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by Joanne Bladd
Any pretence that the middle east is immune to the world's credit crisis evaporated last week following Saudi Arabia's announcement that it expects to post a budget deficit of $17.3bn in 2009 - its first in more than five years.
Word from the Kingdom's ministry of finance that government expenditures were budgeted at $126.6bn for fiscal year 2009, while total revenues sit at $109.31bn, is hard proof - were it needed - the world's largest oil baron is feeling the chill of falling barrel prices.
For critics of the Kingdom's mega-projects, the news adds fuel to speculation that the liquidity freeze could restrict Saudi's sprawling growth plans.
Flush with oil revenue in recent years, the Kingdom has diligently smoothed the path for foreign investment through widespread expansion in infrastructure.
As with Dubai, the scale of the plans, anchored in the promise of foreign finance, were met with questions over their long-term viability. And to a degree, it seems the detractors were right.
With foreign investors now a rare breed, a string of Saudi's infrastructure plans have been left wide open to the slowdown. Adding salt to the wound are falling oil prices and a shift to a more conservative attitude among Saudi businesses, the impact of which is starting to show.
Progress on King Abdullah Economic City, the $27bn jewel in the crown of Saudi's 10x10 plan, has already fallen behind schedule while its developer, Emaar, searches for financing.
That the project, a key component in Saudi's bid for a diversified economy, is struggling to attract private investment, is a sign to many that Saudi's star is on the wane, and must raise serious questions over the viability of the remaining five economic cities.
But rumours of Saudi Arabia's slowdown are premature. Simply, its projects are too big for the government to allow them to fail. In contrast to the debt-to-asset ratio crippling certain Western governments, Saudi holds an estimated $433bn in net foreign assets, and a $157bn budget surplus - a late "liquidity gift" from the days of $147 a barrel prices.
It's hardly overleveraged. And the ministry of finance has been quick to state that large-scale projects "that ensure sustainable development... [and] more employment opportunities" will be first in the queue for supplementary funding.
The fast-tracking on Riyadh's King Abdullah Financial District and the announcement by Modon, the government's industrial development arm, of the launch of a further four industrial cities is evidence of this. Rather than fiddling while Rome burns, Riyadh has sent a clear message it has no qualms about dipping into its reserves to cushion the immature private sector, now the credit crunch has come calling.
Appropriately for the holiday season, Saudi's government is learning that charity begins at home. Whatever the cost, the domestic wheels will keep turning because Saudi Arabia has its eyes on a bigger prize - economic diversity.
Source : ArabianBusiness.com
Showing posts with label financing. Show all posts
Showing posts with label financing. Show all posts
Tuesday, December 30, 2008
Wednesday, December 17, 2008
Hamas approves first Gaza bank under its authority
By Adam Entous and Nidal al-Mughrabi
Hamas has approved for the first time the establishment of a new bank in the Gaza Strip under its authority, a move that could open a door to bypass a financial blockade imposed by Israel and its Western allies.
Islamic National Bank chairman Ala al-Rafati said the new financial institution had received a license from the government run by the Islamist group which controls the Palestinian coastal enclave and planned to open for business early in the new year.
Hamas said it will not control the new bank, an assertion disputed by its rivals in the Israeli-occupied West Bank, where President Mahmoud Abbas's Western-backed Palestinian Authority is based.
Rafati likewise asserted that the bank had no factional affiliation, saying the venture was designed to boost local investment in Gaza's economy "in an environment of resistance," a reference to the conflict with Israel.
The Western-backed Palestine Monetary Authority (PMA) in Ramallah, which registers and regulates established banks, said it would shun the Islamic National Bank, meaning the institution may have to function autonomously, without access to funds in the West Bank or to the global banking system.
"The PMA has not authorized the licensing of such a bank, and, accordingly, if there is such a bank, we will pursue every legal action to prevent it from operating," said PMA governor Jihad Wazir.
Matt Levitt, a former senior official at the U.S. Treasury Department, said such a bank would face serious obstacles.
"This would be mostly a bank in name only," said Levitt, an expert on militants' financing at the Washington Institute.
"It's unlikely that any international bank, let alone any Israeli bank, would have anything to do with any bank registered with Hamas and not with the West Bank-based government."
"NO SURPRISE"
Western diplomats said the emergence of an alternative banking system in the Gaza Strip should come as no surprise.
