21st June 2013

“Money can’t buy happiness, but it can buy you the kind of misery you prefer” goes an old adage.  It explains the indispensability of money in general and its impact on our lives in particular.

In this exclusive story, International Finance Magazine reports the rising of the world’s richest person, Carlos Slim, his phenomenal rise from a trader to a business tycoon, his business acquisitions, contributions as a Philanthropist and other accomplishments in a high flying career.

His gold and silver mining company, The Miniera Frisco may be shut temporarily, he may have lost his monopoly on the telecommunication sector in Mexico, but Carlos Slim Helu, 73, is the second richest man in the world behind Bill Gates. Born to catholic parents of Lebanese descent, he had his primary education in Mexico.  Slim and his siblings were trained on basic business practices by their father early in their childhood, by 12 Slim had bought shares in a Mexican Bank. He studied civil engineering at the National Autonomous University of Mexico where he also taught algebra and linear programming. He started his career as a trader in Mexico before starting his own brokerage firm called Inversora Bursatil. Slim married Soumaya Domit in the same year. His father’s teachings proved to be very useful for Carlos Slim, as he and his family lived modestly, while re-investing the profits from the business for future expansions and acquisitions.

Carlos slim with his wife( Soumaya Domit) in his younger days.

His business intelligence and acumen, a trait acquired from his father helped him to acquire businesses which he believed were undervalued and skillfully overhauled by their management. He diversified methodically, investing in real estate, followed by investments in construction Equipment Company and mining. His portfolio diversified to include a printer and tobacco company. His fortunes turned in 1982, when Mexico plunged into a crisis. When businesses and investors started to move out of Mexico, Slim took over Reynolds Aluminium, General Tires and Sanborn’s chain of stores and cafeterias. As the economy recovered Slim’s fortune increased and his acquisitions accelerated. However, one of the crucial breakthroughs in his business career was the acquiring of major stakes in the government owned telecom company, Telefonos de Mexico, this acquisition of major stake in  the government owned company proved to be a master stroke and proved his business acumen. Soon his company America Movil had become the largest wireless service provider in Latin America. Slim’s America Movil controls 80 % of the Mexico’s landline market and 70 % of the wireless market. However, the telecommunication reform bill will hit hard on his company. It gives Federal Institute of Telecommunications the power to revoke operating licenses for monopolistic practices and to stop companies from controlling more than 50 % of market share.

By the end of 2007, his group of companies was valued at $ 150 billion. By 2010, Slim had been ranked as the richest person in the world by Forbes.

As rightly said “What we have done for ourselves dies with us and what we have done for others and the world remains and is immortal”, Slim’s contributions to charity is stupendous. In 1995 he established Fundacion Telmex, a broad ranging philanthropic foundation. The Telmex foundation is one of the largest philanthropic institutions in Latin America, in addition to its activities in health, nutrition, conservation and disaster relief; it has provided university scholarships for hundreds of thousands of students who would otherwise be unable to pursue higher education. In May 2011, Slim was mentioned in Forbes World’s biggest givers after donating $ 4 billion to his foundation.

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Tim Evershed

December 10, 2014: There must be more sovereign sukuk issued by non-Muslim countries after the success of previous bond launches, delegates were told at International Finance Magazine’s EU Islamic Finance and Banking Summit in London on November 18-19.

Recent years have seen successful issue of sovereign sukuks from the non-Muslim governments of the UK, Luxembourg, South Africa and Hong Kong.

This year has been a landmark one in Europe for sovereign sukuk with the UK and Luxembourg governments breaking new ground. The UK’s issue was for £200mn and attracted orders of over £2bn from investors. It will pay out profits based on the rental income from three government-owned properties in lieu of interest.

Meanwhile, the Grand Duchy issued the first sovereign sukuk in Euros from a national government. It was €200mn and it was two and a half times over-subscribed.

Marco Lichtfous, Partner, Deloitte, said: “So far we have concentrated on the corporate side and the wholesale side. There’s a need for sovereign paper so the issue that has taken place can’t be a one-off and it can’t be the end of it. For Luxembourg, the programme is ongoing and it is more a matter of finding the right need for and the right opportunity rather than just shuffling money around. We want to use it to help the economy grow.”

It has taken a long time for national governments to catch up with the sovereign sukuk issued by the German Federal State of Saxony-Anhalt in July 2004. It was a €100mn issue, which matured in July 2009, had tenure of five years with the rate of return linked to the six-month Euribor and paying a margin of 100 basis points over the benchmark.

However, Richard de Belder, Partner at law firm Dentons, says that the UK’s first issue has changed the paradigm for sovereign sukuk in Europe. He said: “There has been a big shift in the issue of sovereign-issued sukuk. The UK’s commitment has been going on for quite a while, but it is just one part of a bigger picture.

“Vital impetus came from Eddie George, the ex-governor of the Bank of England, who had been shocked to find out that his Muslim neighbours could not find a sharia compliant mortgage. George’s view was that it was wrong that any UK citizen should have been excluded from being able to access such finance.

“There were tax and regulatory barriers to overcome. Regulatory changes have been made to create a level playing field. The aim is not to put Islamic finance ahead of other finance but to treat it equally. And changes to tax rules have eliminated double tax charges.”

“The UK government did not need to issue a sukuk in order to fund itself because the gilt markets provide more than enough. It did it because the Islamic finance industry had liquidity requirements.

“Issuing that sukuk sent out a message, and an important message too, that the UK is open to Islamic finance. And it also wants to see more corporate sukuk being issued.”

