tetapi…”.
Thursday, November 03, 2011
Penduduk dunia 7 Billion Satu Ancaman?
Mohd Nahar Mohd Arshad
Unit Ekonomi Islam dan Kajian Polisi,
Universiti Islam Antarabangsa
Secaea rasmi populasi dunia kini sudah mencecah 7 billion dengan sambutan simbolik kelahiran bayi yang ke-7 billion di Filipina baru-baru ini. Salah satu sebab peningkatan ini ialah kerana kemajuan teknologi perubatan telah memungkinkan kadar survival kelahiran yang tinggi dan jangka hayat manusia yang panjang.
Tidak semua pihak gembira dengan pertambahan penduduk dunia. Persoalan bagaimana sumber-sumber ekonomi yang terhad dapat digunakan bagi memenuhi keperluan dan kehendak manusia yang semakin ramai telah mencetuskan kebimbangan di kalangan sesetengah pihak.
Kebimbangan melampau berhubung persoalan ini telah lama wujud. Pandangan Thomas Robert Malthus (1798) dalam An Essay on the Principle of Population, misalnya menyebut bahawa pertumbuhan populasi yang biasanya adalah lebih pantas dari bekalan makanan akan membawa kepada kesan yang buruk melainkan pertumbuhan populasi ini dikawal (melalui kematian) dengan kekangan moral atau peperangan, kebuluran dan penyakit.
Ekstrimnya pandangan di atas sehingga menjustifikasikan peperangan sebagai cara pengimbangan kadar pertumbuhan populasi. Kebimbangan ini kemudiannya sedikit nerkurangan dengan penemuan kaedah mengawal kehamilan melalui pil perancang dan sebagainya. Negara seperti China sebagai contoh menjalankan dasar satu keluargga satu anak sebagai kaedah mengawal kelahiran bayi.
Persoalan utama di sini ialah wajarkah kebimbangan terhadap kedudukan sumber yang terhad membuatkan manusia melihat pertambahan jumlah populasi sebagai satu ancaman survival manusia itu sendiri?
Dari pandangan Islam, persoalan sumber-sumber ekonomi yang terhad adalah diakui secara relatif. Terhadnya sumber-sumber ekonomi adalah kerana ilmu manusia yang terbatas. Juga terhadnya sumber-sumber ekonomi adalah kerana agihan sumber yang tidak saksama dan akibat pembaziran.
Namun Islam menolak pandangan terhadnya sumber secara mutlak. Di dalam surah Ibrahim ayat 32 hingga 34 Allah menjelaskan nikmat sumber alam yang dijadikan buat manusia. Allah turut menegaskan betapa banyaknya nikmat kurniaanNya sehingga tidaklah akan mampu manusia menghitung banyaknya.
Lantaran itu, kebimbangan Malthus terhadap sumber alam yang terhad sehingga mampu menggugat survival manusia adalah satu pandangan dari tafsiran akal yang terbatas.
Maka, pandangan ekstrim yang bersifat individualistik lantas melihat pertambahan populasi sebagai ancaman kepada manusia lain patut ditolak.
Dr. Mahathir semasa memimpin Malaysia pada tahun 1982 pernah membuat gagasan untuk Malaysia mencapai populasi sehingga 70 juta dalam tempoh 115 ke 120 tahun. Sekiranya kadar pertumbuhan penduduk Malaysia kekal sebanyak 1.7 pearatus setahun, jumlah penduduk Malaysia akan meningkat dua kali ganda hanya dalam masa 41 tahun.
Jika Malaysia ingin mempunyai penduduk yang ramai, beberapa pelan transformasi perlu digubal. Untuk mencapai penduduk optimum, sesebuah negara mesti berupaya untuk memastikan tahap kebajikan rakyat terjamin, kesinambungan alam sekitar terpelihara, serta mempunyai dasarstrategik untuk membina dan menggembeling modal insan negara.
Unit Ekonomi Islam dan Kajian Polisi,
Universiti Islam Antarabangsa
Secaea rasmi populasi dunia kini sudah mencecah 7 billion dengan sambutan simbolik kelahiran bayi yang ke-7 billion di Filipina baru-baru ini. Salah satu sebab peningkatan ini ialah kerana kemajuan teknologi perubatan telah memungkinkan kadar survival kelahiran yang tinggi dan jangka hayat manusia yang panjang.
Tidak semua pihak gembira dengan pertambahan penduduk dunia. Persoalan bagaimana sumber-sumber ekonomi yang terhad dapat digunakan bagi memenuhi keperluan dan kehendak manusia yang semakin ramai telah mencetuskan kebimbangan di kalangan sesetengah pihak.
Kebimbangan melampau berhubung persoalan ini telah lama wujud. Pandangan Thomas Robert Malthus (1798) dalam An Essay on the Principle of Population, misalnya menyebut bahawa pertumbuhan populasi yang biasanya adalah lebih pantas dari bekalan makanan akan membawa kepada kesan yang buruk melainkan pertumbuhan populasi ini dikawal (melalui kematian) dengan kekangan moral atau peperangan, kebuluran dan penyakit.
Ekstrimnya pandangan di atas sehingga menjustifikasikan peperangan sebagai cara pengimbangan kadar pertumbuhan populasi. Kebimbangan ini kemudiannya sedikit nerkurangan dengan penemuan kaedah mengawal kehamilan melalui pil perancang dan sebagainya. Negara seperti China sebagai contoh menjalankan dasar satu keluargga satu anak sebagai kaedah mengawal kelahiran bayi.
Persoalan utama di sini ialah wajarkah kebimbangan terhadap kedudukan sumber yang terhad membuatkan manusia melihat pertambahan jumlah populasi sebagai satu ancaman survival manusia itu sendiri?
Dari pandangan Islam, persoalan sumber-sumber ekonomi yang terhad adalah diakui secara relatif. Terhadnya sumber-sumber ekonomi adalah kerana ilmu manusia yang terbatas. Juga terhadnya sumber-sumber ekonomi adalah kerana agihan sumber yang tidak saksama dan akibat pembaziran.
Namun Islam menolak pandangan terhadnya sumber secara mutlak. Di dalam surah Ibrahim ayat 32 hingga 34 Allah menjelaskan nikmat sumber alam yang dijadikan buat manusia. Allah turut menegaskan betapa banyaknya nikmat kurniaanNya sehingga tidaklah akan mampu manusia menghitung banyaknya.
Lantaran itu, kebimbangan Malthus terhadap sumber alam yang terhad sehingga mampu menggugat survival manusia adalah satu pandangan dari tafsiran akal yang terbatas.
Maka, pandangan ekstrim yang bersifat individualistik lantas melihat pertambahan populasi sebagai ancaman kepada manusia lain patut ditolak.
Dr. Mahathir semasa memimpin Malaysia pada tahun 1982 pernah membuat gagasan untuk Malaysia mencapai populasi sehingga 70 juta dalam tempoh 115 ke 120 tahun. Sekiranya kadar pertumbuhan penduduk Malaysia kekal sebanyak 1.7 pearatus setahun, jumlah penduduk Malaysia akan meningkat dua kali ganda hanya dalam masa 41 tahun.
Jika Malaysia ingin mempunyai penduduk yang ramai, beberapa pelan transformasi perlu digubal. Untuk mencapai penduduk optimum, sesebuah negara mesti berupaya untuk memastikan tahap kebajikan rakyat terjamin, kesinambungan alam sekitar terpelihara, serta mempunyai dasarstrategik untuk membina dan menggembeling modal insan negara.
Wednesday, October 19, 2011
Understanding Derivatives ....Made Simple
Source: Send to my email with an anonymous idntity.
Siti is the proprietor of a nasi lemak shop in Jakarta...
She realizes that virtually all of her customers are unemployed nasi lemak aficionados and, as such, can no longer afford to patronize her shop.
To solve this problem, she comes up with a new marketing plan that allows her customers to eat now, but pay later.
Siti keeps track of the nasi lemak consumed on a ledger (thereby granting the customers loans).
Word gets around about Siti's "makan now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Siti's shop. Soon she has the largest sales volume for any shop in Jakarta .
By providing her customers freedom from immediate payment demands, Siti gets no resistance when, at regular intervals, she substantially increases her prices for nasi lemak.
Consequently, Siti's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Siti's borrowing limit.
He sees no reason for any undue concern because he has the debts of the unemployed aficionados as collateral!
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into NASIBONDS.
These "securities" then are bundled and traded on international securities markets.
Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed nasi lemak aficionados. Nevertheless, the bond prices continuously climb - and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the customers at Siti's shop. He so informs Siti.
Siti then demands payment from her nasi lemak patrons. But, being unemployed -- they cannot pay back their nasi lemak debts.
Since Siti cannot fulfill her loan obligations she is forced into bankruptcy. The shop closes and Siti's 11 employees lose their jobs.
Overnight, NASIBOND prices drop by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Siti's shop had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.
They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her egg and anchovies supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her vegetable supplier is taken over by a competitor, who immediately closes the local orchard and lays off 35 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-nasi lemak aficionados who have never been in Siti's shop.
Now do you understand derivatives?
Caveat: Not all bankers are Fat cats.
Siti is the proprietor of a nasi lemak shop in Jakarta...
She realizes that virtually all of her customers are unemployed nasi lemak aficionados and, as such, can no longer afford to patronize her shop.
To solve this problem, she comes up with a new marketing plan that allows her customers to eat now, but pay later.
Siti keeps track of the nasi lemak consumed on a ledger (thereby granting the customers loans).
Word gets around about Siti's "makan now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Siti's shop. Soon she has the largest sales volume for any shop in Jakarta .
By providing her customers freedom from immediate payment demands, Siti gets no resistance when, at regular intervals, she substantially increases her prices for nasi lemak.
Consequently, Siti's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Siti's borrowing limit.
He sees no reason for any undue concern because he has the debts of the unemployed aficionados as collateral!
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into NASIBONDS.
These "securities" then are bundled and traded on international securities markets.
Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed nasi lemak aficionados. Nevertheless, the bond prices continuously climb - and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the customers at Siti's shop. He so informs Siti.
Siti then demands payment from her nasi lemak patrons. But, being unemployed -- they cannot pay back their nasi lemak debts.
Since Siti cannot fulfill her loan obligations she is forced into bankruptcy. The shop closes and Siti's 11 employees lose their jobs.
Overnight, NASIBOND prices drop by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Siti's shop had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.
They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her egg and anchovies supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her vegetable supplier is taken over by a competitor, who immediately closes the local orchard and lays off 35 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-nasi lemak aficionados who have never been in Siti's shop.
Now do you understand derivatives?
Caveat: Not all bankers are Fat cats.
Friday, August 26, 2011
Cash waqf
1. Individuals pool their cash together for the purpose of waqf.
2. The collected fund is then used to buy any property or be invested in any shariah compliant investment that can generate more lasting income/returns. The purpose of the purchase/investment is to preserve the collected amount and grow it.
3. The generated income/return is used to help Muslims (poverty reduction, relief help etc).
4. Cash waqf is more flexible in meeting the needs of Muslims. The money can be used directly to help the needy (building an orphanage house) or be invested in a project that can generate more income (hotel, mart etc). As compared to the former, the later approach also provides job opportunities to Muslims.
5. A competant fund manager is required to manage the fund.
2. The collected fund is then used to buy any property or be invested in any shariah compliant investment that can generate more lasting income/returns. The purpose of the purchase/investment is to preserve the collected amount and grow it.
3. The generated income/return is used to help Muslims (poverty reduction, relief help etc).
4. Cash waqf is more flexible in meeting the needs of Muslims. The money can be used directly to help the needy (building an orphanage house) or be invested in a project that can generate more income (hotel, mart etc). As compared to the former, the later approach also provides job opportunities to Muslims.
5. A competant fund manager is required to manage the fund.
Friday, August 20, 2010
Stata: How to sort and create ranking
The following command sort the variables vrsadj and output in decending order and then generate the ranking
gsort -vrsadj -output, generate(vrsadjrank)
gsort -vrsadj -output, generate(vrsadjrank)
Saturday, May 22, 2010
Educational Production Function
Economics focus
Satchel, uniform, bonus
Pay-for-performance for school students is no silver bullet
May 20th 2010 | From The Economist print edition
POLITICIANS around the world love to promise better education systems. Proposals for reform come in many flavours. Some tout the benefits of more competition among schools; others aim to train more teachers and reduce class sizes. Still others plump for elaborate after-school programmes or for linking teachers’ pay to how well pupils do.
A relatively recent addition to this menu is the idea of paying students directly for performance. Boosters argue that pupils may fail to invest enough time and effort into education because the gains—better jobs and higher incomes—are nebulous and distant. Cash payments, on the other hand, reward good performance immediately. Link payments to test results or graduation rates, the argument goes, and test scores should increase and drop-out rates decline. Two new papers* describe the effect of such schemes in Israel and America. Their results will disappoint those who hope for a silver bullet. But they also suggest that cash payments may have their uses in some situations.
Joshua Angrist of the Massachusetts Institute of Technology and Victor Lavy of the Hebrew University in Jerusalem studied high-school students in 40 Israeli schools where few pupils went on to get their school-leaving certificate (the Bagrut). In half the schools students were offered a chance to earn nearly $1,450 if they passed all the tests and got the certificate. The economists found that completion rates in “payment schools” increased by about a third—but only for girls and mainly for those who needed to do only a tiny bit more to graduate.
In America Roland Fryer of Harvard University carried out an ambitious set of experiments involving 38,000 students who went to state-run schools in New York, Chicago, Dallas and Washington, DC. Over four-fifths were from poor families; nearly 90% were black or Hispanic. These are the schools that reformers in America most urgently need to fix. Students in inner-city schools do particularly poorly in national tests. Less than 20% of their 8th-graders (13-14-year-olds) have better-than-basic reading skills for their age. The national average is 29%.
In each city about half the participating schools were randomly selected to be ones where students received money; their progress was then compared with that of their peers in the other schools. Pupils in New York and Chicago were paid for test scores or grades. The children in Dallas and Washington, DC, were paid for specific tasks, like reading books or wearing uniforms.