The United States and its European allies have long shunned Hamas, both financially and diplomatically, and cracked down on its access to funding after its 2006 election victory. The West cites Hamas's refusal to recognize Israel and renounce violence.
Israel tightened restrictions after Hamas routed secular Fatah forces loyal to Abbas and seized control of the Gaza Strip in June 2007, increasing hardships for many of the impoverished territory's 1.5 million residents.
At the same time, the PMA has imposed new money-laundering rules, putting pressure on Hamas and other groups to find alternatives to the regulated banking system.
But Western diplomats said a growing, cash-financed trade through tunnels between the Gaza Strip and Egypt could provide enough liquidity for the new bank to function, free from Israeli restrictions that have pushed PMA-regulated banks to the brink.
Regulated banks in Gaza have been particularly hard hit by Israeli limits on their access to shekel banknotes, the main currency for Palestinians, making it hard for Abbas to bring in enough cash to pay wages to Palestinian Authority staff there.
Compounding the problem, Israeli commercial banks have decided to sever ties with their established Palestinian counterparts, citing the Israeli government's designation of Gaza as a "hostile" territory following Hamas's takeover.
Despite the boycott and other hurdles, a senior Western diplomat said the new bank, which will operate under Islamic rules that bar charging interest, could prove profitable.
"You get all the money ... from the tunnels ... and then you actually use it for investments within Gaza. You get a rate of return and you're using this liquidity more efficiently," the diplomat said.
Source : Reuters
Hamas has approved for the first time the establishment of a new bank in the Gaza Strip under its authority, a move that could open a door to bypass a financial blockade imposed by Israel and its Western allies.
Islamic National Bank chairman Ala al-Rafati said the new financial institution had received a license from the government run by the Islamist group which controls the Palestinian coastal enclave and planned to open for business early in the new year.
Hamas said it will not control the new bank, an assertion disputed by its rivals in the Israeli-occupied West Bank, where President Mahmoud Abbas's Western-backed Palestinian Authority is based.
Rafati likewise asserted that the bank had no factional affiliation, saying the venture was designed to boost local investment in Gaza's economy "in an environment of resistance," a reference to the conflict with Israel.
The Western-backed Palestine Monetary Authority (PMA) in Ramallah, which registers and regulates established banks, said it would shun the Islamic National Bank, meaning the institution may have to function autonomously, without access to funds in the West Bank or to the global banking system.
"The PMA has not authorized the licensing of such a bank, and, accordingly, if there is such a bank, we will pursue every legal action to prevent it from operating," said PMA governor Jihad Wazir.
Matt Levitt, a former senior official at the U.S. Treasury Department, said such a bank would face serious obstacles.
"This would be mostly a bank in name only," said Levitt, an expert on militants' financing at the Washington Institute.
"It's unlikely that any international bank, let alone any Israeli bank, would have anything to do with any bank registered with Hamas and not with the West Bank-based government."
"NO SURPRISE"
Western diplomats said the emergence of an alternative banking system in the Gaza Strip should come as no surprise.
The United States and its European allies have long shunned Hamas, both financially and diplomatically, and cracked down on its access to funding after its 2006 election victory. The West cites Hamas's refusal to recognize Israel and renounce violence.
Israel tightened restrictions after Hamas routed secular Fatah forces loyal to Abbas and seized control of the Gaza Strip in June 2007, increasing hardships for many of the impoverished territory's 1.5 million residents.
At the same time, the PMA has imposed new money-laundering rules, putting pressure on Hamas and other groups to find alternatives to the regulated banking system.
But Western diplomats said a growing, cash-financed trade through tunnels between the Gaza Strip and Egypt could provide enough liquidity for the new bank to function, free from Israeli restrictions that have pushed PMA-regulated banks to the brink.
Regulated banks in Gaza have been particularly hard hit by Israeli limits on their access to shekel banknotes, the main currency for Palestinians, making it hard for Abbas to bring in enough cash to pay wages to Palestinian Authority staff there.
Compounding the problem, Israeli commercial banks have decided to sever ties with their established Palestinian counterparts, citing the Israeli government's designation of Gaza as a "hostile" territory following Hamas's takeover.