According to de Belder, the next UK sovereign sukuk is a work in progress and will most likely be aimed at an infrastructure project, such as social housing, possibly in conjunction with a local authority. Other opportunities being considered include projects that include export finance, student loans or takaful insurance.

The attractiveness of sovereign sukuk was again underlined on the first day of the conference when Turkey borrowed $1bn through its 10-year dollar-denominated sukuk issue.

Muammar Cakir, Head of Derivatives Market at Borsa Istanbul, told delegates: “It was a successful launch and we are very happy and excited. We believe it will encourage the corporate sector. It is a defining moment for the sukuk market.”

Related Stories:

Market for takaful in Europe is looking brighter

Spike in interest rates could hamper Islamic finance

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Camille Paldi

September 22, 2015: More than 750 Islamic Investment Funds have been established around the world with assets under management (“AUM”) totaling approximately $60 billion compared to 70,000 conventional funds with AUM of $19trillion.  Currently, a wide variety of Shari’ah compliant asset classes are available for investment, including equity, sukuk, real estate, commodities, leasing, trade finance, private equity, structured products, REITS, and exchange-traded murabahah, ijarah, balanced,  index, and hedge funds.  Hot spots for global Islamic investment funds include Luxembourg, Ireland, and the Cayman Islands, collectively which host 12% of the total Islamic funds available globally.

The Islamic asset management industry is also growing rapidly in the Asia-Pacific region, including Malaysia, Brunei, Singapore, Japan, South Korea, China and Indonesia.  In terms of distributing investment products, international fund managers offer offshore funds in the Middle East by using Bahrain, the UAE, and Qatar as distribution platforms.

Noripah Kamso, author of Investing in Islamic Funds, A Practitioner’s Guide, states that Islamic funds are no longer an alternative to conventional funds, but are now competing with conventional funds.  She points out that financial centres from Malaysia, Singapore, Hong Kong, Bahrain, Dubai, and London are leading the global Islamic Investment fund initiative.  This short article aims to provide a brief overview of the different types of Shari’ah compliant asset classes available for investment and give a snapshot of the global Islamic funds industry as according to Noripah Kamso’s book.

Equity funds

The oldest equity fund, the Al Ahli Group Trading Equity Fund, was first offered in 1995 by the National Commercial Bank of Saudi Arabia and now has an AUM of approximately $255 million (2012). Equity funds hold a market share of 46.9% among available Islamic funds, which is the largest available asset class of globally available Islamic funds. This is due to the easy availability of broad Shari’ah indices offered by Dow Jones Islamic Markets, Standard & Poor’s, FTSE, MSCI, and Russell. Islamic equity funds are widely available from onshore funds to offshore funds registered in Luxembourg, Ireland, and the Cayman Islands.  Oasis Crescent Global Equity Fund is available on the Irish Funds Platform and has approximately AUM of 151.4 million (2012).  The majority of the top 20 Islamic funds are based in Pakistan, Malaysia, Thailand, and South Africa.

Sukuk funds

The first sukuk funds were established in Malaysia in 1990 and were Ringgit-denominated. Global sukuk funds invest in sukuk that are denominated in an international currency like the dollar or the euro.  These are available on offshore funds platforms. Ernst and Young has predicted that the global sukuk market may reach $900 billion by 2019.  A comparison of sukuk performance, represented by the HSBC/DFIX USD Sukuk Index versus traditional bonds, represented by the Barclay’s Capital Aggregate Bond Index, shows that the relative performance of sukuk against conventional bonds is comparable over the past few years. It is still not possible for investors to invest in a global sukuk fund that is Undertakings for Collective Investment in Transferable Securities (UCITS) – compliant.

Exchange-traded funds

As of 2011, there were 13 Islamic Exchange-Traded Funds or ETFs with total AUM of $382 million compared to the global total of conventional ETFs at $1.25 trillion.  The largest contributor is the Malaysian based MY ETF with $197 million.  These 13 ETFs are listed in stock exchanges in the UK, France, Turkey, Singapore, India, Malaysia and South Africa. They are invested in the equity asset class on a global (developed and emerging markets), regional (Europe), and single country (India, South Africa, Japan, and Malaysia) basis.  The first US Islamic ETFs were listed in 2008.

Islamic money market funds

Islamic money market funds are domestic-centric and only available in Malaysia and Saudi Arabia, i.e. Government Investment Certificates (GIC) issued by the Malaysian government. They comprise 22.2% of the assets under management of global Islamic funds.

Shari’ah compliant REITs

Shari’ah compliant real estate investment trusts, or REITs, invest in real estate securities that sell like stocks and also invest in real estate based on Shari’ah guidelines.  Examples include the Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, which is Singapore’s first Islamic REIT, listed in 2010 (oversubscribed 2.5 times) and with $833 million in total assets (2011).  Another famous example of a successful Shari’ah compliant REIT includes the Emirate REIT of Dubai Islamic Bank. Emirates REIT invests in residential and commercial properties in Dubai and its asset size grew to $68.3 million in 2011.

Shari’ah compliant private equity

The purpose of private equity is to provide working capital to a target company to nurture expansion or new product development or to restructure the company’s operations, management, or ownership. Shari’ah private equity investing encourages direct ownership of real and productive businesses.  It follows certain guidelines regarding the permissibility of the business activities and means of financing.  Arcapita, a Bahrain-based private equity firm, acquired Caribou Coffee, one of the largest American specialty coffee chains through Islamic private equity. In addition, Investment Dar and Adeem Investment Company, Kuwait based companies, were involved in the acquisition of Ford’s Aston Martin based on Shari’ah compliant private equity participation.