The results of the experiments where scholastic performance was rewarded were uniformly disappointing. In New York fourth- and seventh-grade students in payment schools could earn up to $25 and $50 respectively, depending on their score on each of ten standard maths and reading tests. In Chicago ninth-grade students were rewarded on a sliding scale for good grades in five courses, including English, maths and science. Getting an “A” was worth $50; a “D” meant no money. In theory a student could earn up to $2,000 a year. Plenty of money was paid out, but Mr Fryer found absolutely no evidence that paying students led them to do better than their peers in the control schools. Neither girls nor boys gained, and it did not seem to matter how students had previously performed.
What explains this disappointing result? Some argue that the external push provided by money erodes an inherent love of learning. But participating students also took tests that measured how much they enjoyed studying. There was no indication that the payments affected those sentiments. Nor was it the case that students were uninterested in the programme.
Mr Fryer has a different explanation. Most would agree that school facilities, teachers’ skills, and the effort both students and teachers put in all matter. But how precisely these inputs are converted into a test score is a mystery, and without knowing which lever to pull, it is difficult to design an effective incentive scheme. But leaving it up to participants to find the best way to earn goodies will not work either if, as Mr Fryer believes, pupils have very little idea how to go about improving their own scores.
Grade expectations
When students in New York or Chicago were asked how they would earn the rewards on offer, they came up with all sorts of ideas about test-taking strategies, but not one mentioned reading the textbooks or doing practice questions. On the other hand, those whose performance improved in the Israeli experiment had clear ideas about how to go about making sure they graduated. They took more practice tests and were much more likely to attend free coaching sessions.
If students do not know how to improve their own performance, the best strategy may be to pick a simple task, reward pupils for doing it, and hope that this translates into higher grades. This was the approach Mr Fryer took in Dallas, where second-grade students were simply given $2 for every book they read if they passed a computerised comprehension test on it. Predictably this spurred them to read more books and improved their vocabularies. But it also improved their school grades substantially, although this is not what they were paid for. A year after the payments had stopped, students in the schools that had offered money were still outperforming those in control schools, although the gap had narrowed. It may have helped that the Dallas students were younger. Middle-school students in Washington, DC, gained little from being paid for inputs like attendance. But the results from Dallas suggest that payments can help at least some students get more out of school.
* “The Effects of High Stakes High School Achievement Awards”, by Joshua Angrist and Victor Lavy. Forthcoming in the American Economic Review. “Financial Incentives and Student Achievement”, by Roland G. Fryer junior. NBER Working Paper 15898, April 2010.
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View all comments (5)
Satchel, uniform, bonus
Pay-for-performance for school students is no silver bullet
May 20th 2010 | From The Economist print edition
POLITICIANS around the world love to promise better education systems. Proposals for reform come in many flavours. Some tout the benefits of more competition among schools; others aim to train more teachers and reduce class sizes. Still others plump for elaborate after-school programmes or for linking teachers’ pay to how well pupils do.
A relatively recent addition to this menu is the idea of paying students directly for performance. Boosters argue that pupils may fail to invest enough time and effort into education because the gains—better jobs and higher incomes—are nebulous and distant. Cash payments, on the other hand, reward good performance immediately. Link payments to test results or graduation rates, the argument goes, and test scores should increase and drop-out rates decline. Two new papers* describe the effect of such schemes in Israel and America. Their results will disappoint those who hope for a silver bullet. But they also suggest that cash payments may have their uses in some situations.
Joshua Angrist of the Massachusetts Institute of Technology and Victor Lavy of the Hebrew University in Jerusalem studied high-school students in 40 Israeli schools where few pupils went on to get their school-leaving certificate (the Bagrut). In half the schools students were offered a chance to earn nearly $1,450 if they passed all the tests and got the certificate. The economists found that completion rates in “payment schools” increased by about a third—but only for girls and mainly for those who needed to do only a tiny bit more to graduate.
In America Roland Fryer of Harvard University carried out an ambitious set of experiments involving 38,000 students who went to state-run schools in New York, Chicago, Dallas and Washington, DC. Over four-fifths were from poor families; nearly 90% were black or Hispanic. These are the schools that reformers in America most urgently need to fix. Students in inner-city schools do particularly poorly in national tests. Less than 20% of their 8th-graders (13-14-year-olds) have better-than-basic reading skills for their age. The national average is 29%.
In each city about half the participating schools were randomly selected to be ones where students received money; their progress was then compared with that of their peers in the other schools. Pupils in New York and Chicago were paid for test scores or grades. The children in Dallas and Washington, DC, were paid for specific tasks, like reading books or wearing uniforms.
The results of the experiments where scholastic performance was rewarded were uniformly disappointing. In New York fourth- and seventh-grade students in payment schools could earn up to $25 and $50 respectively, depending on their score on each of ten standard maths and reading tests. In Chicago ninth-grade students were rewarded on a sliding scale for good grades in five courses, including English, maths and science. Getting an “A” was worth $50; a “D” meant no money. In theory a student could earn up to $2,000 a year. Plenty of money was paid out, but Mr Fryer found absolutely no evidence that paying students led them to do better than their peers in the control schools. Neither girls nor boys gained, and it did not seem to matter how students had previously performed.
What explains this disappointing result? Some argue that the external push provided by money erodes an inherent love of learning. But participating students also took tests that measured how much they enjoyed studying. There was no indication that the payments affected those sentiments. Nor was it the case that students were uninterested in the programme.
Mr Fryer has a different explanation. Most would agree that school facilities, teachers’ skills, and the effort both students and teachers put in all matter. But how precisely these inputs are converted into a test score is a mystery, and without knowing which lever to pull, it is difficult to design an effective incentive scheme. But leaving it up to participants to find the best way to earn goodies will not work either if, as Mr Fryer believes, pupils have very little idea how to go about improving their own scores.
Grade expectations
When students in New York or Chicago were asked how they would earn the rewards on offer, they came up with all sorts of ideas about test-taking strategies, but not one mentioned reading the textbooks or doing practice questions. On the other hand, those whose performance improved in the Israeli experiment had clear ideas about how to go about making sure they graduated. They took more practice tests and were much more likely to attend free coaching sessions.
If students do not know how to improve their own performance, the best strategy may be to pick a simple task, reward pupils for doing it, and hope that this translates into higher grades. This was the approach Mr Fryer took in Dallas, where second-grade students were simply given $2 for every book they read if they passed a computerised comprehension test on it. Predictably this spurred them to read more books and improved their vocabularies. But it also improved their school grades substantially, although this is not what they were paid for. A year after the payments had stopped, students in the schools that had offered money were still outperforming those in control schools, although the gap had narrowed. It may have helped that the Dallas students were younger. Middle-school students in Washington, DC, gained little from being paid for inputs like attendance. But the results from Dallas suggest that payments can help at least some students get more out of school.
* “The Effects of High Stakes High School Achievement Awards”, by Joshua Angrist and Victor Lavy. Forthcoming in the American Economic Review. “Financial Incentives and Student Achievement”, by Roland G. Fryer junior. NBER Working Paper 15898, April 2010.
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Monday, December 21, 2009
Stata - generating lagged variable for panel data
Say you have a panel dataset with stu_id as the cross-section identifier, and year as the time series identifir. To create a lagged variable for numer:
bysort stu_id (year): gen write_lg=write[_n-1]
bysort stu_id (year): gen write_lg=write[_n-1]
Saturday, September 12, 2009
Wealth, good or bad?
I read the following tafsir (Ibn Kathir) from surah Saba' verses 34-39 on the morning of 23 Ramadhan 1430. I think many people today have lost ground of the reality of wealth pursuit. The tafsir below is a good reminder.
How Those Who lived a Life of Luxury disbelieved in the Messengers and were misled by Their pursuit of Wealth and Children
Allah is consoling His Prophet and commanding him to follow the example of the Messengers that came before him. He tells him that no Prophet was ever sent to a township but those among its people who lived a life of luxury disbelieved in him, and the weaker people of the town followed him. The people of Nuh, peace be upon him, said to him:
[أَنُؤْمِنُ لَكَ وَاتَّبَعَكَ الاٌّرْذَلُونَ]
(Shall we believe in you, when the weakest (of the people) follow you) (26:110)
[وَمَا نَرَاكَ اتَّبَعَكَ إِلاَّ الَّذِينَ هُمْ أَرَاذِلُنَا بَادِىَ الرَّأْى]
(nor do we see any follow you but the meanest among us and they (too) followed you without thinking) (11:27). The leaders among the people of Salih said:
[قَالَ الْمَلأ الَّذِينَ اسْتَكْبَرُواْ مِن قَوْمِهِ لِلَّذِينَ اسْتُضْعِفُواْ لِمَنْ ءَامَنَ مِنْهُمْ أَتَعْلَمُونَ أَنَّ صَـلِحاً مُّرْسَلٌ مِّن رَّبِّهِ قَالُواْ إِنَّا بِمَآ أُرْسِلَ بِهِ مُؤْمِنُونَ - قَالَ الَّذِينَ اسْتَكْبَرُواْ إِنَّا بِالَّذِى ءَامَنتُمْ بِهِ كَـفِرُونَ ]
(to those who were counted weak -- to such of them as believed: "Know you that Salih is one sent from his Lord.'' They said: "We indeed believe in that with which he has been sent.'' Those who were arrogant said: "Verily, we disbelieve in that which you believe in.'') (7:75-76). And Allah said:
[وَكَذلِكَ فَتَنَّا بَعْضَهُمْ بِبَعْضٍ لِّيَقُولواْ أَهَـؤُلاءِ مَنَّ اللَّهُ عَلَيْهِم مِّن بَيْنِنَآ أَلَيْسَ اللَّهُ بِأَعْلَمَ بِالشَّـكِرِينَ ]
(Thus We have tried some of them with others, that they might say: "Is it these (poor believers) that Allah has favored from among us'' Does not Allah know best those who are grateful) (6:53),
[وَكَذلِكَ جَعَلْنَا فِي كُلِّ قَرْيَةٍ أَكَـبِرَ مُجْرِمِيهَا لِيَمْكُرُواْ فِيهَا]
(And thus We have set up in every town great ones of its wicked people to plot therein) (6:123), and
[وَإِذَآ أَرَدْنَآ أَن نُّهْلِكَ قَرْيَةً أَمَرْنَا مُتْرَفِيهَا فَفَسَقُواْ فِيهَا فَحَقَّ عَلَيْهَا الْقَوْلُ فَدَمَّرْنَاهَا تَدْمِيرًا ]
(And when We decide to destroy a town (population), We (first) send a definite order to those among them who lead a life of luxury. Then, they transgress therein, and thus the Word (of torment) is justified against it (them). Then We destroy it with complete destruction) (17:16). And Allah says here:
[وَمَآ أَرْسَلْنَا فِى قَرْيَةٍ مِّن نَّذِيرٍ]
And We did not send a warner to a township meaning a Prophet or a Messenger,
[إِلاَّ قَالَ مُتْرَفُوهَآ]
(but those who were given the worldly wealth and luxuries among them) means, those who enjoyed a life of riches and luxury, and positions of leadership. Qatadah said, "They are their tyrants, chiefs and leaders in evil.''
[إِنَّا بِمَآ أُرْسِلْتُمْ بِهِ كَـفِرُونَ]
(We believe not in the (Message) with which you have been sent.) means, `we do not believe in it and we will not follow it.' Allah tells us that those who enjoyed a life of luxury and who disbelieved the Messengers said:
[وَقَالُواْ نَحْنُ أَكْثَـرُ أَمْوَلاً وَأَوْلَـداً وَمَا نَحْنُ بِمُعَذَّبِينَ ]
(And they say: "We are more in wealth and in children, and we are not going to be punished.'') meaning, they were proud of their great wealth and great numbers of children, and they believed that this was a sign that Allah loved them and cared for them, and that if He gave them this in this world, He would not punish them in the Hereafter. This was too far-fetched. Allah says:
[أَيَحْسَبُونَ أَنَّمَا نُمِدُّهُمْ بِهِ مِن مَّالٍ وَبَنِينَ - نُسَارِعُ لَهُمْ فِى الْخَيْرَتِ بَل لاَّ يَشْعُرُونَ ]
(Do they think that in wealth and children with which We enlarge them We hasten unto them with good things. Nay, but they perceive not.) (23:55-56)
[فَلاَ تُعْجِبْكَ أَمْوَلُهُمْ وَلاَ أَوْلَـدُهُمْ إِنَّمَا يُرِيدُ اللَّهُ لِيُعَذِّبَهُمْ بِهَا فِي الْحَيَوةِ الدُّنْيَا وَتَزْهَقَ أَنفُسُهُمْ وَهُمْ كَـفِرُونَ ]
(So, let not their wealth nor their children amaze you; in reality Allah's plan is to punish them with these things in the life of this world, and that their souls shall depart while they are disbelievers.) (9:55), and
[ذَرْنِى وَمَنْ خَلَقْتُ وَحِيداً - وَجَعَلْتُ لَهُ مَالاً مَّمْدُوداً - وَبَنِينَ شُهُوداً - وَمَهَّدتُّ لَهُ تَمْهِيداً - ثُمَّ يَطْمَعُ أَنْ أَزِيدَ - كَلاَّ إِنَّهُ كان لاٌّيَـتِنَا عَنِيداً - سَأُرْهِقُهُ صَعُوداً ]
(Leave Me Alone (to deal) with whom I created lonely. And then granted him resources in abundance. And children to be by his side. And made life smooth and comfortable for him. After all that he desires that I should give more. Nay! Verily, he has been opposing Our Ayat. I shall oblige him to face a severe torment!) (74:11-17) And Allah has told us about the story of the owner of those two gardens, that he had wealth and crops and children, but that could not help him at all when all of that was taken from him in this world, before he reached the Hereafter. Allah says here:
[قُلْ إِنَّ رَبِّى يَبْسُطُ الرِّزْقَ لِمَن يَشَآءُ وَيَقْدِرُ]
(Say: "Verily, my Lord expands the provision to whom He wills and restricts...'') meaning, He gives wealth to those whom He loves and those whom He does not love, and He makes poor whom He wills and makes rich whom He wills. He has complete wisdom and clear proof,
[وَلَـكِنَّ أَكْثَرَ النَّاسِ لاَ يَعْلَمُونَ]
(but most men know not.) Then Allah says:
[وَمَآ أَمْوَلُكُمْ وَلاَ أَوْلَـدُكُمْ بِالَّتِى تُقَرِّبُكُمْ عِندَنَا زُلْفَى]
(And it is not your wealth, nor your children that bring you nearer to Us,) meaning, `these things are not a sign that We love you or care for you.' Imam Ahmad, may Allah have mercy on him, recorded that Abu Hurayrah, may Allah be pleased with him, said that the Messenger of Allah said:
«إِنَّ اللهَ تَعَالَى لَا يَنْظُرُ إِلَى صُوَرِكُمْ وَأَمْوَالِكُمْ، وَلَكِنْ إِنَّمَا يَنْظُرُ إِلَى قُلُوبِكُمْ وَأَعْمَالِكُم»
(Allah does not look at your outward appearance or your wealth, rather He looks at your hearts and your deeds.) Muslim and Ibn Majah also recorded this. Allah says:
[إِلاَّ مَنْ ءَامَنَ وَعَمِلَ صَـلِحاً]
(but only he who believes, and does righteous deeds;) meaning, `only faith and righteous deeds will bring you closer to Us.'