Despite the boycott and other hurdles, a senior Western diplomat said the new bank, which will operate under Islamic rules that bar charging interest, could prove profitable.
"You get all the money ... from the tunnels ... and then you actually use it for investments within Gaza. You get a rate of return and you're using this liquidity more efficiently," the diplomat said.
Source : Reuters
Wednesday, November 5, 2008
European takes closer look at Islamic financing
PARIS: With commercial bank financing tight, Europeans have been taking a closer look at Islamic banking.
"The potential is there," Ahmad Jachi, the first deputy governor of the Central Bank of Lebanon, said at a conference this past week in Paris. "It's a matter of really enabling and creating the market."
Islamic banking has already been integrated into the British and German banking systems, and banking executives at the conference said efforts were under way to allow Muslims in France to bank and invest under regulations that conform to Shariah, the legal code of Islam.
Estimates of the Islamic banking market's current size vary from $500 billion to $1 trillion. It has only about 5 percent of the overall banking market, but attendees at the conference, which was sponsored by The Economist, said Islamic banking has a huge potential for growth, since one-sixth of the world's population is Muslim.
The International Monetary Fund estimates that the Islamic banking sector has grown 10 percent to 15 percent a year over the past decade.
Saturday, October 11, 2008
The Influence of the Implementation of Sharia Principles in Banking: by M. Suyanto
The objective of my research was to analyze the influence of the implementation of sharia principles on the bank performance and the welfare of employees and society involved in the activities of Sharia Banks in Indonesia by selecting the bank performance as an intervening variable. The population of this research was sharia banks in Indonesia between 2002 and 2006. The structural equation modeling (SEM) was used to analyze a series of dependence relationships among variables simultaneously.
The study of several concepts and indicators in sharia banking revealed the following models. First, the implementation of sharia principle variable was influenced by several indicators, i.e., sharia financing, sharia funding, and aqad compliance. Second, the bank performance variable was influenced by a number of indicators, i.e., profitability, solvency, and commitment to community. Third, the society welfare variable was affected by indicators of financing, qordul hasan and zakat-infaq-sodaqoh. Fourth, the employee welfare variable was influenced by the indicators of salary-bonus, general benefits and relegious benefits.
The results showed that first, the implementation of sharia principles had a positive and significant influences on the Sharia Bank performance of at α = 0.05 with a path coefficient of 0.95 and p value of 0.000, suggesting that the implementation of sharia principles in Sharia Banks in Indonesia which is getting better, more consistent and more sustainable would, in turn, improve the bank performance or result in the higher profitablility and solvability and give the benefit to the small business entrepreneurs joining the Sharia Banks as customers. Second, the implementation of sharia principles had an insignificant influences on the welfare of society involved in the activities of Sharia Banks in Indonesia at α = 0.05 with a path coefficient of -0.23 and p value of 0.671, indicating that the implementation of sharia principles in Sharia Banks in Indonesia which is getting better, more consistent and more sustainable would not increase the welfare of society involved in the activities of Sharia Banks in Indonesia or would not increase the financing and qordul hasan portions as well as zakat-infaq-sodaqoh and social activities. Third, the implementation of sharia principles had an insignificant influences on the employee welfare of Sharia Banks at α = 0.05 with path coefficient of -0.03 and p value of 0.942, maintaining that the implementation of sharia principles in Sharia Banks in Indonesia which is getting better, more consistent and more sustainable would not improve the employee welfare of Sharia Banks. Fourth, the Sharia Bank performance had an influence on the welfare of society involved in the activities of Sharia Banks in Indonesia at α = 0.05 with path coefficient of 1.24 and p value of 0.034, revealing that an excellent performance of Sharia Bank would, in turn, improve the welfare of society involved in the activities of Sharia Banks in Indonesia.. Fifth, the Sharia Bank performance had a significant influence on the employee welfare at α = 0.05 with a path coefficient of 1.01 and p value of 0.027, explaining that an excellent performance of Sharia Bank would also improve the employee welfare in Sharia Banks in Indonesia.