Shari’ah compliant hedge funds

Hedge funds were created to hedge (manage) risks against potential losses of investments due to uncertainty in the market. The basic Shari’ah principles do not allow the sale of goods without legal ownership of those goods. Also, the principles do not allow leveraging positions that are found in the structure of the hedge funds. However, based on certain Islamic contracts, it may be possible to structure a Shari’ah compliant hedge fund. However, this is debatable.  Shari’ah Capital, a US based firm, emerged as one of the leading companies to provide technologies and advisory services to Islamic hedge funds. In 2008, Shari’ah Capital and Barclays Capital launched Al Safi Trust Platform for hedge funds, in which Shari’ah Capital provides advisory service and Barclays Capital is the prime broker and custodian.

Ijarah

Lease funds invest exclusively in lease obligations. The funds have a fixed tenure and regular income like bond funds, but have shorter maturities. Shari’ah based ijarah funds must meet certain requirements. The asset used for leasing must be permissible under Shari’ah guidelines. The rental must be fixed and known to both the parties at the time of entering into the contract. Furthermore, the fund must hold all the responsibility following its ownership of the asset. The Ijarah fund uses the subscription amounts to buy assets like properties, vehicles, and machinery for the purpose of leasing.  The fund owns the assets and the lessees pay the rentals. These rentals form the regular income streams for the fund. The first such aircraft leasing contract took place between Emirates Airlines and Al Rajhi Banking and Investment Corporation raising $60 million through Ijarah.  Emirates Airlines outperforms all other airlines in the world.

Conclusion

Islamic funds are outperforming conventional funds on all indexes although they represent a smaller percentage of the available funds in the market. The Dow Jones Islamic Market World Index, the Dow Jones Islamic Market Europe Index, the Dow Jones Islamic Market Japan Index, and the Dow Jones Sukuk Index are all outperforming their conventional counterparts. Saudi Arabia currently has the largest Islamic fund assets under management (AUM) in the world at $19.9 billion. A total of 26 Islamic UCITS in Luxembourg and Ireland were first made available to international investors on global fund platforms in 2000.  However, the majority of the funds were launched from 2008 onwards and with managers from non-Muslim countries. Shari’ah Compliant UCITS funds that currently exist on these platforms were established by conventional global asset managers from non-Islamic countries: the US, Germany, the UK, France, Australia and Switzerland. In fact, over half of the investors in Shari’ah compliant funds are non-Muslim. Shari’ah compliant investing is operated by and for anyone. Islamic funds are no longer just an alternative, but a source of competition for the conventional funds industry.

Camille Paldi is CEO of Franco-American Alliance for Islamic Finance

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In today’s fast-paced and dynamic market environment, SMEs undoubtedly play a vital role. Though the term needs no explanation, for the sake of clarity, Small and Medium-sized Enterprises (SMEs) are non-subsidiary, independent firms which employ anywhere between 50 and 250 employees (as per European Union). Small firms are generally those with fewer than 50 employees. The turnover of medium-sized enterprises (50-250 employees) is around €50 million and that of small enterprises (10-49 employees) around €10 million.

The definition of an SME is also relative to how developed the economy is and subject to local factors.

As an economy that has heavily depended on its oil sector, the Sultanate of Oman is now actively pursuing a development plan focusing on diversification, industrialisation and privatisation, with special attention being paid to encourage young Omanis to enter the workforce and contribute to its GDP. Growing and dynamic SMEs are essential to the growth and sustainability of any economy, as they provide a myriad of opportunities and value addition. A high-income economy like Oman, whose SME sector is still in its nascent stages, is yet to come to a stage where the SME sector is the primary contributor to the nation’s GDP. In Oman, the percentage of workforce employed in the SME sector is 40% and its contribution to the economy stands at about 15-20%.

In comparison, a World Bank survey of 47,745 businesses across 99 countries revealed that firms with between 5 and 250 employees accounted for 67% of the total permanent and full-time employment. The contribution of SMEs to economic fundamentals varies substantially across countries from 16% of GDP in low-income countries (where the sector is typically large but informal) to 51% of GDP in high-income countries.

This conference will not only showcase various best practices of economies such as the US and members of the EU, which benefit from significant contributions from their mature SME sector, but also initiate a dialogue on ways in which the Omani economy can bring about regulatory changes and incorporate some of these practices into their own system.

It is certain that given the right support, access to financing and infrastructure, this sector holds tremendous potential for growth and value addition to the Omani economy.

OSMES 2015

Features 36 speakers and 150 delegates

Showcases

# key regulatory developments

# product innovation & enhancements

# risk management

Will highlight myriad possibilities and prospects for the SME sector

Showcase options before the Omani economy and businesses to spur growth in SME sector

Confirmed speakers:

Guest of Honour: His Excellency Dr. Ali Saud Al Bemani Vice Chancellor Sultan Qaboos University (SQU)

Dr. Sana bint Sabeel Al Balushi Director General Career Guidance Centre at Ministry of Education

	Dr. Dalia Samra-Rothe Deputy CEO and Director AHK Abu Dhabi
	Chris Breeze Country Chairman Shell Development Oman

	William Crew CEO Inspired Solutions
	Sharifa Al Barami Executive Partner Al Jazeera Global

	Qais Al khonji CEO Genesis International
	Musallam Rashid Al Mandhari CEO OPAL

	Nasima Yahya Zirook Al-Balushi Director General of Export Development, Public Authority of Promotion and Export Development (Ithraa)
	Ali Hamdan Al Raisi Vice President Central Bank of Oman

	Paul Steele Director of Training AMIDEAST
	Raphael V. Parambi CEO SME Development Fund & National Company for Projects and Management

For further details regarding:

– Speaking Opportunities

– Sponsorship Opportunities

– Exhibiting Opportunities

– Delegate Registration

Please contact:

TELEPHONE

+44 (0) 207 1936 304

EMAIL

bdas@ifinancemag.com

WEB

www.ifinancemag.com

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Kamilia Lahrichi

April 8, 2015: The Petrobras oil scandal, which sparked massive protests across Brazil against the government’s corruption and the economic slowdown, has cost $27.1 billion to the GDP of the world’s seventh largest economy, according to an April 2015 study released by Fundação Getúlio Vargas, a higher education institution in Brasília.