[فَأُوْلَـئِكَ لَهُمْ جَزَآءُ الضِّعْفِ بِمَا عَمِلُواْ]
(as for such, there will be multiple rewards for what they did,) means, the reward will be multiplied for them between ten and seven hundred times.
[وَهُمْ فِى الْغُرُفَـتِ ءَامِنُونَ]
(and they will reside in the high dwellings in peace and security.) means, in the lofty dwellings of Paradise, safe from all misery, fear and harm, and from any evil they could fear. Ibn Abi Hatim recorded that `Ali, may Allah be pleased with him, said that the Messenger of Allah said:
«إِنَّ فِي الْجَنَّةِ لَغُرَفًا تُرَى ظُهُورُهَا مِنْ بُطُونِهَا، وَبُطُونُهَا مِنْ ظُهُورِهَا»
(In Paradise there are lofty rooms whose outside can be seen from the inside and whose inside can be seen from the outside.) A bedouin asked, "Who are they for'' He said:
«لِمَنْ طَيَّبَ الْكَلَامَ، وَأَطْعَمَ الطَّعَامَ، وَأَدَامَ الصِّيَامَ، وَصَلَّى بِاللَّيْلِ وَالنَّاسُ نِيَام»
(For those who speak well, feed the hungry, persist in fasting and pray at night while people are asleep.)
[وَالَّذِينَ يَسْعَوْنَ فِى ءَايَـتِنَا مُعَـجِزِينَ]
(And those who strive against Our Ayat, to frustrate them,) means, those who try to block people from the path of Allah and from following His Messengers and believing in His signs,
[فَأُوْلَـئِكَ فِى الْعَذَابِ مُحْضَرُونَ]
they will be brought to the torment. means, they will all be punished for their deeds, each one accordingly.
[قُلْ إِنَّ رَبِّى يَبْسُطُ الرِّزْقَ لِمَن يَشَآءُ مِنْ عِبَادِهِ وَيَقْدِرُ لَهُ]
(Say: "Truly, my Lord expands the provision for whom He wills of His servants, and (also) restricts (it) for him...'') means, according to His wisdom, He gives a lot of provision to one, and gives very little to another. He has great wisdom in doing so, which cannot be comprehended by anyone but Him. This is like the Ayah:
[انظُرْ كَيْفَ فَضَّلْنَا بَعْضَهُمْ عَلَى بَعْضٍ وَلَلاٌّخِرَةُ أَكْبَرُ دَرَجَـتٍ وَأَكْبَرُ تَفْضِيلاً ]
(See how We favor one above another, and verily, the Hereafter will be greater in degrees and greater in favor.) (17:21). This means that just as there are differences between them in this world -- where one may be poor and in straitened circumstances while another is rich and enjoys a life of plenty -- so they will be in the Hereafter. There one will reside in apartments in the highest levels of Paradise, whilst another will be in the lowest levels of Hell. As the Prophet said, describing the best of people in this world:
«قَدْ أَفْلَحَ مَنْ أَسْلَمَ وَرُزِقَ كَفَافًا وَقَنَّعَهُ اللهُ بِمَا آتَاه»
(He truly succeeds who becomes Muslim and is given just enough provision and Allah makes him content with what He has given.)'' It was recorded by Muslim.
[وَمَآ أَنفَقْتُمْ مِّن شَىْءٍ فَهُوَ يُخْلِفُهُ]
(and whatsoever you spend of anything, He will replace it.) means, `whatever you spend in the ways that He has commanded you and permitted you, He will compensate you for it in this world by giving you something else instead, and in the Hereafter by giving you reward.' It was reported that the Prophet said:
«يَقُولُ اللهُ تَعَالَى: أَنْفِقْ، أُنْفِقْ عَلَيْك»
(Allah says: "Spend, I will spend on you.'') In another Hadith it is reported that every morning, two angels come, and one says, "O Allah, bring destruction upon the one who withholds (does not spend).'' The other one says, "O Allah, give compensation to the one who spends.'' And the Messenger of Allah said:
«أَنْفِقْ بِلَالُ، وَلَا تَخْشَ مِنْ ذِي الْعَرْشِ إِقْلَالًا»
(Spend, O Bilal, and do not fear that the One Who is on the Throne will withhold from you. )
How Those Who lived a Life of Luxury disbelieved in the Messengers and were misled by Their pursuit of Wealth and Children
Allah is consoling His Prophet and commanding him to follow the example of the Messengers that came before him. He tells him that no Prophet was ever sent to a township but those among its people who lived a life of luxury disbelieved in him, and the weaker people of the town followed him. The people of Nuh, peace be upon him, said to him:
[أَنُؤْمِنُ لَكَ وَاتَّبَعَكَ الاٌّرْذَلُونَ]
(Shall we believe in you, when the weakest (of the people) follow you) (26:110)
[وَمَا نَرَاكَ اتَّبَعَكَ إِلاَّ الَّذِينَ هُمْ أَرَاذِلُنَا بَادِىَ الرَّأْى]
(nor do we see any follow you but the meanest among us and they (too) followed you without thinking) (11:27). The leaders among the people of Salih said:
[قَالَ الْمَلأ الَّذِينَ اسْتَكْبَرُواْ مِن قَوْمِهِ لِلَّذِينَ اسْتُضْعِفُواْ لِمَنْ ءَامَنَ مِنْهُمْ أَتَعْلَمُونَ أَنَّ صَـلِحاً مُّرْسَلٌ مِّن رَّبِّهِ قَالُواْ إِنَّا بِمَآ أُرْسِلَ بِهِ مُؤْمِنُونَ - قَالَ الَّذِينَ اسْتَكْبَرُواْ إِنَّا بِالَّذِى ءَامَنتُمْ بِهِ كَـفِرُونَ ]
(to those who were counted weak -- to such of them as believed: "Know you that Salih is one sent from his Lord.'' They said: "We indeed believe in that with which he has been sent.'' Those who were arrogant said: "Verily, we disbelieve in that which you believe in.'') (7:75-76). And Allah said:
[وَكَذلِكَ فَتَنَّا بَعْضَهُمْ بِبَعْضٍ لِّيَقُولواْ أَهَـؤُلاءِ مَنَّ اللَّهُ عَلَيْهِم مِّن بَيْنِنَآ أَلَيْسَ اللَّهُ بِأَعْلَمَ بِالشَّـكِرِينَ ]
(Thus We have tried some of them with others, that they might say: "Is it these (poor believers) that Allah has favored from among us'' Does not Allah know best those who are grateful) (6:53),
[وَكَذلِكَ جَعَلْنَا فِي كُلِّ قَرْيَةٍ أَكَـبِرَ مُجْرِمِيهَا لِيَمْكُرُواْ فِيهَا]
(And thus We have set up in every town great ones of its wicked people to plot therein) (6:123), and
[وَإِذَآ أَرَدْنَآ أَن نُّهْلِكَ قَرْيَةً أَمَرْنَا مُتْرَفِيهَا فَفَسَقُواْ فِيهَا فَحَقَّ عَلَيْهَا الْقَوْلُ فَدَمَّرْنَاهَا تَدْمِيرًا ]
(And when We decide to destroy a town (population), We (first) send a definite order to those among them who lead a life of luxury. Then, they transgress therein, and thus the Word (of torment) is justified against it (them). Then We destroy it with complete destruction) (17:16). And Allah says here:
[وَمَآ أَرْسَلْنَا فِى قَرْيَةٍ مِّن نَّذِيرٍ]
And We did not send a warner to a township meaning a Prophet or a Messenger,
[إِلاَّ قَالَ مُتْرَفُوهَآ]
(but those who were given the worldly wealth and luxuries among them) means, those who enjoyed a life of riches and luxury, and positions of leadership. Qatadah said, "They are their tyrants, chiefs and leaders in evil.''
[إِنَّا بِمَآ أُرْسِلْتُمْ بِهِ كَـفِرُونَ]
(We believe not in the (Message) with which you have been sent.) means, `we do not believe in it and we will not follow it.' Allah tells us that those who enjoyed a life of luxury and who disbelieved the Messengers said:
[وَقَالُواْ نَحْنُ أَكْثَـرُ أَمْوَلاً وَأَوْلَـداً وَمَا نَحْنُ بِمُعَذَّبِينَ ]
(And they say: "We are more in wealth and in children, and we are not going to be punished.'') meaning, they were proud of their great wealth and great numbers of children, and they believed that this was a sign that Allah loved them and cared for them, and that if He gave them this in this world, He would not punish them in the Hereafter. This was too far-fetched. Allah says:
[أَيَحْسَبُونَ أَنَّمَا نُمِدُّهُمْ بِهِ مِن مَّالٍ وَبَنِينَ - نُسَارِعُ لَهُمْ فِى الْخَيْرَتِ بَل لاَّ يَشْعُرُونَ ]
(Do they think that in wealth and children with which We enlarge them We hasten unto them with good things. Nay, but they perceive not.) (23:55-56)
[فَلاَ تُعْجِبْكَ أَمْوَلُهُمْ وَلاَ أَوْلَـدُهُمْ إِنَّمَا يُرِيدُ اللَّهُ لِيُعَذِّبَهُمْ بِهَا فِي الْحَيَوةِ الدُّنْيَا وَتَزْهَقَ أَنفُسُهُمْ وَهُمْ كَـفِرُونَ ]
(So, let not their wealth nor their children amaze you; in reality Allah's plan is to punish them with these things in the life of this world, and that their souls shall depart while they are disbelievers.) (9:55), and
[ذَرْنِى وَمَنْ خَلَقْتُ وَحِيداً - وَجَعَلْتُ لَهُ مَالاً مَّمْدُوداً - وَبَنِينَ شُهُوداً - وَمَهَّدتُّ لَهُ تَمْهِيداً - ثُمَّ يَطْمَعُ أَنْ أَزِيدَ - كَلاَّ إِنَّهُ كان لاٌّيَـتِنَا عَنِيداً - سَأُرْهِقُهُ صَعُوداً ]
(Leave Me Alone (to deal) with whom I created lonely. And then granted him resources in abundance. And children to be by his side. And made life smooth and comfortable for him. After all that he desires that I should give more. Nay! Verily, he has been opposing Our Ayat. I shall oblige him to face a severe torment!) (74:11-17) And Allah has told us about the story of the owner of those two gardens, that he had wealth and crops and children, but that could not help him at all when all of that was taken from him in this world, before he reached the Hereafter. Allah says here:
[قُلْ إِنَّ رَبِّى يَبْسُطُ الرِّزْقَ لِمَن يَشَآءُ وَيَقْدِرُ]
(Say: "Verily, my Lord expands the provision to whom He wills and restricts...'') meaning, He gives wealth to those whom He loves and those whom He does not love, and He makes poor whom He wills and makes rich whom He wills. He has complete wisdom and clear proof,
[وَلَـكِنَّ أَكْثَرَ النَّاسِ لاَ يَعْلَمُونَ]
(but most men know not.) Then Allah says:
[وَمَآ أَمْوَلُكُمْ وَلاَ أَوْلَـدُكُمْ بِالَّتِى تُقَرِّبُكُمْ عِندَنَا زُلْفَى]
(And it is not your wealth, nor your children that bring you nearer to Us,) meaning, `these things are not a sign that We love you or care for you.' Imam Ahmad, may Allah have mercy on him, recorded that Abu Hurayrah, may Allah be pleased with him, said that the Messenger of Allah said:
«إِنَّ اللهَ تَعَالَى لَا يَنْظُرُ إِلَى صُوَرِكُمْ وَأَمْوَالِكُمْ، وَلَكِنْ إِنَّمَا يَنْظُرُ إِلَى قُلُوبِكُمْ وَأَعْمَالِكُم»
(Allah does not look at your outward appearance or your wealth, rather He looks at your hearts and your deeds.) Muslim and Ibn Majah also recorded this. Allah says:
[إِلاَّ مَنْ ءَامَنَ وَعَمِلَ صَـلِحاً]
(but only he who believes, and does righteous deeds;) meaning, `only faith and righteous deeds will bring you closer to Us.'
[فَأُوْلَـئِكَ لَهُمْ جَزَآءُ الضِّعْفِ بِمَا عَمِلُواْ]
(as for such, there will be multiple rewards for what they did,) means, the reward will be multiplied for them between ten and seven hundred times.
[وَهُمْ فِى الْغُرُفَـتِ ءَامِنُونَ]
(and they will reside in the high dwellings in peace and security.) means, in the lofty dwellings of Paradise, safe from all misery, fear and harm, and from any evil they could fear. Ibn Abi Hatim recorded that `Ali, may Allah be pleased with him, said that the Messenger of Allah said:
«إِنَّ فِي الْجَنَّةِ لَغُرَفًا تُرَى ظُهُورُهَا مِنْ بُطُونِهَا، وَبُطُونُهَا مِنْ ظُهُورِهَا»
(In Paradise there are lofty rooms whose outside can be seen from the inside and whose inside can be seen from the outside.) A bedouin asked, "Who are they for'' He said:
«لِمَنْ طَيَّبَ الْكَلَامَ، وَأَطْعَمَ الطَّعَامَ، وَأَدَامَ الصِّيَامَ، وَصَلَّى بِاللَّيْلِ وَالنَّاسُ نِيَام»
(For those who speak well, feed the hungry, persist in fasting and pray at night while people are asleep.)