Other findings showed an indirect effect, i.e., the implementation of sharia principles with the bank performance as the intervening variable, had a positive and significant influences on the employee welfare, with a path coefficient value (indirect effect) 0.96, suggesting that the implementation of sharia principles in Sharia Banks in Indonesia which has been getting better, more consistent and more sustainable, would result in the higher the bank performance. The higher the bank performance would, in turn improve the employee welfare of Sharia Bank. The implementation of sharia principles with the bank performance as intervening variable had a positive and significant influences on the society welfare, with a path coefficient value (indirect effect) 1.18, indicating that the implementation of sharia principles in Sharia Banks in Indonesia which has been getting better, more consistent and more sustainable, would result in the higher bank performance. The higher bank performance would, in turn, improve the welfare of society involved in the activities of Sharia Banks in Indonesia.
Based on the findings of the research, it can be concluded that the implementation of sharia principles in Sharia Banks in Indonesia which has been getting better, more consistent and more sustainable would, in turn, improve the bank performance. Moreover, the excellent of the bank performance would exert a significant effect on the welfare of employees and society involved in the activities of Sharia Banks in Indonesia.
The study of several concepts and indicators in sharia banking revealed the following models. First, the implementation of sharia principle variable was influenced by several indicators, i.e., sharia financing, sharia funding, and aqad compliance. Second, the bank performance variable was influenced by a number of indicators, i.e., profitability, solvency, and commitment to community. Third, the society welfare variable was affected by indicators of financing, qordul hasan and zakat-infaq-sodaqoh. Fourth, the employee welfare variable was influenced by the indicators of salary-bonus, general benefits and relegious benefits.
The results showed that first, the implementation of sharia principles had a positive and significant influences on the Sharia Bank performance of at α = 0.05 with a path coefficient of 0.95 and p value of 0.000, suggesting that the implementation of sharia principles in Sharia Banks in Indonesia which is getting better, more consistent and more sustainable would, in turn, improve the bank performance or result in the higher profitablility and solvability and give the benefit to the small business entrepreneurs joining the Sharia Banks as customers. Second, the implementation of sharia principles had an insignificant influences on the welfare of society involved in the activities of Sharia Banks in Indonesia at α = 0.05 with a path coefficient of -0.23 and p value of 0.671, indicating that the implementation of sharia principles in Sharia Banks in Indonesia which is getting better, more consistent and more sustainable would not increase the welfare of society involved in the activities of Sharia Banks in Indonesia or would not increase the financing and qordul hasan portions as well as zakat-infaq-sodaqoh and social activities. Third, the implementation of sharia principles had an insignificant influences on the employee welfare of Sharia Banks at α = 0.05 with path coefficient of -0.03 and p value of 0.942, maintaining that the implementation of sharia principles in Sharia Banks in Indonesia which is getting better, more consistent and more sustainable would not improve the employee welfare of Sharia Banks. Fourth, the Sharia Bank performance had an influence on the welfare of society involved in the activities of Sharia Banks in Indonesia at α = 0.05 with path coefficient of 1.24 and p value of 0.034, revealing that an excellent performance of Sharia Bank would, in turn, improve the welfare of society involved in the activities of Sharia Banks in Indonesia.. Fifth, the Sharia Bank performance had a significant influence on the employee welfare at α = 0.05 with a path coefficient of 1.01 and p value of 0.027, explaining that an excellent performance of Sharia Bank would also improve the employee welfare in Sharia Banks in Indonesia.
Other findings showed an indirect effect, i.e., the implementation of sharia principles with the bank performance as the intervening variable, had a positive and significant influences on the employee welfare, with a path coefficient value (indirect effect) 0.96, suggesting that the implementation of sharia principles in Sharia Banks in Indonesia which has been getting better, more consistent and more sustainable, would result in the higher the bank performance. The higher the bank performance would, in turn improve the employee welfare of Sharia Bank. The implementation of sharia principles with the bank performance as intervening variable had a positive and significant influences on the society welfare, with a path coefficient value (indirect effect) 1.18, indicating that the implementation of sharia principles in Sharia Banks in Indonesia which has been getting better, more consistent and more sustainable, would result in the higher bank performance. The higher bank performance would, in turn, improve the welfare of society involved in the activities of Sharia Banks in Indonesia.
Based on the findings of the research, it can be concluded that the implementation of sharia principles in Sharia Banks in Indonesia which has been getting better, more consistent and more sustainable would, in turn, improve the bank performance. Moreover, the excellent of the bank performance would exert a significant effect on the welfare of employees and society involved in the activities of Sharia Banks in Indonesia.
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