The organisation’s Environmental Solutions and Infrastructure Group found that Brazil lost over than 1% of its GDP — estimated at $2.2 trillion — as a consequence of this colossal corruption scandal.

Former employees of Petrobras, the national oil company, shed light on a kickback stratagem to inflate the value of projects and channel bribes from contractors into the pockets of political figures and to President Dilma Rousseff’s 2010 election campaign.

Mysterious payments amounted to $3.7 billion, according to the Brazilian police. The Supreme Court approved in March 2015 a probe into top political figures — mostly from the ruling Workers’ Party coalition — who are allegedly involved in the scheme.

Billions lost

Although Petrobras has not yet gauged the financial impact of the bribes, it is today the most indebted publicly traded oil company on the planet. It faces threats of default with $52 billion of bonds outstanding.

The state-run company has until the end of May 2015 to release its financial statements from last year’s third quarter.

The sweeping Petrobras scandal is dragging the country’s economy down, especially the construction, oil and gas industries, engineering and consumer spending.

Construction, in particular, is a key sector in a continent-size country lacking adequate infrastructure.

The Fundação Getúlio Vargas report assesses economic loss based on the company’s plans to reduce investments this year.

For example, the international ratings agency Fitch downgraded its ratings for the Brazilian construction companies Construtora Queiroz Galvão, Mendes Júnior Trading Galvão Participações, Engenharia and Galvão Engenharia. They are allegedly involved in the Petrobras bribery scheme.

Construtora OAS, one of the largest construction companies in Brazil, and Galvao, filed for bankruptcy.

Ultimately, construction workers are paying the price, according to the study’s estimates.

Petrobras “had to expand outside its core business – from infrastructure to shipbuilding, to chemical markets. As the nasty connections are now revealed and Petrobras moves away from these projects, several sectors and regions will experience losses,” says Glauco Oliveira, economist and policy analyst at Brazil’s Administrative Council for Economic Defense, a governmental agency that investigates economic power abuse, in Brasilia.

For instance, he refers to “dire prospects” for the shipbuilding industry with the fall of Petrobras’s demand. “Several municipalities, especially those that rely on royalties, are already experiencing difficulties,” explains Mr. Oliveira.

Notwithstanding Brazil’s enduring fight against impunity, the Petrobras saga is one of the biggest corruption scandals in the nation’s history.

“Corruption has been impacting the Brazilian economy deeply at all levels of the (local and regional) government,” says Guillermo Alborta, economist at the Inter-American Development Bank in Washington D.C.

“Taking into account that Petrobras represents about half of total investment for the economy, a large share of the BOPESVA index and [is] a large (almost unique) energy player for the Brazilian economy,” he explains.

Besides the urgent need to restore confidence among investors and the public, “lowered petroleum investments and challenging managerial reforms will cost them dear economic growth points,” said Alborta.

On the edge

Confidence is indeed lost. On March 15, 2015, almost a million Brazilians took to the streets across the country to voice their ire at rampant corruption, the inert economy and rising prices in Latin America’s largest economy. They also called for the impeachment of the left-wing president.

In reaction, the government vowed to tackle economic hardships and corruption. Yet, a wide majority of Brazilians disapprove of the narrowly re-elected president – as GDP contracted by 1.01% at the beginning of this year, according to a weekly central bank survey of 100 economists released in April 2015.

Demonstrations broke because the Brazilian economy has fared poorly and hurt the middle-class – although Brazil’s economy is doing better than its neighbour’s, namely Argentina.

Inflation has reached a 10-year high, according to Bloomberg, and 7.7% based on data from the national statistics agency, the Brazilian Institute of Geography and Statistics (IBGE), in February 2015. In both cases, it is the highest rate in a decade.

As oil and gas prices rose sharply and consumer confidence collapsed, Brazil’s Central Bank tried to rein in inflation by raising benchmark interest rate – the SELIC rate.

Meanwhile, the real dropped to a 10-year low. In February 2015, the local currency fell to the weakest level since September 2004 – 1.3% to 2.9 per US dollar.

In addition, IBGE estimated that the unemployment rate in January 2015 reached the highest level in a decade – 5.3%.

“The economic policies of the last years were incorrect and misconceived, provoking several distortions,” says Mr. Oliveira. “The excess of fiscal stimulus, such as tax breaks and subsidies for selected sectors, coupled with protectionist measures and populist energy price caps, misaligned relative prices and distorted economic signals, which are now being corrected.”

President Rousseff’s administration intervened heavily in the economy to expand infrastructure and social programs to end extreme poverty in a highly discriminatory society. Brazil’s budget deficit almost tripled during her first term.

The government introduced capital controls and developed loose monetary policies to keep prices low, which put Brazil at risk of an investment credit rating downgrade.