[وَالَّذِينَ يَسْعَوْنَ فِى ءَايَـتِنَا مُعَـجِزِينَ]
(And those who strive against Our Ayat, to frustrate them,) means, those who try to block people from the path of Allah and from following His Messengers and believing in His signs,
[فَأُوْلَـئِكَ فِى الْعَذَابِ مُحْضَرُونَ]
they will be brought to the torment. means, they will all be punished for their deeds, each one accordingly.
[قُلْ إِنَّ رَبِّى يَبْسُطُ الرِّزْقَ لِمَن يَشَآءُ مِنْ عِبَادِهِ وَيَقْدِرُ لَهُ]
(Say: "Truly, my Lord expands the provision for whom He wills of His servants, and (also) restricts (it) for him...'') means, according to His wisdom, He gives a lot of provision to one, and gives very little to another. He has great wisdom in doing so, which cannot be comprehended by anyone but Him. This is like the Ayah:
[انظُرْ كَيْفَ فَضَّلْنَا بَعْضَهُمْ عَلَى بَعْضٍ وَلَلاٌّخِرَةُ أَكْبَرُ دَرَجَـتٍ وَأَكْبَرُ تَفْضِيلاً ]
(See how We favor one above another, and verily, the Hereafter will be greater in degrees and greater in favor.) (17:21). This means that just as there are differences between them in this world -- where one may be poor and in straitened circumstances while another is rich and enjoys a life of plenty -- so they will be in the Hereafter. There one will reside in apartments in the highest levels of Paradise, whilst another will be in the lowest levels of Hell. As the Prophet said, describing the best of people in this world:
«قَدْ أَفْلَحَ مَنْ أَسْلَمَ وَرُزِقَ كَفَافًا وَقَنَّعَهُ اللهُ بِمَا آتَاه»
(He truly succeeds who becomes Muslim and is given just enough provision and Allah makes him content with what He has given.)'' It was recorded by Muslim.
[وَمَآ أَنفَقْتُمْ مِّن شَىْءٍ فَهُوَ يُخْلِفُهُ]
(and whatsoever you spend of anything, He will replace it.) means, `whatever you spend in the ways that He has commanded you and permitted you, He will compensate you for it in this world by giving you something else instead, and in the Hereafter by giving you reward.' It was reported that the Prophet said:
«يَقُولُ اللهُ تَعَالَى: أَنْفِقْ، أُنْفِقْ عَلَيْك»
(Allah says: "Spend, I will spend on you.'') In another Hadith it is reported that every morning, two angels come, and one says, "O Allah, bring destruction upon the one who withholds (does not spend).'' The other one says, "O Allah, give compensation to the one who spends.'' And the Messenger of Allah said:
«أَنْفِقْ بِلَالُ، وَلَا تَخْشَ مِنْ ذِي الْعَرْشِ إِقْلَالًا»
(Spend, O Bilal, and do not fear that the One Who is on the Throne will withhold from you. )
Tuesday, September 01, 2009
Social capital market
Business.view
Capital markets with a conscience
Sep 1st 2009
Social investing grows up
THE old debate about whether, or to what extent, financial markets are a force for social good has taken on a new urgency in the aftermath of last year’s market meltdown. Plunging the world into recession is, after all, as clear an example as any of anti-social behaviour. As around 800 people gather in San Francisco this week at the SOCAP09 conference, to map out the future of what they call “social capital markets”, they have the wind at their backs.
The first SOCAP conference took place in the middle of the meltdown a year ago. There was a surge of registrations in the days after the collapse of Lehman Brothers, as some people disgusted by the traditional capital markets, and others who had lost their jobs and sought a new outlet for their skills, decided that social capital markets were worth a look. The event proved long on optimism but rather short on coherence. A year on, the thinking is more rigorous—if no less idealistic—and is increasingly being put into practice.
Getty Images Social-capital futures
The idea of combining capital markets with social missions is hardly new. Some investors have long applied an “ethical screen” to their portfolios, avoiding, say, merchants of death (cigarette-makers, defence firms, etc) or companies that are especially damaging to the environment. This has provoked sceptical investors to create portfolios of “sinful” companies that sometimes outperform ethical ones.
As the ethical investors implicitly recognise through their investment choices, much of the activity of capital markets is, broadly speaking, ethical and even socially beneficial. The challenge is to raise the level even higher in areas that are ethical, and transform the capital markets so they channel less money to activities that are “socially useless”, as Lord Turner, the head of Britain’s Financial Services Authority recently put it.
It is now five years since a former American vice-president, Al Gore, teamed up with David Blood, a former Goldman Sachs executive, to launch Generation Investment Management, an investment firm. Nicknamed “Blood and Gore”, it seeks to invest in for-profit firms with strategies that are environmentally sustainable and have the potential to outperform the market. Also in 2004, Christopher Cooper-Hohn set up a structure that automatically pays a large chunk of profits and management fees from his hedge fund, the Children’s Investment Fund, to a charitable foundation for needy children—in total, around £1.5 billion ($2.4 billion) so far.
And a growing number of charitable organisations, led by the Edna McConnell Clark Foundation in New York, have been engaging in “mission-related investing”. In other words, they pursue their philanthropic missions not just by making grants but also in the way in which they manage their endowments, channelling capital to investments that support their charitable goals (in McConnell Clark’s case, by providing debt finance for low-cost housing). These organisations reckon that this approach delivers solid financial returns while achieving far more social impact than the diversified investment strategy still followed by the great majority of foundations and other institutional investors.
Since last year’s market meltdown there has been a sharp increase in interest in these kinds of approaches and several fascinating new initiatives. There has, for example, been much discussion of what exactly might be traded, and by whom, on a “social stock exchange”—a debate that is being informed by some real-world experiments in places such as Brazil and South Africa. (A good overview of the main ideas in social capital can be found in the latest issue of the Federal Reserve Bank of San Francisco’s Community Development Investment Review. This contains articles ranging from “Rethink Charity” to “Using High-Transparency Banks to Reconnect Money and Meaning”.)
Wanted: a measure of goodness
The notion of social capital markets can seem incoherent because it brings together such a diverse group of people and institutions. Yet there is a continuum that connects purely charitable capital at one extreme and for-profit capital at the other, with various trade-offs between risk, return and social impact in between. Much of the discussion at SOCAP09 is expected to focus on that continuum and to figure out, for any given social goal, which sort of social capital, or mix of different sorts of it, is most likely to succeed.
Arguably the biggest obstacle to the creation of social capital markets is the lack of a common measure of how much good has been done: there is no agreed unit of social impact that mirrors profit in the traditional capital markets. That is why the most interesting event at SOCAP09 is expected to be the unveiling on September 2nd of a new measurement system for investors who want to have a positive “triple bottom line” of social and environmental impact as well as a financial return.
The Global Impact Investing Rating System (GIIRS) is the result of collaboration between some of the leading organisations in social capital markets. It includes a set of “impact reporting and investment standards”, a much-needed attempt to develop common definitions of the main terms used in social capital markets. Until now there has been a tendency to use whatever definition allows you to tell yourself you are making the most difference. It remains to be seen how GIIRS deals with the fact that people often disagree fiercely about what constitutes social good.
Although these are still early days, “This philanthrocapitalist approach has begun to be taken seriously,” says Kevin Jones of Good Capital, a social-investment and consulting firm, and the creator of SOCAP. The amount of money in the social capital markets is still small compared with that in the traditional capital markets, albeit growing fast. Some of the bright new ideas will turn out to be turkeys. (But then so did the version of capitalism that imploded a year ago.) Hopefully, some of them will fly.
Capital markets with a conscience
Sep 1st 2009
Social investing grows up
THE old debate about whether, or to what extent, financial markets are a force for social good has taken on a new urgency in the aftermath of last year’s market meltdown. Plunging the world into recession is, after all, as clear an example as any of anti-social behaviour. As around 800 people gather in San Francisco this week at the SOCAP09 conference, to map out the future of what they call “social capital markets”, they have the wind at their backs.
The first SOCAP conference took place in the middle of the meltdown a year ago. There was a surge of registrations in the days after the collapse of Lehman Brothers, as some people disgusted by the traditional capital markets, and others who had lost their jobs and sought a new outlet for their skills, decided that social capital markets were worth a look. The event proved long on optimism but rather short on coherence. A year on, the thinking is more rigorous—if no less idealistic—and is increasingly being put into practice.
Getty Images Social-capital futures
The idea of combining capital markets with social missions is hardly new. Some investors have long applied an “ethical screen” to their portfolios, avoiding, say, merchants of death (cigarette-makers, defence firms, etc) or companies that are especially damaging to the environment. This has provoked sceptical investors to create portfolios of “sinful” companies that sometimes outperform ethical ones.
As the ethical investors implicitly recognise through their investment choices, much of the activity of capital markets is, broadly speaking, ethical and even socially beneficial. The challenge is to raise the level even higher in areas that are ethical, and transform the capital markets so they channel less money to activities that are “socially useless”, as Lord Turner, the head of Britain’s Financial Services Authority recently put it.
It is now five years since a former American vice-president, Al Gore, teamed up with David Blood, a former Goldman Sachs executive, to launch Generation Investment Management, an investment firm. Nicknamed “Blood and Gore”, it seeks to invest in for-profit firms with strategies that are environmentally sustainable and have the potential to outperform the market. Also in 2004, Christopher Cooper-Hohn set up a structure that automatically pays a large chunk of profits and management fees from his hedge fund, the Children’s Investment Fund, to a charitable foundation for needy children—in total, around £1.5 billion ($2.4 billion) so far.
And a growing number of charitable organisations, led by the Edna McConnell Clark Foundation in New York, have been engaging in “mission-related investing”. In other words, they pursue their philanthropic missions not just by making grants but also in the way in which they manage their endowments, channelling capital to investments that support their charitable goals (in McConnell Clark’s case, by providing debt finance for low-cost housing). These organisations reckon that this approach delivers solid financial returns while achieving far more social impact than the diversified investment strategy still followed by the great majority of foundations and other institutional investors.
Since last year’s market meltdown there has been a sharp increase in interest in these kinds of approaches and several fascinating new initiatives. There has, for example, been much discussion of what exactly might be traded, and by whom, on a “social stock exchange”—a debate that is being informed by some real-world experiments in places such as Brazil and South Africa. (A good overview of the main ideas in social capital can be found in the latest issue of the Federal Reserve Bank of San Francisco’s Community Development Investment Review. This contains articles ranging from “Rethink Charity” to “Using High-Transparency Banks to Reconnect Money and Meaning”.)
Wanted: a measure of goodness
The notion of social capital markets can seem incoherent because it brings together such a diverse group of people and institutions. Yet there is a continuum that connects purely charitable capital at one extreme and for-profit capital at the other, with various trade-offs between risk, return and social impact in between. Much of the discussion at SOCAP09 is expected to focus on that continuum and to figure out, for any given social goal, which sort of social capital, or mix of different sorts of it, is most likely to succeed.
Arguably the biggest obstacle to the creation of social capital markets is the lack of a common measure of how much good has been done: there is no agreed unit of social impact that mirrors profit in the traditional capital markets. That is why the most interesting event at SOCAP09 is expected to be the unveiling on September 2nd of a new measurement system for investors who want to have a positive “triple bottom line” of social and environmental impact as well as a financial return.
The Global Impact Investing Rating System (GIIRS) is the result of collaboration between some of the leading organisations in social capital markets. It includes a set of “impact reporting and investment standards”, a much-needed attempt to develop common definitions of the main terms used in social capital markets. Until now there has been a tendency to use whatever definition allows you to tell yourself you are making the most difference. It remains to be seen how GIIRS deals with the fact that people often disagree fiercely about what constitutes social good.
Although these are still early days, “This philanthrocapitalist approach has begun to be taken seriously,” says Kevin Jones of Good Capital, a social-investment and consulting firm, and the creator of SOCAP. The amount of money in the social capital markets is still small compared with that in the traditional capital markets, albeit growing fast. Some of the bright new ideas will turn out to be turkeys. (But then so did the version of capitalism that imploded a year ago.) Hopefully, some of them will fly.
Friday, August 21, 2009
Monopoly and predatory pricing
I think Muslim economists should go further in establishing sound theoretical frameworks on organisational behaviour. An Islamic perspective on the folowing issue is worth investigating.
Economics focus
The unkindest cuts
Aug 20th 2009
From The Economist print edition
Discounting that promotes competition is hard to distinguish from predatory pricing
Illustration by Jac Depczyk
TWO decades before he won the Nobel prize for economics in 1991, Ronald Coase wrote an essay decrying the poor state of research in industrial organisation, the discipline in which he established his reputation. The field, he complained, was devoted to the study of monopoly and antitrust policy. That, he said, made for bad scholarship: an economist faced with a business practice that he cannot fathom, according to Mr Coase, “looks for a monopoly explanation”.
A lot has changed in the 37 years since that lament. The broader research effort for which Mr Coase called has fostered a richer understanding of how firms respond to customers and rivals. Monopoly explanations now compete with theories that see the same behaviour as helpful to consumers. That has made it harder to sort malign from benign business practices. The recent antitrust finding against Intel, a maker of computer chips, is a case in point. After a long investigation, ending in a bulky 524-page verdict, the European Union in May fined Intel €1.06 billion ($1.44 billion) for illegally using its muscle to price AMD, a rival chipmaker, out of the market. Intel rejects the charge of predatory pricing and plans a court appeal. Its lawyers have a block of theory on which to build a defence.
Click Here
Allegations of predatory pricing have a long history. The Sherman Antitrust Act of 1890, the foundation of America’s competition policy, was partly a response to complaints by small firms that larger rivals wanted to drive them out of business. Trustbusters need to be wary of such claims. Low prices are one of the fruits of competition: penalising business giants for price cuts would be perverse. But in rare circumstances, a big firm with cash in reserve may cut prices below costs in order to starve smaller rivals of revenue. The profits sacrificed in the short term can be recouped by higher prices once competitors are out of the way.