The country recently focused on exporting raw materials, thereby exposing the economy to market volatility. Last year, raw products amounted to half of all exports, according to 2014 data from the Brazilian Trade Balance.

In fact, its average growth exceeded 4% during the decade before President Rousseff took office in 2011.

Yet, the protectionist measures and widespread corruption of the Workers’ Party are not the only factors to blame: the vagaries of the commodities market sapped the vitality of the economy too.

On the other hand, the devaluation of the real has boosted the competitiveness of industrial goods, in particular. For instance, it benefitted non-commodity exporters, such as meat producers and exporters.

“To Petrobras, the devaluation might be good, since the company exports part of its production,” says Mr. Oliveira.

Endorsing austerity?

In the end, “Petrobras was chosen by the Workers’ Party’s governments to be the spearhead of a development model based on state intervention and investments, and commodities windfall. The demise of Petrobras might be the beginning of the end of that model,” says Mr. Oliveira.

In January 2015, President Rousseff appointed Joaquim Levy, a former banker in favour of orthodox economic policies, as Finance Minister to promote pro-market measures and get public spending under control.

He recently said that economic growth has worsened at the beginning of 2015 and stressed the need for austerity. He is trying to convince senators to implement radical fiscal adjustment measures, namely cuts in labour and pension benefits and to stop subsidising utility rates.

Also Read:

Brazil’s President Rousseff stays in power

FIFA World Cup fails to lift Brazil, shows apex bank data

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July 15, 2013: The World Bank Group and the Lao PDR have forged a constructive partnership for development lasting more than five decades, during which time, the Lao PDR has made significant strides in relation to poverty reduction.

It has reduced the poverty headcount from almost half the population (46 percent) to about one quarter (27.6 percent) in just 15 years, and GNI per capita is now over US$1,200. It is now a lower middle income country, on track to move up the income ladder as many of its dynamic neighbors are doing.

In our engagement, we have tried to support Laos to maximize development impact and improve people’s lives. We have shared our experience and knowledge of what works and what doesn’t work, and we have cooperated very closely in important areas such as infrastructure, health, and education and environment.

Since the very first Bank-financed project in Laos in 1977, the Bank has provided more than a billion dollars in interest free loans and grants. The unifying theme of our engagement has been to deal with difficult development issues together.

With other partners, we’ve supported the government to provide education for all in Laos.  Primary education enrollment reached 94 percent in 2011, with strong support from parents. Expanding access was the first priority; the next big challenge is to improve quality.

We have also supported the government to dramatically increase people’s access to electricity. Household access to electricity has soared from only about 16 percent in 1995, to over 80 percent today. Among those who have benefitted from rural electrification are the villagers in Pakadding. Women in the village have told us they can now find work and their children can now study at night. Because of this success, we will continue to support the government as it works to bring electricity to people in remote rural communities to improve their lives.

A good example of how Lao PDR and the World Bank, with other donors, have collaborated to pursue transformational development projects is the Nam Theun 2 (NT2) hydropower project. NT2 is expected to generate US$2 billion in revenue over 25 years. Since the beginning of commercial operations in 2010, revenues generated have helped the country increase public spending on education, health, rural roads and environmental management programs.

The Lao PDR and NT2 together demonstrate how environmentally and socially sustainable hydropower projects when done right can help deliver sustainable and renewable energy and real benefits to support poverty reduction.

But in a dynamic region, Lao PDR needs to do more to enable its citizens to have the same standards of living as its neighbors in South East Asia.  The World Bank seeks to work closely with Lao PDR to make further inroads in the fight against poverty. At the World Bank Group Spring Meetings, member countries supported our new goal to end extreme poverty by 2030 and build shared prosperity for the bottom 40 percent of the population in countries where we work. These two goals will drive the Bank’s strategy for years to come. This means the Bank will work as close as possible with governments, think tanks, civil society organizations and others to devise and support strategies to end poverty.

Every country will have a unique approach to lift people out of poverty. Lao PDR can build a strong macro-economic framework with fiscal policies that align the budget with development priorities. It can also focus on maintaining sustainable levels of debt and pursing monetary policies that contain inflation while adopting exchange rate policies to promote its export competitiveness.

Regulatory reform is also important to encourage private sector investment and to help businesses grow. After all, the private sector drives job creation. Lao PDR can also provide opportunities for its people by attracting responsible foreign investors.

Looking beyond its borders, Lao PDR has benefited from and contributed to the rapid growth within South East Asia as well as in the greater East Asia and Pacific region, which has become the growth engine for the world. With WTO membership achieved earlier this year and the ASEAN integrated market on the horizon, increasing the country’s competitiveness is vital for the Lao PDR’s future.

Building on our partnership spanning half a century, the Bank is committed to help Lao PDR realize its full potential. We are a partner for the long term, offering global experience with a solid understanding of the local context, and a strong presence on the ground to help the people of the country achieve a better and brighter future. We look forward to the next 50 years of partnership as we work together to implement socially, economically and environmentally sustainable solutions.