Establishing that a firm is guilty of predation is difficult. If rivals stumble or fail, that may be down to their own inefficiency or poor products, and not because they were preyed upon. Proving that a firm is pricing below its costs is tricky in practice. Even where a reliable price-cost or profit-sacrifice test is feasible, failing it need not imply sinister intent. There are often pro-competitive reasons to forgo short-term profits. Firms with a new product, or a new version of an existing one, may wish to pick a lossmaking price to defray the cost to consumers of switching, or because they expect their own costs to fall as they perfect the production process (video-game consoles are a classic example). Losses would then be a licit investment in future profits.
Predation is even trickier to uncover when goods are sold together. A firm that enjoys fat profits on one good may “bundle” it with another on which margins are lower. If the discount on the bundle is hefty enough, other firms may struggle to offer as enticing a deal. In 2001 the EU blocked a proposed tie-up between GE and Honeywell for fear that the merged firm might use bundled discounts to squeeze rival suppliers. In 2007 a committee of antitrust experts appointed by the American government proposed a test for whether bundling is predatory. First, assume the discount applies solely to the low-margin good. So if each good sells for $10 separately and $16 as a bundle, allocate the $4 discount to the more “competitive” product. Next, apply a price-cost test: if the product costs over $6 to make, the bundle is predatory.
That check seems neat but sound business practices may still fall foul of it. It may be cheaper for a firm to sell the two goods together, because of cost savings on distribution. Firms also often use bundling as a way of charging high-demand users more. Thin margins on sales of printers, for example, can be made up by bundling in more profitable toners. This kind of “metering” is an efficient way of recovering fixed costs such as research.
Another ambiguous tactic is to offer rebates to customers that reach certain sales targets. Bulk buyers generally pay lower unit prices to reflect suppliers’ economies of scale. Rebates can also help align incentives. Suppliers want retailers to promote their products, offer in-store information and keep plentiful stocks. The trouble is, retailers bear all the costs of such sales efforts but reap only some of the benefits. Rebates provide incentives for retailers to drive sales, as profits are bigger once the target is met.
The price of loyalty
The EU reckons that Intel’s use of such rebates was nefarious. It is in the nature of rebates that, just above the target threshold, the price of each additional purchase can be negative. If, say, a firm charges $1 for each sale of up to nine units, and a unit price of 80 cents (a rebate of 20%) for sales of ten items or more, the price of the tenth sale is minus $1, since nine units cost $9 and ten units costs only $8. A dominant firm like Intel can rely on a certain market share (an “assured base”, in the jargon). It could in theory set a rebate threshold above that mark, where smaller rivals may hope to mount an effective challenge but cannot match the negative marginal prices on offer to buyers.
Intel’s conduct was certainly worth investigating. Its rebates kicked in if customers gave the firm between 80% and 100% of their business. The schemes looked like a response to a competitive threat from AMD. Yet the EU’s trustbusters cannot feel too sure of themselves. Intel’s rival is still alive and kicking: AMD has not been excluded from the market (though its investment plans may have been thwarted and potential entrants deterred). Moreover, such a complex case, with a bulky ruling which is still not in the public domain, does not offer much guidance on what sort of rebate schemes might be deemed predatory.
Trustbusters have moved away from the practice that so concerned Mr Coase in the early 1970s—of being too quick to condemn big firms on the basis of crude judgments. But they are unlikely to find a robust and simple rule to put in place of the old presumption that firms with market power are always suspect.
Back to top ^^
Economics focus
The unkindest cuts
Aug 20th 2009
From The Economist print edition
Discounting that promotes competition is hard to distinguish from predatory pricing
Illustration by Jac Depczyk
TWO decades before he won the Nobel prize for economics in 1991, Ronald Coase wrote an essay decrying the poor state of research in industrial organisation, the discipline in which he established his reputation. The field, he complained, was devoted to the study of monopoly and antitrust policy. That, he said, made for bad scholarship: an economist faced with a business practice that he cannot fathom, according to Mr Coase, “looks for a monopoly explanation”.
A lot has changed in the 37 years since that lament. The broader research effort for which Mr Coase called has fostered a richer understanding of how firms respond to customers and rivals. Monopoly explanations now compete with theories that see the same behaviour as helpful to consumers. That has made it harder to sort malign from benign business practices. The recent antitrust finding against Intel, a maker of computer chips, is a case in point. After a long investigation, ending in a bulky 524-page verdict, the European Union in May fined Intel €1.06 billion ($1.44 billion) for illegally using its muscle to price AMD, a rival chipmaker, out of the market. Intel rejects the charge of predatory pricing and plans a court appeal. Its lawyers have a block of theory on which to build a defence.
Click Here
Allegations of predatory pricing have a long history. The Sherman Antitrust Act of 1890, the foundation of America’s competition policy, was partly a response to complaints by small firms that larger rivals wanted to drive them out of business. Trustbusters need to be wary of such claims. Low prices are one of the fruits of competition: penalising business giants for price cuts would be perverse. But in rare circumstances, a big firm with cash in reserve may cut prices below costs in order to starve smaller rivals of revenue. The profits sacrificed in the short term can be recouped by higher prices once competitors are out of the way.
Establishing that a firm is guilty of predation is difficult. If rivals stumble or fail, that may be down to their own inefficiency or poor products, and not because they were preyed upon. Proving that a firm is pricing below its costs is tricky in practice. Even where a reliable price-cost or profit-sacrifice test is feasible, failing it need not imply sinister intent. There are often pro-competitive reasons to forgo short-term profits. Firms with a new product, or a new version of an existing one, may wish to pick a lossmaking price to defray the cost to consumers of switching, or because they expect their own costs to fall as they perfect the production process (video-game consoles are a classic example). Losses would then be a licit investment in future profits.
Predation is even trickier to uncover when goods are sold together. A firm that enjoys fat profits on one good may “bundle” it with another on which margins are lower. If the discount on the bundle is hefty enough, other firms may struggle to offer as enticing a deal. In 2001 the EU blocked a proposed tie-up between GE and Honeywell for fear that the merged firm might use bundled discounts to squeeze rival suppliers. In 2007 a committee of antitrust experts appointed by the American government proposed a test for whether bundling is predatory. First, assume the discount applies solely to the low-margin good. So if each good sells for $10 separately and $16 as a bundle, allocate the $4 discount to the more “competitive” product. Next, apply a price-cost test: if the product costs over $6 to make, the bundle is predatory.
That check seems neat but sound business practices may still fall foul of it. It may be cheaper for a firm to sell the two goods together, because of cost savings on distribution. Firms also often use bundling as a way of charging high-demand users more. Thin margins on sales of printers, for example, can be made up by bundling in more profitable toners. This kind of “metering” is an efficient way of recovering fixed costs such as research.
Another ambiguous tactic is to offer rebates to customers that reach certain sales targets. Bulk buyers generally pay lower unit prices to reflect suppliers’ economies of scale. Rebates can also help align incentives. Suppliers want retailers to promote their products, offer in-store information and keep plentiful stocks. The trouble is, retailers bear all the costs of such sales efforts but reap only some of the benefits. Rebates provide incentives for retailers to drive sales, as profits are bigger once the target is met.
The price of loyalty
The EU reckons that Intel’s use of such rebates was nefarious. It is in the nature of rebates that, just above the target threshold, the price of each additional purchase can be negative. If, say, a firm charges $1 for each sale of up to nine units, and a unit price of 80 cents (a rebate of 20%) for sales of ten items or more, the price of the tenth sale is minus $1, since nine units cost $9 and ten units costs only $8. A dominant firm like Intel can rely on a certain market share (an “assured base”, in the jargon). It could in theory set a rebate threshold above that mark, where smaller rivals may hope to mount an effective challenge but cannot match the negative marginal prices on offer to buyers.
Intel’s conduct was certainly worth investigating. Its rebates kicked in if customers gave the firm between 80% and 100% of their business. The schemes looked like a response to a competitive threat from AMD. Yet the EU’s trustbusters cannot feel too sure of themselves. Intel’s rival is still alive and kicking: AMD has not been excluded from the market (though its investment plans may have been thwarted and potential entrants deterred). Moreover, such a complex case, with a bulky ruling which is still not in the public domain, does not offer much guidance on what sort of rebate schemes might be deemed predatory.
Trustbusters have moved away from the practice that so concerned Mr Coase in the early 1970s—of being too quick to condemn big firms on the basis of crude judgments. But they are unlikely to find a robust and simple rule to put in place of the old presumption that firms with market power are always suspect.
Back to top ^^
Wednesday, July 08, 2009
Problems of IBF
My comments here are based on the following article, taken from The Malaysian Insider on July 9, 2009.
1. From the comment given by Daud Bakar, greed does drive the growth of IBF.
2. I feel that after decades of existance, IBF fails to segregate itself from the conventional banking. People would still ask a question on what the difference between IBF and the conventional banking. If IBF is unique, this question should long been understood by the masses. Interestingly, scholars also sometimes face trouble giving a comfortable answer to the question.
3. IBF lacks the true Islamic spirit of conducting economic activities. It is driven by promoting debts, which the teaching of Islam warns of the consequences of it mismanagement. Remember that the longest verse in al-Qur'an is about debt.
4. IBF is trapped in the systemic problem of the existing modern financial system.
Scholars juggle faith and commerce as Islamic banking grows
KUALA LUMPUR, July 8 — Religion may be the bedrock of Islamic finance but influential syariah adviser Mohd Daud Bakar says the bottom line drives the industry.
“Commercial gains are very important,” said Daud, who is listed by consultants Funds@Work as among the world’s most active scholars, sitting on 22 syariah boards.
“We are not a charitable organisation. Shareholders are looking for ROE (return on equity) at the end of the day.”
As Islamic banking tries to reach wider markets, syariah scholars such as Daud are weighing more than just Islamic tenets when they rule on the validity of financial instruments, reflecting commerce’s growing role in the RM3.5 trillion industry.
The desire to win market share, the level of expertise of individual scholars and the scarcity of scholars may all shape Islamic financial rulings and the future of the sector.
Some syariah advisers say it is not always easy to balance religion and business as they grapple with modern funding techniques that sometimes challenge Islam’s basic beliefs.
Once at odds with the syariah’s ban on gambling and excessive speculation, contentious conventional practices such as hedge funds, short-selling and derivatives are slowly finding a place in Islamic finance.
Tasked with applying Islamic law and global financial practices, syariah scholars are powerful gatekeepers, whose approvals are necessary before a product can be marketed as an Islamic instrument.
There are no official figures but some practitioners say there are around 200 syariah scholars worldwide.
Some syariah advisers say the drive to grow the industry influences their decisions on whether certain products meet the syariah’s standards.
Ahmad Hidayat Buang, who advises Islamic insurer Takaful Ikhlas, says Malaysian scholars try to meet companies’ business needs, reflecting a popular view that the country is more liberal in its syariah interpretation than the Gulf.
“We see what happens, then we try to adopt the more flexible view of syariah in order that our product could be introduced,” said Hidayat.
“It’s not necessarily a question of syariah. When you decide on the matter many aspects have to be taken into consideration.”
STAR ENDORSEMENTS?
Syariah scholars are not formally accredited by a single authority so their qualifications can vary vastly, raising questions about the ability of some to understand complex financial structures, especially if they are pressed for time.
With newer financial firms, “they know that the syariah board can be very powerful so they bring in very junior scholars and give them very little information or not enough information within a very limited period of time,” said Megat Hizaini Hassan, a Kuala Lumpur-based Islamic banking lawyer.
“So these scholars may be under pressure to give approvals or certifications.”
A select group of syariah scholars are highly sought after as the bigger a scholar’s name, the greater the drawing power of the product he approves. The industry’s most influential figures can make or break markets with their decrees.
Bankers say Islamic bond issuance fell sharply last year after Sheikh Muhammad Taqi Usmani, chairman of the board of scholars at influential industry body AAOIFI, declared about 85 per cent of sukuk were un-Islamic.
Among the most active scholars are Bahrain’s Sheikh Nizam Mohammad Saleh Yacouby, who sits on 46 advisory boards, and Syria’s Abdul Sattar Kareem Abu Ghuddah, who is on 45 boards, according to Funds@Work.
This has raised concerns about whether some scholars have enough time to thoroughly vet contracts, some of which consist of reams of documents detailing complex financial instruments.
There are also concerns about the possibility of Islamic financial rulings being affected by conflicts of interest where a scholar sits on various boards.
“Syariah board conflicts of interest are part of the practice of modern economic institutions,” said Mousa Isa, a syariah adviser in Saudi Arabia. “There should be transparency.”
Other contentious issues include giving scholars incentive-based payments linked to the success of products they approve. This echoes complaints about the hefty bonuses of some Wall Street bankers which analysts say fuelled excessive speculation and helped trigger the recent credit crisis.
Ayashi Faddad, syariah adviser at Islamic Development Bank, said scholars’ fees should be approved directly by shareholders, not management, to reduce potential for conflicts of interest.
But scholars say some lines cannot be crossed. In cases where there is no room for Islam to accommodate a structure or product, Daud said “the commercial must adjust to the syariah”. — Reuters
1. From the comment given by Daud Bakar, greed does drive the growth of IBF.
2. I feel that after decades of existance, IBF fails to segregate itself from the conventional banking. People would still ask a question on what the difference between IBF and the conventional banking. If IBF is unique, this question should long been understood by the masses. Interestingly, scholars also sometimes face trouble giving a comfortable answer to the question.
3. IBF lacks the true Islamic spirit of conducting economic activities. It is driven by promoting debts, which the teaching of Islam warns of the consequences of it mismanagement. Remember that the longest verse in al-Qur'an is about debt.
4. IBF is trapped in the systemic problem of the existing modern financial system.
Scholars juggle faith and commerce as Islamic banking grows
KUALA LUMPUR, July 8 — Religion may be the bedrock of Islamic finance but influential syariah adviser Mohd Daud Bakar says the bottom line drives the industry.
“Commercial gains are very important,” said Daud, who is listed by consultants Funds@Work as among the world’s most active scholars, sitting on 22 syariah boards.