Souce:World Bank

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June 19, 2013: I would like to thank Victoria Cleland, Mona Naqvi, Roy Whymark and Kevin Wills for their contributions and am grateful for helpful comments from other colleagues. I am grateful to you for inviting me to speak this morning. Plymouth is a fitting location to discuss the changing nature of banknotes. Since 2000, Charles Darwin has appeared on the ten pound note and it was from Plymouth Sound that a young Darwin set sail on the HMS Beagle in 1831. The evidence that Darwin collected during his voyage laid the foundation for his celebrated theory of evolution by natural selection.Outside the natural world, we now observe “evolution” in everything from culture to technology. It is the evolution of echnology on which I intend to focus today, since it has provided both opportunities and challenges for the Bank of England, and our international central bank colleagues, in managing the issuance of banknotes. The Bank’s key objective in issuing banknotes is to maintain public confidence in the currency. To do this, we need to meet two goals. First, we need to ensure that the public are able to access our banknotes in the quantities and denominations they require – no trivial task when there are three billion notes in circulation with a total value of over £55 billion. Second, we need to ensure that the public has confidence in the integrity of our banknotes. To achieve this, we need to ensure that our notes are secure – easy to authenticate and technically difficult to copy. Technological change over the past four decades has profoundly impacted how we achieve both of these goals.

Cash in the economy
One of the most notable of these impacts for our generation is that technological change has made cash a more convenient means of Payment. You have to be slightly, but not that much, older than me to remember when access to cash was constrained to bank ranchopening times. But from a standing start forty years ago, around three-quarters of the public’s cash is now acquired via ATMs.

1.Over the same period note-accepting machines have broadened their scope – no longer being relegated to the confines of car parks and train stations. There are now, for example, more than 30,000 self-service checkouts

2.in supermarkets which accept and dispense cash. Another obvious development is the emergence of alternative payments mechanisms. From debit cards in the 1990s to more recent innovations such as contactless cards or (coming soon to the UK) the ability to make and receive payments using mobile phone numbers, more and more alternatives to payments by cash have become available. And these alternative methods have unsurprisingly had an impact on the use of cash as a means of payment. While cash accounted for 71% of all payments in the UK just a decade ago, this declined to 54%.last year.

3.Because of the migration of higher value payments to plastic cards, the average cash transaction value has also decreased.
4.The Bank does not set a target for the value of notes issued: our aim is simply to satisfy the public’s demand for notes. And in that sense we are sanguine about the impact of technology upon the use of cash. But technological change can and does raise new challenges for the Bank as it seeks to fulfil its note issuing responsibilities.

Cash still circulates through the UK according to a traditional wholesale model which, in simplified form, involves individuals taking cash out of an ATM and spending it at a shop. The shop then returns the note to a bank and the bank deposits it to the wholesale system where note sorting machines verify authenticity and sort for quality (including looking for tears, holes, and tape). In recent years, technological innovation – for example, high-specification note sorters which process around 30 notes per second – has greatly increased the efficiency of this system.
One major challenge for the Bank is to understand how innovation is affecting this traditional model, so that we can anticipate and offset any unintended adverse consequences. To illustrate this let me give two examples: one where we failed to anticipate an adverseeffect and a second where (hopefully) we are making an early intervention to avoid unintended consequences.

The first example centres on ‘tatty fivers’. One major contributor to the tatty fivers problem was the rapid growth of ATMs. As they became the dominant channelthrough which new notes entered circulation, ATMs’ dispense patterns began to materially influence the mix of denominations circulating in the UK. During the first decade of the 21st century, the vast majority of ATMs dispensed only £10 and £20 notes, helping to lead to a gradual erosion of £5 availability. And as fivers became more scarce, retailers tended to hold on to them rather than return them to wholesale cash handlers for quality sorting. On average it took longer before the average £5 returned to the wholesale system, and notes which would normally have been withdrawn on quality grounds remained in circulation. This is a classic example of an unintended consequence. Once we became aware of the issue the Bank had to react. In 2007, the Governor publically committed the Bank to working with the banks to solve this problem .

5.and in 2010, following a successful pilot with HSBC, the ATM operators agreed a target to boost their £5 ATM dispense. That target was exceeded lastyear and nearly ten times as many £5 notes are now dispensed from ATMs than before the summer of 2010.

6.The indications are that as the availability of new fivers has picked up, they have been held on to for less time, and returned more frequently to the wholesale cash system. As a consequence, the incidence of tatty fivers has declined.

The second example centres on the impact of innovation on how our banknotes are checked. Until very recently virtually all cash circulated through the UK according to the traditional wholesale model mentioned earlier. Increasingly, however, retailers and ATM operators are considering the merits of using a local recycling model where they refill their ATMs or self-checkout tills themselves, using the notes that they
received at the till rather than returning those notes to the wholesale system. The potential benefits of this model, for example a reduction in the cost of transporting cash, have lead a number of key players to move towards local recycling. But local recycling also implies that each note will be authenticated by the wholesale cash industry less frequently – weakening one of the pillars which supports the safety of our cash. Over the past two years we have been working in collaboration with Payments Council and key stakeholders in the cash industry tointroduce a Code of Conduct for local recycling.

Following consultation with the industry the Code will be introduced this summer. Our intention is to ensure that those businesses that self-fill their ATMs or self-service checkouts will authenticate their banknotes to the same high standards as those employed in the wholesale cash industry. The second challenge we face is in correctly anticipating trends in the demand for cash in a period of rapid technological change. Just like any other business, we need to make assumptions about the demand for our product – banknotes – when investing in the infrastructure that defines our long-term supply capability: the contracts which underpin banknote production and the storage capacity that we build. And when making these long-term decisions we need to balance the riskof not having enough new notes to meet the public’s
demand for cash against the desirability of avoiding expenditure that proves not to have been needed.