“We are not a charitable organisation. Shareholders are looking for ROE (return on equity) at the end of the day.”
As Islamic banking tries to reach wider markets, syariah scholars such as Daud are weighing more than just Islamic tenets when they rule on the validity of financial instruments, reflecting commerce’s growing role in the RM3.5 trillion industry.
The desire to win market share, the level of expertise of individual scholars and the scarcity of scholars may all shape Islamic financial rulings and the future of the sector.
Some syariah advisers say it is not always easy to balance religion and business as they grapple with modern funding techniques that sometimes challenge Islam’s basic beliefs.
Once at odds with the syariah’s ban on gambling and excessive speculation, contentious conventional practices such as hedge funds, short-selling and derivatives are slowly finding a place in Islamic finance.
Tasked with applying Islamic law and global financial practices, syariah scholars are powerful gatekeepers, whose approvals are necessary before a product can be marketed as an Islamic instrument.
There are no official figures but some practitioners say there are around 200 syariah scholars worldwide.
Some syariah advisers say the drive to grow the industry influences their decisions on whether certain products meet the syariah’s standards.
Ahmad Hidayat Buang, who advises Islamic insurer Takaful Ikhlas, says Malaysian scholars try to meet companies’ business needs, reflecting a popular view that the country is more liberal in its syariah interpretation than the Gulf.
“We see what happens, then we try to adopt the more flexible view of syariah in order that our product could be introduced,” said Hidayat.
“It’s not necessarily a question of syariah. When you decide on the matter many aspects have to be taken into consideration.”
STAR ENDORSEMENTS?
Syariah scholars are not formally accredited by a single authority so their qualifications can vary vastly, raising questions about the ability of some to understand complex financial structures, especially if they are pressed for time.
With newer financial firms, “they know that the syariah board can be very powerful so they bring in very junior scholars and give them very little information or not enough information within a very limited period of time,” said Megat Hizaini Hassan, a Kuala Lumpur-based Islamic banking lawyer.
“So these scholars may be under pressure to give approvals or certifications.”
A select group of syariah scholars are highly sought after as the bigger a scholar’s name, the greater the drawing power of the product he approves. The industry’s most influential figures can make or break markets with their decrees.
Bankers say Islamic bond issuance fell sharply last year after Sheikh Muhammad Taqi Usmani, chairman of the board of scholars at influential industry body AAOIFI, declared about 85 per cent of sukuk were un-Islamic.
Among the most active scholars are Bahrain’s Sheikh Nizam Mohammad Saleh Yacouby, who sits on 46 advisory boards, and Syria’s Abdul Sattar Kareem Abu Ghuddah, who is on 45 boards, according to Funds@Work.
This has raised concerns about whether some scholars have enough time to thoroughly vet contracts, some of which consist of reams of documents detailing complex financial instruments.
There are also concerns about the possibility of Islamic financial rulings being affected by conflicts of interest where a scholar sits on various boards.
“Syariah board conflicts of interest are part of the practice of modern economic institutions,” said Mousa Isa, a syariah adviser in Saudi Arabia. “There should be transparency.”
Other contentious issues include giving scholars incentive-based payments linked to the success of products they approve. This echoes complaints about the hefty bonuses of some Wall Street bankers which analysts say fuelled excessive speculation and helped trigger the recent credit crisis.
Ayashi Faddad, syariah adviser at Islamic Development Bank, said scholars’ fees should be approved directly by shareholders, not management, to reduce potential for conflicts of interest.
But scholars say some lines cannot be crossed. In cases where there is no room for Islam to accommodate a structure or product, Daud said “the commercial must adjust to the syariah”. — Reuters
Wednesday, July 01, 2009
Islamic finance profit margin too high – Hadi
KUALA LUMPUR, July 1 —Datuk Seri Abdul Hadi Awang (PAS-Marang) today called for a review on the implementation of the Islamic financial system in the country, saying the profit margin from loans provided under the system was too high.
He said the margin did not differ much with the conventional financial system, thus defeating the purpose of having a separate system.
Although the system was free of “riba” or interest, it was too profit-oriented, he added.
“This is not how the Islamic financial system should be operated because the basis for its implementation is to help those in need.
“In this context, the borrowers are the ones in need of help as they had to resort to borrowing. They should be assisted and not be taken advantage of,” he said when debating the Bank Negara Malaysia Bill 2009 in the Dewan Rakyat.
Abdul Hadi said the government should do something to make the country’s Islamic financial system a truly people-oriented arrangement and to counter the negative perception that it was similar to the conventional system.
He said the margin did not differ much with the conventional financial system, thus defeating the purpose of having a separate system.
Although the system was free of “riba” or interest, it was too profit-oriented, he added.
“This is not how the Islamic financial system should be operated because the basis for its implementation is to help those in need.
“In this context, the borrowers are the ones in need of help as they had to resort to borrowing. They should be assisted and not be taken advantage of,” he said when debating the Bank Negara Malaysia Bill 2009 in the Dewan Rakyat.
Abdul Hadi said the government should do something to make the country’s Islamic financial system a truly people-oriented arrangement and to counter the negative perception that it was similar to the conventional system.
Super efficiency
An-namal
[قَالَ يأَيُّهَا الْمَلأ أَيُّكُمْ يَأْتِينِى بِعَرْشِهَا قَبْلَ أَن يَأْتُونِى مُسْلِمِينَ - قَالَ عِفْرِيتٌ مِّن الْجِنِّ أَنَاْ ءَاتِيكَ بِهِ قَبْلَ أَن تَقُومَ مِن مَّقَامِكَ وَإِنِّى عَلَيْهِ لَقَوِىٌّ أَمِينٌ - قَالَ الَّذِى عِندَهُ عِلْمٌ مِّنَ الْكِتَـبِ أَنَاْ ءَاتِيكَ بِهِ قَبْلَ أَن يَرْتَدَّ إِلَيْكَ طَرْفُكَ فَلَمَّا رَءَاهُ مُسْتَقِرّاً عِندَهُ قَالَ هَـذَا مِن فَضْلِ رَبِّى لِيَبْلُوَنِى أَءَشْكُرُ أَمْ أَكْفُرُ وَمَن شَكَرَ فَإِنَّمَا يَشْكُرُ لِنَفْسِهِ وَمَن كَفَرَ فَإِنَّ رَبِّى غَنِىٌّ كَرِيمٌ ]
38. He said: "O chiefs! Which of you can bring me her throne before they come to me surrendering themselves in obedience (as Muslims)'') (39. An `Ifrit from the Jinn said: "I will bring it to you before you rise from your place. And verily, I am indeed strong and trustworthy for such work.'') (40. One with whom was knowledge of the Scripture, said: "I will bring it to you within the twinkling of an eye!'' Then when he saw it placed before him, he said: "This is by the grace of my Lord -- to test me whether I am grateful or ungrateful! And whoever is grateful, truly, his gratitude is for himself; and whoever is ungrateful, certainly my Lord is Rich, Bountiful.''
My note:
1. One way to look at these verses was from an efficiency analysis. Sulayman had great resources.
2. And see how he chose the most efficient way to accomplish the task.
[قَالَ يأَيُّهَا الْمَلأ أَيُّكُمْ يَأْتِينِى بِعَرْشِهَا قَبْلَ أَن يَأْتُونِى مُسْلِمِينَ - قَالَ عِفْرِيتٌ مِّن الْجِنِّ أَنَاْ ءَاتِيكَ بِهِ قَبْلَ أَن تَقُومَ مِن مَّقَامِكَ وَإِنِّى عَلَيْهِ لَقَوِىٌّ أَمِينٌ - قَالَ الَّذِى عِندَهُ عِلْمٌ مِّنَ الْكِتَـبِ أَنَاْ ءَاتِيكَ بِهِ قَبْلَ أَن يَرْتَدَّ إِلَيْكَ طَرْفُكَ فَلَمَّا رَءَاهُ مُسْتَقِرّاً عِندَهُ قَالَ هَـذَا مِن فَضْلِ رَبِّى لِيَبْلُوَنِى أَءَشْكُرُ أَمْ أَكْفُرُ وَمَن شَكَرَ فَإِنَّمَا يَشْكُرُ لِنَفْسِهِ وَمَن كَفَرَ فَإِنَّ رَبِّى غَنِىٌّ كَرِيمٌ ]
38. He said: "O chiefs! Which of you can bring me her throne before they come to me surrendering themselves in obedience (as Muslims)'') (39. An `Ifrit from the Jinn said: "I will bring it to you before you rise from your place. And verily, I am indeed strong and trustworthy for such work.'') (40. One with whom was knowledge of the Scripture, said: "I will bring it to you within the twinkling of an eye!'' Then when he saw it placed before him, he said: "This is by the grace of my Lord -- to test me whether I am grateful or ungrateful! And whoever is grateful, truly, his gratitude is for himself; and whoever is ungrateful, certainly my Lord is Rich, Bountiful.''
My note:
1. One way to look at these verses was from an efficiency analysis. Sulayman had great resources.
2. And see how he chose the most efficient way to accomplish the task.
Obligation of an Islamic state
Read the tafsir of the verse below (an-naml:36 & 37) and my comment after that.
The Gift and the Response of Sulayman
More than one of the scholars of Tafsir among the Salaf and others stated that she sent him a huge gift of gold, jewels, pearls and other things. It is apparent that Sulayman, peace be upon him, did not even look at what they brought at all and did not pay any attention to it, but he turned away and said, rebuking them:
[أَتُمِدُّونَنِ بِمَالٍ]
("Will you help me in wealth'') meaning, `are you trying to flatter me with wealth so that I will leave you alone with your Shirk and your kingdom'
[فَمَآ ءَاتَـنِى اللَّهُ خَيْرٌ مِّمَّآ ءَاتَـكُمْ]
(What Allah has given me is better than that which He has given you!) means, `what Allah has given to me of power, wealth and troops, is better than that which you have.'
[بَلْ أَنتُمْ بِهَدِيَّتِكُمْ تَفْرَحُونَ]
(Nay, you rejoice in your gift!) means, `you are the ones who are influenced by gifts and presents; we will accept nothing from you except Islam or the sword.' - Tafsir Ibn Kathir.
My note:
1. The requirement of jihad isclear especially when an Islamic state is established.
2. The response of Sulayman and what Prophet SAW did after he had established Madinah were two points that support the point above.
3. In fact, US did the same - accept democracy or else war.
The Gift and the Response of Sulayman
More than one of the scholars of Tafsir among the Salaf and others stated that she sent him a huge gift of gold, jewels, pearls and other things. It is apparent that Sulayman, peace be upon him, did not even look at what they brought at all and did not pay any attention to it, but he turned away and said, rebuking them:
[أَتُمِدُّونَنِ بِمَالٍ]
("Will you help me in wealth'') meaning, `are you trying to flatter me with wealth so that I will leave you alone with your Shirk and your kingdom'
[فَمَآ ءَاتَـنِى اللَّهُ خَيْرٌ مِّمَّآ ءَاتَـكُمْ]
(What Allah has given me is better than that which He has given you!) means, `what Allah has given to me of power, wealth and troops, is better than that which you have.'
[بَلْ أَنتُمْ بِهَدِيَّتِكُمْ تَفْرَحُونَ]
(Nay, you rejoice in your gift!) means, `you are the ones who are influenced by gifts and presents; we will accept nothing from you except Islam or the sword.' - Tafsir Ibn Kathir.
My note:
1. The requirement of jihad isclear especially when an Islamic state is established.
2. The response of Sulayman and what Prophet SAW did after he had established Madinah were two points that support the point above.
3. In fact, US did the same - accept democracy or else war.
Friday, April 10, 2009
Gog and Magog economic system
Gog and Magog destroy wealth and properties. How:
1. In the financial system today, money can be 'destroyed' and the destruction causes economic contraction
2. 2008 financial crisis is one example of the global scale effect of the system created by Gog and Magog.
The following are verses of al_Qur'an and the tafsir from Ibn Kathir
[وَتَرَكْنَا بَعْضَهُمْ]
(We shall leave some of them) meaning mankind, on that day, the day when the barrier will be breached and these people (Ya'juj and Ma'juj) will come out surging over mankind to destroy their wealth and property.
[وَتَرَكْنَا بَعْضَهُمْ يَوْمَئِذٍ يَمُوجُ فِى بَعْضٍ]
(We shall leave some of them to surge like waves on one another;) As-Suddi said: "That is when they emerge upon the people.'' All of this will happen before the Day of Resurrection and after the Dajjal, as we will explain when discussing the Ayat:
[حَتَّى إِذَا فُتِحَتْ يَأْجُوجُ وَمَأْجُوجُ وَهُمْ مِّن كُلِّ حَدَبٍ يَنسِلُونَ وَاقْتَرَبَ الْوَعْدُ الْحَقُّ]
(Until, when Ya'juj and Ma'juj are let loose, and they swoop down from every Hadab. And the true promise shall draw near...) [21:96-97]
1. In the financial system today, money can be 'destroyed' and the destruction causes economic contraction
2. 2008 financial crisis is one example of the global scale effect of the system created by Gog and Magog.
The following are verses of al_Qur'an and the tafsir from Ibn Kathir
[وَتَرَكْنَا بَعْضَهُمْ]
(We shall leave some of them) meaning mankind, on that day, the day when the barrier will be breached and these people (Ya'juj and Ma'juj) will come out surging over mankind to destroy their wealth and property.
[وَتَرَكْنَا بَعْضَهُمْ يَوْمَئِذٍ يَمُوجُ فِى بَعْضٍ]
(We shall leave some of them to surge like waves on one another;) As-Suddi said: "That is when they emerge upon the people.'' All of this will happen before the Day of Resurrection and after the Dajjal, as we will explain when discussing the Ayat:
[حَتَّى إِذَا فُتِحَتْ يَأْجُوجُ وَمَأْجُوجُ وَهُمْ مِّن كُلِّ حَدَبٍ يَنسِلُونَ وَاقْتَرَبَ الْوَعْدُ الْحَقُّ]
(Until, when Ya'juj and Ma'juj are let loose, and they swoop down from every Hadab. And the true promise shall draw near...) [21:96-97]
Thursday, April 02, 2009
2008 Crisis Impacts on the Rich
special report on the rich
Easier for a camel
Apr 2nd 2009
From The Economist print edition
After decades of prospering mightily, the wealthy may now be in for an extended period of austerity, says Philip Coggan (interviewed here)
Illustration by Alex Nabaun
EVEN the wealthy burghers of Monaco are feeling the pinch. At the principality’s Le Metropole shopping mall the winter sales were still in full swing in early February. Upmarket retailers such as Lacoste and Christian Lacroix felt obliged to offer 50% reductions.
The rich will get little sympathy, but they have taken a big hit from the financial crisis. After all, they own a disproportionately large share of the equity and property markets. Many of them derive their wealth directly from the financial sector, working for hedge funds, private-equity firms or investment banks. A survey by Oliver Wyman, a consultancy, estimates that the financial crisis has caused high-net-worth individuals (as the banking industry calls the rich) to lose $10 trillion, or a quarter of their wealth. The annual Forbes list found that the global number of billionaires last year fell to 793 from 1,125, and a report by Spectrem Group, a research company, saw a drop in the number of American millionaires from 9.2m to 6.7m between 2007 and 2008.
A few businessmen who borrowed money against the security of their assets have seen their fortunes almost disappear. In Russia the number of billionaire oligarchs has halved, according to Finans magazine, and the assets of the ten richest tycoons have lost two-thirds of their value. Most spectacularly, one Russian businessman who had reportedly agreed to buy a villa in the south of France for €400m is in danger of losing a €39m deposit after backing out of the deal.
To many people this come-uppance of the rich will seem to be a good thing. The extremes of wealth in “Anglo-Saxon” America and Britain had reached levels not seen since the 1920s. The gains from recent economic growth flowed disproportionately to the wealthy. According to one study by Robert Gordon of Northwestern University and Ian Dew-Becker of Harvard, the top 10% of earners received the vast majority of the benefits of the “productivity miracle” of 1996-2005. Another international study found that only Mexico and Russia had more unequal income distributions than America.
Ajay Kapur, a strategist at Mirae Asset Management, dubbed this state of affairs a “plutonomy”, an economy dominated by the spending of the rich. It was a world where the wealthy might be born in France, work in London, park their money in Switzerland and have their business headquarters in the Cayman Islands. Such people seemed to inhabit a different country from other people, which Robert Frank, a writer, called “Richistan”.
That world of the wealthy emerged from economic and political changes in the early 1970s. Fixed exchange rates were abandoned, financial systems were liberalised, trade unions were confronted and taxes were cut, all of which helped usher in the asset-price booms of the 1980s and 1990s. Some of those who played the markets with borrowed money—the founders of hedge-fund and private-equity firms—became billionaires.
A rebound in profits from the low levels of the 1970s, combined with the use of share options as incentives, allowed chief executives to make fortunes. The opening up of the Russian, Indian and Chinese economies, allied to a boom in commodity prices, created a whole new batch of emerging-market plutocrats.
The size of the accumulated wealth was stupendous. The Forbes 400 richest people in 1982 had a combined net worth of $92 billion; by 2006 they owned $1.25 trillion. To make it onto the first list in 1982, you needed a net worth of $75m; by 2006 you had to be a billionaire. A lot more of this money was self-made; inherited wealth made up over 21% of the first list and under 2% of the 2006 roster. And almost a quarter of the 2006 rich owed their fortunes to the finance sector, compared with less than a tenth back in 1982.
The rich man in his castle
It would have been easy to conclude that the tide of history was simply resuming its usual flow towards greater inequality. For much of the time since records began the normal state of affairs has been extremes of wealth, whether in the hands of aristocratic landowners or industrial entrepreneurs. The period after the second world war, labelled by economists as the “great compression”, when wage differentials narrowed and taxes went up, looked like an historical anomaly.
But now the tide is turning again, reflecting widespread resentment of the mess in which the financial sector has landed the economy. The public may have been willing to tolerate extremes of wealth and pay when the economy was producing growth and jobs, but now it has become more suspicious. Why did bankers enjoy bonuses during the boom years but leave taxpayers to foot the bill during the bust? Why should companies be allowed to dodge taxes and sack workers by shifting operations overseas?
What is happening now could mark one of those sea changes in public policy that seem to come along once in every generation. In the late 19th and early 20th century a decline in American farm incomes prompted a rise of populism and progressivism that led to attacks on corporate trusts in America under Theodore Roosevelt. In the 1930s the Depression led to the New Deal and the re-regulation of the financial sector in America, and the rise of fascism in Europe. Reaction to the economic crisis of the 1970s ushered in the Thatcher and Reagan reforms.
Governments are already trying to deal with public anger about manifestly unfair gains by capping bankers’ bonuses. The level of regulation will increase, and taxes will inevitably rise as governments struggle to contain their bulging budget deficits. As President Obama’s budget proposal showed, the rich will be tempting targets for those tax hikes.
It is also possible that globalisation may come under threat as governments seek to placate their voters by protecting local jobs and industries. Already banks are being urged to lend money to domestic rather than foreign businesses. The German and American governments are leading an attack on bank-secrecy laws in tax havens. The elite may no longer find it so easy to move itself and its capital from country to country, depending on where the returns are highest and the taxes lowest.
All this may bring a reduction in inequality, especially in the Anglo-Saxon economies where it seemed to have increased most. The big question is whether this will be short-lived, linked solely to the crisis, or turn out to be something more structural. Social safety nets are much better developed than they were in the 1930s, which may make the poor less desperate and constrain their anger at the rich. But the search for scapegoats will be on.
For the moment the pressure is being felt by businesses that service the rich. Ferretti, a top-of-the-range yacht manufacturer, has defaulted on part of its debt; creditors are set to get just 11 cents on the dollar. The decision by Saks, an exclusive retailer, to slash prices during the 2008 holiday season caused consternation among some luxury-goods groups. Sales at Tiffany’s American jewellery stores have plunged. De Beers has suspended production at one of its biggest diamond mines.
And even wealthy people who are not feeling the pinch may have become more cautious about spending ostentatiously. Net-a-Porter, an upmarket fashion website, now offers the option of having designer outfits delivered in a brown paper bag.
Fee for no service
Those who look after rich clients’ wealth are already in trouble. Surveys indicate that the better-off are highly dissatisfied with the service provided by their private banks, which failed to protect them from the market falls of the past 18 months. The fraud that caused investors who handed their money to Bernard Madoff to lose tens of billions of dollars has raised new doubts about the safety of portfolios and about the due diligence undertaken by wealth managers.
All that said, there are still plenty of rich people around. Someone was confident enough to pay $20m for a Degas bronze at an auction at Sotheby’s in February. Diners at the Hotel Metropole in Monaco are still willing to shell out €137 for a grand dish of rock lobster.
But the outlook for the rich is no longer the “glad, confident morning” that it seemed just two years ago. In a survey of high-net-worth Americans by Harrison Group in January, 78% said their sense of financial security had been undermined by the crisis; only 46% were optimistic about their own future, against 93% in 2005.
This special report will explain how disparities in wealth and income became so wide in the first place and ask whether that process will now go into reverse. And it will examine how well the rich are coping with the crisis—because that will matter for everyone else too.
Easier for a camel
Apr 2nd 2009
From The Economist print edition
After decades of prospering mightily, the wealthy may now be in for an extended period of austerity, says Philip Coggan (interviewed here)
Illustration by Alex Nabaun
EVEN the wealthy burghers of Monaco are feeling the pinch. At the principality’s Le Metropole shopping mall the winter sales were still in full swing in early February. Upmarket retailers such as Lacoste and Christian Lacroix felt obliged to offer 50% reductions.
The rich will get little sympathy, but they have taken a big hit from the financial crisis. After all, they own a disproportionately large share of the equity and property markets. Many of them derive their wealth directly from the financial sector, working for hedge funds, private-equity firms or investment banks. A survey by Oliver Wyman, a consultancy, estimates that the financial crisis has caused high-net-worth individuals (as the banking industry calls the rich) to lose $10 trillion, or a quarter of their wealth. The annual Forbes list found that the global number of billionaires last year fell to 793 from 1,125, and a report by Spectrem Group, a research company, saw a drop in the number of American millionaires from 9.2m to 6.7m between 2007 and 2008.
A few businessmen who borrowed money against the security of their assets have seen their fortunes almost disappear. In Russia the number of billionaire oligarchs has halved, according to Finans magazine, and the assets of the ten richest tycoons have lost two-thirds of their value. Most spectacularly, one Russian businessman who had reportedly agreed to buy a villa in the south of France for €400m is in danger of losing a €39m deposit after backing out of the deal.
To many people this come-uppance of the rich will seem to be a good thing. The extremes of wealth in “Anglo-Saxon” America and Britain had reached levels not seen since the 1920s. The gains from recent economic growth flowed disproportionately to the wealthy. According to one study by Robert Gordon of Northwestern University and Ian Dew-Becker of Harvard, the top 10% of earners received the vast majority of the benefits of the “productivity miracle” of 1996-2005. Another international study found that only Mexico and Russia had more unequal income distributions than America.
Ajay Kapur, a strategist at Mirae Asset Management, dubbed this state of affairs a “plutonomy”, an economy dominated by the spending of the rich. It was a world where the wealthy might be born in France, work in London, park their money in Switzerland and have their business headquarters in the Cayman Islands. Such people seemed to inhabit a different country from other people, which Robert Frank, a writer, called “Richistan”.
That world of the wealthy emerged from economic and political changes in the early 1970s. Fixed exchange rates were abandoned, financial systems were liberalised, trade unions were confronted and taxes were cut, all of which helped usher in the asset-price booms of the 1980s and 1990s. Some of those who played the markets with borrowed money—the founders of hedge-fund and private-equity firms—became billionaires.
A rebound in profits from the low levels of the 1970s, combined with the use of share options as incentives, allowed chief executives to make fortunes. The opening up of the Russian, Indian and Chinese economies, allied to a boom in commodity prices, created a whole new batch of emerging-market plutocrats.
The size of the accumulated wealth was stupendous. The Forbes 400 richest people in 1982 had a combined net worth of $92 billion; by 2006 they owned $1.25 trillion. To make it onto the first list in 1982, you needed a net worth of $75m; by 2006 you had to be a billionaire. A lot more of this money was self-made; inherited wealth made up over 21% of the first list and under 2% of the 2006 roster. And almost a quarter of the 2006 rich owed their fortunes to the finance sector, compared with less than a tenth back in 1982.
The rich man in his castle
It would have been easy to conclude that the tide of history was simply resuming its usual flow towards greater inequality. For much of the time since records began the normal state of affairs has been extremes of wealth, whether in the hands of aristocratic landowners or industrial entrepreneurs. The period after the second world war, labelled by economists as the “great compression”, when wage differentials narrowed and taxes went up, looked like an historical anomaly.
But now the tide is turning again, reflecting widespread resentment of the mess in which the financial sector has landed the economy. The public may have been willing to tolerate extremes of wealth and pay when the economy was producing growth and jobs, but now it has become more suspicious. Why did bankers enjoy bonuses during the boom years but leave taxpayers to foot the bill during the bust? Why should companies be allowed to dodge taxes and sack workers by shifting operations overseas?
What is happening now could mark one of those sea changes in public policy that seem to come along once in every generation. In the late 19th and early 20th century a decline in American farm incomes prompted a rise of populism and progressivism that led to attacks on corporate trusts in America under Theodore Roosevelt. In the 1930s the Depression led to the New Deal and the re-regulation of the financial sector in America, and the rise of fascism in Europe. Reaction to the economic crisis of the 1970s ushered in the Thatcher and Reagan reforms.
Governments are already trying to deal with public anger about manifestly unfair gains by capping bankers’ bonuses. The level of regulation will increase, and taxes will inevitably rise as governments struggle to contain their bulging budget deficits. As President Obama’s budget proposal showed, the rich will be tempting targets for those tax hikes.
It is also possible that globalisation may come under threat as governments seek to placate their voters by protecting local jobs and industries. Already banks are being urged to lend money to domestic rather than foreign businesses. The German and American governments are leading an attack on bank-secrecy laws in tax havens. The elite may no longer find it so easy to move itself and its capital from country to country, depending on where the returns are highest and the taxes lowest.
All this may bring a reduction in inequality, especially in the Anglo-Saxon economies where it seemed to have increased most. The big question is whether this will be short-lived, linked solely to the crisis, or turn out to be something more structural. Social safety nets are much better developed than they were in the 1930s, which may make the poor less desperate and constrain their anger at the rich. But the search for scapegoats will be on.
For the moment the pressure is being felt by businesses that service the rich. Ferretti, a top-of-the-range yacht manufacturer, has defaulted on part of its debt; creditors are set to get just 11 cents on the dollar. The decision by Saks, an exclusive retailer, to slash prices during the 2008 holiday season caused consternation among some luxury-goods groups. Sales at Tiffany’s American jewellery stores have plunged. De Beers has suspended production at one of its biggest diamond mines.
And even wealthy people who are not feeling the pinch may have become more cautious about spending ostentatiously. Net-a-Porter, an upmarket fashion website, now offers the option of having designer outfits delivered in a brown paper bag.
Fee for no service
Those who look after rich clients’ wealth are already in trouble. Surveys indicate that the better-off are highly dissatisfied with the service provided by their private banks, which failed to protect them from the market falls of the past 18 months. The fraud that caused investors who handed their money to Bernard Madoff to lose tens of billions of dollars has raised new doubts about the safety of portfolios and about the due diligence undertaken by wealth managers.
All that said, there are still plenty of rich people around. Someone was confident enough to pay $20m for a Degas bronze at an auction at Sotheby’s in February. Diners at the Hotel Metropole in Monaco are still willing to shell out €137 for a grand dish of rock lobster.
But the outlook for the rich is no longer the “glad, confident morning” that it seemed just two years ago. In a survey of high-net-worth Americans by Harrison Group in January, 78% said their sense of financial security had been undermined by the crisis; only 46% were optimistic about their own future, against 93% in 2005.
This special report will explain how disparities in wealth and income became so wide in the first place and ask whether that process will now go into reverse. And it will examine how well the rich are coping with the crisis—because that will matter for everyone else too.