One of the current puzzles in the cash world is that, despite the emergence of many new competing payment mechanisms, the underlying demand for cash seems, if anything, to have become more resilient. Having contracted in the 1970s and 1980s as electronic payments and plastic cards became more widely used, cash has grown roughly in line with the economy, measured in cash terms, since the early 1990s.
Some of this resilience probably reflects the underlying utility of cash as a means of payment: it is easy to use, anonymous and does not require any third party intervention (unlike say a debit card which relies on the ability to get an authentication code). For some groupscash may be particularly attractive: one example is individuals with low-incomes, for whom cash budgeting can be a helpful tool; another is the elderly for whom cash’s ease of use can be appealing. From a retailers’ perspective, cash remains cost effective for many transactions: the British Retail Consortium found that while cash accounted for just under a third of retail transactions in 2012 (by value), it accounted for just 10% of the payment handling costs incurred by retailers. These types of factors are likely to persistently support the demand for cash.
Set against that view, there are good arguments to suggest that some current strength in demand for cash will eventually prove to be temporary. Initially ‘network’ effects can slow the adoption of new payments methods and create inertia which favours established payments mechanisms, including cash. But in these situations tipping points can emerge when a critical mass of early adopters prompt a rapid migration away from the old network (cash) to the new ones. In so far as the use of cash is being supported by network externalities, then the underlying demand for cash has some fragility. A further complication in assessing how the demand for cash will emerge comes from a different, and in this case not technology based, source. It is that the relative decline in the use of cash for payments has been accompanied by an apparent increase in saving by cash. Over the past decade, while transactional usage of cash has remained static, per capita cash holdings in the UK have increased markedly from around £500 at end-2002 to almost £900 today.

7. This trend is not unique to the UK and has been experienced elsewhere including in the United States and across much of the euro area. It is possible to identify factors which might have contributed to this rise, including the financialcrisis, lower interest rates, an increase in self-employment, but its scale nevertheless remains somewhat surprising. Drawing these considerations together, it is certainly plausible that cash will continue to remain in rude health, growing in line with the cash value of the economy. But the possibility of an accelerated move away
from cash for transactions cannot be dismissed, and it is difficult to judge whether the factors driving the pick-up in cash saving will persist. Inthis context, while I take it as given that cash will remain an important part of our lives for the foreseeable future, striking the balance to ensure we can meet the public’s demand for cash over the next ten to twenty years while avoiding unnecessary expenditure is not straightforward.

Ensuring that our banknotes remain secure

Aside from the impact of payment behaviour and the cashdistribution system, technology has also had a profound impact on the physical nature of cash itself. The Bank of England issued its first banknote in 1694. The first counterfeit was passed in 1694 too. And so it has gone ever since. Since 1694 the Bank has faced the same basic challenge: how to design a banknote which can be manufactured in large scale at relatively low cost (just a few pence per note), and is easy to authenticate but hard to counterfeit. For mostof the time since 1694 we have succeeded in meeting that challenge, but it is not easy to do. Technology actsas our friend and foe: friend because it allows us to introduce new difficult to imitate features and foe because eventually progress gives counterfeiters the tools to copy them.

The current basic template for our banknotes dates back to 1970 when William Shakespeare became the first historic character to appear on Bank of England money. The Shakespeare twenty was significantly more sophisticated than its predecessor. Its integrity was protected by the quality of the paper it was printed on, its raised print, a watermark, an embedded thread, and the complexity of the multi-colour design. By the standards of its time the Shakespeare was very secure. As the technology available to us all to capture and print images has advanced since 1970, the security of our banknotes has evolved considerably. For example,our most recent note, the Boulton and Watt fifty pound note, augments the traditional features used on the Shakespeare note with a number of much more modern components. These includes a wide windowed thread which contains images of a pound sign and the number fifty which move and switch as the note is tilted, and other images which are only visible using UV light.

The journey from the Shakespeare £20 to the Boulton and Watt £50 has been something of a technology arms race between us and the counterfeiters. The UK’sexperience mirrors that of many other countries, and one notable consequence has been that the banknote market place has evolved markedly. Central banks have needed to employ increasingly innovative methods toprotect their notes; often borrowing technologies from other industries. To give one prominent example, holograms were imported from credit and debit cards. Unheard of a quarter of a century ago, holograms are now common place on banknotes. Another development in the banknote market has been the emergence of alternative materials on which to print banknotes. Australia was the pioneer, first introducing polymer or plastic banknotes in 1988.

8.Since then a number of countries have copied Australia’s example. In most cases countries have switched to polymer on cost grounds – it lasts longer than paper and wears better – but in recent years some central banks have also been motivated by the view thatpolymer may offer some security benefits.
The trend to more sophisticated features is set to continue. Over the next few years we are likely to see more novel security features which will use state-of-the-art technology todeliver distinct image movement and novel colour changes to enable cash users to check genuine notes with improved speed and ease. And we are likely to see greater diversity in the materials on which banknotes are produced. Morocco has recently issued a banknote printed on a substrate comprising a sandwich of polymer between two paper layers and Swaziland has issued notes of a sandwich ofpaper between two polymer layers. Another trend is to incorporate see-through windows on banknotes. Complex windows can be easily achieved on polymer and simple windows are now being promoted with paper-based substrates.

In this changing world, the Bank’s job is to make sure that it stays fully on top of all of the latest technological developments so that it can make the correct choices for our future banknotes. We need to assess which features best combine the ability to be authenticated when genuine and hard to copy with today’s and tomorrow’s technology. To enable us to do that we have a dedicated research team which casts its net wide in considering all available options for our banknotes.
The Governor announced in April that Sir Winston Churchill will appear on the next banknote, and we shared with the public the image of Churchill which will appear on the note.