Saturday, March 21, 2009
Episod Marah-marah Semasa Gawat
Oleh
Mohd Nahar Mohd Arshad
University of Tasmania, Australia
Apabila ekonomi merudum, ramai yang marah-marah. Marah kerana dibuang kerja, tiada bonus, kerugian perniagaan dan dikejar pemiutang adalah antara
sebab yang biasa didengar dalam keadaan ekonomi yang gawat.
Kegawatan Ekonomi 2008 membawa cerita baru dalam episod marah. Sekarang, kerajaan di negara-negara kapitalis juga marah.
Kisah termahsyur ialah marahnya Barak Obama dan Kongres Amerika dengan eksekutif AIG. Syarikata kewangan gergasi yang mendapat pakej bantuan kecemasan ini menggunakan sebahagian besar dana tersebut untuk bayaran bonus eksekutif-eksekutifnya.
Di Australia, kemarahan yang sama juga sedang melanda. Kerajaan Rudd sedang berusaha melaksanakan undang-undang yang memberikan kuasa kepada para pemegang saham bagi menghadkan pemberian bonus kepada eksekutif tertinggi syarikat.
Sebenarnya, isu bonus yang melampau kepada eksekutif syarikat (terutamanya CEO) sudah lama menjadi isu. Ledakan kemarahan dari pihak kerajaan baru sahaja tercetus.
Aktivist pemegang saham sudah lama mempersoalkan kewajaran bayaran bonus yang melampau kepada para eksekutif. Ironi bukan, apabila ketua pegawai eksekutif dijanjikan bayaran berjuta dollar sebelum memulakan tugas! Kerja belum tentu kualiti, duit sudah menggunung tinggi! Masakan apabila syarikat mengalami kerugian, si eksekutif masih mendapat bonus berganda?
Persoalan kemanusiaan juga timbul dalam isu ini. Wajarkah minoriti kecil mendapat jutaan dollar atas kemelaratan pekerja bawahan yang majoriti? Pekerja bawahan biasanya ‘terpaksa’ dibuang bagi syarikat distrukturkan semula. Tetapi, apabila ini dibuat dengan eksekutif tinggi syarikat mendapat habuan berganda, nilai kemanusiaan dalam diri eksekutif dipertikaikan.
Pembuangan pekerja membawa kepada kesan negatif sosial dan ekonomi yang lebih besar dari persepsi makro-ekonomi.
Erupsi Obama dalam contoh AIG di atas tercetus kerana eksekutif AIG yang tidak cemerlang, bersenang dengan duit cukai rakyat. Rakyat sedang merana dek ekonomi yang gawat, mengapa pula duit cukai mereka disalah guna?
Campur tangan pihak kerajaan dalam isu ‘paying terjun emas’ ini melambangkan buruknya model pengurusan syarikat dalam sistem kapitalis. Penglibatan kerajaan juga melambangkan para pemegang saham sudah hilang daya melawan kuasa eksekutif.
Sudah sampai masanya ketidakadilan ini disanggah! Struktur kontrak mudharabah dalam Islam merupakan alternatif terbaik yang boleh diguna pakai.
Fikah dalam kontrak mudharabah ini sudah lama dikupas oleh para cendikiawan Islam bagi menjaga keadilan yang sepatutnya dalam konteks hubungan agen-prinsipal yang harmoni.
Mohd Nahar Mohd Arshad
University of Tasmania, Australia
Apabila ekonomi merudum, ramai yang marah-marah. Marah kerana dibuang kerja, tiada bonus, kerugian perniagaan dan dikejar pemiutang adalah antara
sebab yang biasa didengar dalam keadaan ekonomi yang gawat.
Kegawatan Ekonomi 2008 membawa cerita baru dalam episod marah. Sekarang, kerajaan di negara-negara kapitalis juga marah.
Kisah termahsyur ialah marahnya Barak Obama dan Kongres Amerika dengan eksekutif AIG. Syarikata kewangan gergasi yang mendapat pakej bantuan kecemasan ini menggunakan sebahagian besar dana tersebut untuk bayaran bonus eksekutif-eksekutifnya.
Di Australia, kemarahan yang sama juga sedang melanda. Kerajaan Rudd sedang berusaha melaksanakan undang-undang yang memberikan kuasa kepada para pemegang saham bagi menghadkan pemberian bonus kepada eksekutif tertinggi syarikat.
Sebenarnya, isu bonus yang melampau kepada eksekutif syarikat (terutamanya CEO) sudah lama menjadi isu. Ledakan kemarahan dari pihak kerajaan baru sahaja tercetus.
Aktivist pemegang saham sudah lama mempersoalkan kewajaran bayaran bonus yang melampau kepada para eksekutif. Ironi bukan, apabila ketua pegawai eksekutif dijanjikan bayaran berjuta dollar sebelum memulakan tugas! Kerja belum tentu kualiti, duit sudah menggunung tinggi! Masakan apabila syarikat mengalami kerugian, si eksekutif masih mendapat bonus berganda?
Persoalan kemanusiaan juga timbul dalam isu ini. Wajarkah minoriti kecil mendapat jutaan dollar atas kemelaratan pekerja bawahan yang majoriti? Pekerja bawahan biasanya ‘terpaksa’ dibuang bagi syarikat distrukturkan semula. Tetapi, apabila ini dibuat dengan eksekutif tinggi syarikat mendapat habuan berganda, nilai kemanusiaan dalam diri eksekutif dipertikaikan.
Pembuangan pekerja membawa kepada kesan negatif sosial dan ekonomi yang lebih besar dari persepsi makro-ekonomi.
Erupsi Obama dalam contoh AIG di atas tercetus kerana eksekutif AIG yang tidak cemerlang, bersenang dengan duit cukai rakyat. Rakyat sedang merana dek ekonomi yang gawat, mengapa pula duit cukai mereka disalah guna?
Campur tangan pihak kerajaan dalam isu ‘paying terjun emas’ ini melambangkan buruknya model pengurusan syarikat dalam sistem kapitalis. Penglibatan kerajaan juga melambangkan para pemegang saham sudah hilang daya melawan kuasa eksekutif.
Sudah sampai masanya ketidakadilan ini disanggah! Struktur kontrak mudharabah dalam Islam merupakan alternatif terbaik yang boleh diguna pakai.
Fikah dalam kontrak mudharabah ini sudah lama dikupas oleh para cendikiawan Islam bagi menjaga keadilan yang sepatutnya dalam konteks hubungan agen-prinsipal yang harmoni.
Wednesday, March 18, 2009
Barter corporation
Souped-up swap shops
Mar 17th 2009
From Economist.com
The downturn may be good news for barter exchanges
THE current economic climate has left many companies stuck with unsold stock. They are also struggling to get credit to finance their purchases of supplies. As a result, some are turning to barter exchanges. These are a modern incarnation of a very old practice in which one trader swaps his surplus for someone else’s, sparing both the need to use their scarce cash. The International Reciprocal Trade Association (IRTA), which represents about 100 barter networks around the world, says its adherents expect their trading volumes to rise by around 15% this year.
America is by far the biggest market for such “corporate barter”. But it is apparently growing elsewhere. In 2007 BizXchange, a barter network on America’s west coast, opened a branch in Dubai. At first, business there was scarce because Middle Eastern economies were booming and there was little excess capacity. But as the slowdown goes global, more deals are emerging. BizXchange recently handled a transaction in which $10m-worth of steel from Dubai was ultimately traded for, among other things, some property in America—a business in which there is still plenty of overcapacity.
Mary Evans How they did it in olden days
Of course, the reason that developed economies generally use money to do business is that it is so hard to find suitable partners to barter with. In the case of, say, a clothing distributor with a warehouse full of unsold shirts which needs to buy computers, what are the chances of it finding a computer seller which needs a batch of shirts? For this reason, most barter exchanges operate some sort of shadow currency. A firm that sells its surplus goods or services through the exchange receives credits which it can then spend on the goods or services of any other exchange member. “We make a currency of excess capacity,” explains David Wallach, the IRTA’s president.
It is hard to tell quite how much of this quasi-currency is floating around. Many of the hundreds of exchanges that exist are privately owned and do not report any numbers. The IRTA estimates that transactions worth $10 billion were completed in America last year, with 250,000 companies taking part. The head of one large American trading network reckons that the actual number was nearer $4 billion, after eliminating double-counting.
Unlike real cash, the barter exchanges’ quasi-currencies do not have governments standing behind them. This, combined with the lack of reliable and independent information about some exchanges’ finances, can make bartering a bit of a gamble. In the past, some exchanges have collapsed, leaving participants holding worthless bits of paper. As a self-regulatory body, the IRTA sets minimum financial-reporting standards and other rules that its members must meet. A few of the bigger exchanges—such as International Monetary Systems (IMS), the biggest, which claims 18,000 members—are publicly quoted and thus subject to strict auditing and reporting standards. In general, though, the risks of using barter exchanges are greater for firms that sell physical goods, which cost money to produce, than they are for service providers, whose surplus “stock” has a low marginal cost.
A British barter exchange, Miroma, does without a quasi-currency and instead seeks to line up all sides of each deal before it goes ahead. Miroma mainly serves companies which want to run an advertising campaign but cannot afford to pay for it all in cash and happen to have some surplus stock. Miroma matches these clients with sellers of advertising space (eg, broadcasters and outdoor-poster firms) which are struggling to sell all of their slots. It also finds a third party to buy the client’s surplus stock. Since it receives the advertising slots at a heavy discount, Miroma rewards itself for the risk that some part of the deal will come unstitched and leave it with liabilities.
Click here!
Barter boosters argue that there has been much consolidation in the industry and that the biggest exchanges are very robust. But as the recession bites, more member firms may renege on their debts or fail to deliver goods. While acknowledging that some barter traders may indeed go under in these tough times, the IRTA’s Mr Wallach claims that the failure rate of firms which use barter exchanges is lower than the average for the economy as a whole. This may in part be because belonging to an exchange can be a good way for a company to network with potential new customers with whom it will go on to do deals in real currency.
If so, some firms that go in for bartering out of necessity during the current downturn may find that it continues to be worthwhile when the recovery eventually comes. However, it must be said that bartering enjoyed a similar revival of interest in previous recessions only to fizzle out once the recovery came along. Barter may have its uses at the margins but it will be hard to beat the attractions of getting paid in hard cash.
Mar 17th 2009
From Economist.com
The downturn may be good news for barter exchanges
THE current economic climate has left many companies stuck with unsold stock. They are also struggling to get credit to finance their purchases of supplies. As a result, some are turning to barter exchanges. These are a modern incarnation of a very old practice in which one trader swaps his surplus for someone else’s, sparing both the need to use their scarce cash. The International Reciprocal Trade Association (IRTA), which represents about 100 barter networks around the world, says its adherents expect their trading volumes to rise by around 15% this year.
America is by far the biggest market for such “corporate barter”. But it is apparently growing elsewhere. In 2007 BizXchange, a barter network on America’s west coast, opened a branch in Dubai. At first, business there was scarce because Middle Eastern economies were booming and there was little excess capacity. But as the slowdown goes global, more deals are emerging. BizXchange recently handled a transaction in which $10m-worth of steel from Dubai was ultimately traded for, among other things, some property in America—a business in which there is still plenty of overcapacity.
Mary Evans How they did it in olden days
Of course, the reason that developed economies generally use money to do business is that it is so hard to find suitable partners to barter with. In the case of, say, a clothing distributor with a warehouse full of unsold shirts which needs to buy computers, what are the chances of it finding a computer seller which needs a batch of shirts? For this reason, most barter exchanges operate some sort of shadow currency. A firm that sells its surplus goods or services through the exchange receives credits which it can then spend on the goods or services of any other exchange member. “We make a currency of excess capacity,” explains David Wallach, the IRTA’s president.
It is hard to tell quite how much of this quasi-currency is floating around. Many of the hundreds of exchanges that exist are privately owned and do not report any numbers. The IRTA estimates that transactions worth $10 billion were completed in America last year, with 250,000 companies taking part. The head of one large American trading network reckons that the actual number was nearer $4 billion, after eliminating double-counting.
Unlike real cash, the barter exchanges’ quasi-currencies do not have governments standing behind them. This, combined with the lack of reliable and independent information about some exchanges’ finances, can make bartering a bit of a gamble. In the past, some exchanges have collapsed, leaving participants holding worthless bits of paper. As a self-regulatory body, the IRTA sets minimum financial-reporting standards and other rules that its members must meet. A few of the bigger exchanges—such as International Monetary Systems (IMS), the biggest, which claims 18,000 members—are publicly quoted and thus subject to strict auditing and reporting standards. In general, though, the risks of using barter exchanges are greater for firms that sell physical goods, which cost money to produce, than they are for service providers, whose surplus “stock” has a low marginal cost.
A British barter exchange, Miroma, does without a quasi-currency and instead seeks to line up all sides of each deal before it goes ahead. Miroma mainly serves companies which want to run an advertising campaign but cannot afford to pay for it all in cash and happen to have some surplus stock. Miroma matches these clients with sellers of advertising space (eg, broadcasters and outdoor-poster firms) which are struggling to sell all of their slots. It also finds a third party to buy the client’s surplus stock. Since it receives the advertising slots at a heavy discount, Miroma rewards itself for the risk that some part of the deal will come unstitched and leave it with liabilities.
Click here!
Barter boosters argue that there has been much consolidation in the industry and that the biggest exchanges are very robust. But as the recession bites, more member firms may renege on their debts or fail to deliver goods. While acknowledging that some barter traders may indeed go under in these tough times, the IRTA’s Mr Wallach claims that the failure rate of firms which use barter exchanges is lower than the average for the economy as a whole. This may in part be because belonging to an exchange can be a good way for a company to network with potential new customers with whom it will go on to do deals in real currency.
If so, some firms that go in for bartering out of necessity during the current downturn may find that it continues to be worthwhile when the recovery eventually comes. However, it must be said that bartering enjoyed a similar revival of interest in previous recessions only to fizzle out once the recovery came along. Barter may have its uses at the margins but it will be hard to beat the attractions of getting paid in hard cash.
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