9.Given what I have said it should be no surprise that even before wehad decided on Churchill, our research team had initiated a multi-year research programme to identify the technical design which will enable us to issue the most secure Churchill note possible. Once we have made our final technical decisions we will start the process of manufacturing the new-style note, with the aspiration of issuing it in 2016.

Going back to 1694 for a moment, the Bank’s first counterfeiting scare was solved by the arrest of the perpetrator. And it remains the case that we can only succeed in keeping counterfeiting rates low by combining good design with effective law enforcement – for which we are always grateful – to deter counterfeiters and education to ensure that the public can identify genuine banknotes and spot counterfeits. Despite technology increasing the tools available to counterfeiters, we continue to succeed in keeping counterfeit rates low. Last year, over 700,000 counterfeits were removed from circulation. I wish the number were lower – zero to be precise – but that level represents a tiny fraction of one percent of the three billion genuine Bank of England notes in circulation; with the implication that you or I as individuals are very unlikely
ever to come across a counterfeit. So next time you pull a £10 note from your wallet and you see the image of Charles Darwin, I hope that you will have more of an appreciation of the evolving life of your banknotes. The march of technology has had a tremendous impact on banknotes over the past four decades. This has offered many benefits – more choice to us as individuals about how to make payments, more efficient ways of distributing cash, and the opportunity for the Bank to issue more sophisticated banknotes. But it also creates challenges for us, perhaps most importantly the challenge of keeping ahead of the counterfeiters so that we can continue to safeguard the security of your banknotes. The Bank has met these challenges in the past, and we are committed to exploiting technological advances to meet these challenges in the future.
Thank you very much for listening.

Source: Bank Of England

– See more at: http://www.internationalfinancemagazine.com/article/The-Note-in-your-Wallet-Full-Speech-by-Chris-Salmon.html#sthash.oYfu0roL.dpuf

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June 19, 2016: Financial market infrastructures lie at the heart of the financial system. They settle transactions and, by stepping in between buyers and sellers, ensure that financial obligations are met. As such, they play a crucial role in helping the economy and financial markets to function.

Central counterparties (CCPs) – also known as clearing houses – are one type of financial market infrastructure. Central counterparties: what are they, why do they matter and how does the Bank supervise them? sets out in simple terms the important role that CCPs play in the financial system.The context is twofold. First, the Bank of England has new responsibilities for the supervision of securities settlement systems and CCPs in the United Kingdom, as part of a wider reform of financial regulation that came into force in April 2013. And second, the systemic importance of CCPs will increase further after G20 leaders mandated in September 2009 – in response to the financial crisis – that standardised over-the-counter derivatives should be cleared through CCPs.

Compared to a world of bilateral trades, a key benefit of central clearing is that it simplifies the network of exposures across different trading parties. In addition, since CCPs place themselves between the buyer and seller of an original trade, they effectively guarantee the obligations under the contract agreed between the two counterparties. This means that, in the event that one counterparty fails, the other is protected via the default management procedures and resources of the CCP.

Clearing trades centrally means that CCPs themselves become crucial nodes in the financial network. So it is essential for CCPs to manage the risks they face since the failure of a CCP can pose a systemic risk to financial stability. As supervisor of these infrastructures, the Bank seeks to ensure that they are managed and operated effectively to support its financial stability objective. The last section of the article describes
the Bank’s approach to supervising CCPsas well as some current policy issues

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May 31, 2016: DP World on 27th May launched $1.2 billion Sukuk bond in London Stock Exchange (LSE). It now becomes the fourth Sukuk to be launched this year in LSE. This follows the first ever Sukuk from Islamic Corporation for the Development of the Private Sector (ICD) in April this year. LSE has a strong track record of supporting Sukuk issuance in its markets. More than $47 billion has been raised through 65 Sukuk issues in London, which is also home to six Islamic banks. There are currently 33 active Sukuks on LSE. Nikhil Rathi, CEO, London Stock Exchange & Director of International Development, London Stock Exchange Group said: “The fact that the UK was the first country outside the Islamic world to issue a Sukuk bond, which experienced exceptional demand, underlines London’s standing as the world’s leading international financial centre. And today’s listing of DP World Sukuk on our markets confirms London Stock Exchange as a key destination for foreign, Shariah-compliant financial products. It also showcases UK’s attraction as a leading global financial hub with a deep pool of international capital interested in these products.”

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May 20, 2016: TSYS announced an agreement with Featurespace, a global leader in adaptive behavioural analytics, that will reduce fraud for its clients with a revolutionary machine learning software platform — the ARIC engine — that monitors every individual — one customer at a time — to deliver real-time decision capabilities.

“TSYS’ collaboration with Featurespace aligns with our overall strategy of integrating with advanced, innovative technology partners to help our clients grow their business, reduce costs, and deliver an exceptional customer experience,” said Andrew Mathieson, group executive, issuer product group, TSYS. “We will incorporate these capabilities across the credit risk lifecycle, enabling our issuers to catch more fraudulent transactions while dramatically reducing false-positive alerts for genuine transactions — a sharp contrast to the industry paradigm of blocking more valid transactions in order to detect actual fraudulent activity.”

The new agreement allows TSYS to strengthen its position in faster payments by leveraging machine learning to provide clients with actionable insights in real time, using adaptive behavioral analytics that result in operational efficiencies.

“TSYS has a long-standing leadership position in authorisation processing and fraud management and we are excited to integrate our ARIC engine for TSYS’ clients,” said Martina King, chief executive officer, Featurespace. “We are proud to be working with TSYS to deliver world-leading machine learning fraud protection and exceptional customer management to their clients.”

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