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Monday, December 14, 2009

Abu Dhabi gives $10bn to Dubai to service debts

Dubai's decline into financial crisis has been more spectacular than its rise.

Until a month ago, the official word from Dubai was that the emirate's finances were in good order, but in late November world markets fell on news that the Dubai World conglomerate was unable to service $26bn in debts.

Now Abu Dhabi has given Dubai $10bn, some of which will enable Nakheel, the property arm of troubled Dubai World, to pay a $4.1bn Islamic bond that has matured.

Abu Dhabi's rescue package has highlighted the differences between its cautious approach to investment and Dubai's more brash approach. Tarek Bazley reports.

Sunday, December 13, 2009

Ar Rahnu -- An Alternative And Easy Source Of Credit

By Salbiah Said   |  KUALA LUMPUR, Dec 13  09  |  Bernama  

Mention pawnbroking and you will imagine the destitute who use this service to raise money.

But Bank Rakyat plans to remove this stigma attached to the industry by promoting the Islamic concept of pawnbroking called Ar-Rahnu through its wholly-owned subsidiary Rakyat Management Services Sdn Bhd.

Ar-Rahnu was introduced as an alternative and easier source of credit, with gold as collateral in exchange for cash. It ensures privacy for the customer as against the conventional pawnshop, which handles the business openly.

"This system (Ar-Rahnu) provides for transparency, privacy and security," Mohamad Sabri Nor, general manager of Rakyat Management Services, told Bernama recently.

"It can also turn borrowers away from Along (loan sharks) or unlicensed pawnbrokers," he said after giving a talk on the Ar-Rahnu scheme managed by Rakyat Management Services at Bernama's Centre of Excellence recently.

Ar-Rahnu is an Islamic-based pawnbroking business which offers interest-free loans, but a minimum fee is charged for the safekeeping of the valuables, with a high mortgage value and a flexible pawn period.

As an example, under the conventional pawnbroking system, an individual who pawns a gold chain worth RM1,000 will only be given a loan of RM600, which carries a two per cent interest or RM13 a month.

"We only charge 65 sen for every RM100 worth of valuables kept. For a gold item worth RM1,000, we only charge RM6 a month for safekeeping, a big difference from the conventional system," said Mohamad Sabri.

"Among the advantages are premises and items kept are protected and insured. In case of losses or untoward incidents, reimbursements will be made based on the value of the lost items."

"In the initial stages, it was rather difficult to convince our customers. However, they have now realised that there are more benefits to be derived from Ar-Rahnu," he said, adding that all tests to determine the value of gold items were conducted in front of the customer.

"This business is only open to cooperatives and not for individuals and those planning to set up the business should not worry if they don't have the knowledge about gold. We will help them," said Mohamad Sabri.

Bank Rakyat's Ar-Rahnu scheme had its roots in 1993 through capital injection from the Islamic Economic Development Foundation, Malaysia (YAPEIM). The foundation, which was the pioneer of Ar-Rahnu, received funds from the various state religious councils, which in turn channelled them to Bank Rakyat.

During the early years, Bank Rakyat had only six Ar-Rahnu outlets under the supervision of Bank Negara as advisor.

To date, Rakyat Management Services operates 15 Ar-Rahnu outlets under the Ar-Rahnu X'Change brand, with the tagline "Gold For Cash". Of the total, seven are owned by Bank Rakyat while another eight are franchise-based.

"My only advice to businessmen is you can use your valuables as capital. This is the quickest and easiest way of financing your projects," said Mohamad Sabri.

"Those who visit pawnbrokers are still shunned by society. The mere mention of the word 'pawn' is strictly forbidden and it's taboo for them. But this is slowly changing as more people are aware of the benefits of Ar-Rahnu."

"What's important is that these customers have assets and they are using them in times of need. They should not be ashamed as they are not purely taking loan, but have valuables as collateral for cash. This is the message that we want to drive home to the people," he said.

Rakyat Management Services, which has some 300,000 clients, also plans to open five Ar-Rahnu outlets every year to cater to the demand, said Mohamed Sabri.

FOREX: Ringgit Likley To Be Lower Against Us Dollar Next Week

KUALA LUMPUR, Dec 12  09 Bernama 

-- The ringgit is likley to be lower against the US dollar next week with investors holding on to their dollar positions in anticipation of further advances of the greenback, dealers said.

They said the ringgit could move to the 3.45 level against the greenback as investors speculated on a stronger dollar till year-end.

"Investors are also waiting for further advances in the greenback before they liquidate their dollar positions, especially with the coming holiday season, as this will enable them to maximise on their gains," said one of the dealers.

During the week, the ringgit was rangebound against major currencies, as Asian currencies such as the Philipine peso firmed with the weakening of the US dollar.

The Australian dollar and New Zealand dollar rallied against the US dollar during the week, sparked by talk of the possibility of an interest rate hike in both Australia and New Zealand.

On Friday, the ringgit closed lower against the US dollar on strong demand for the greenback with better market sentiment in regional equity markets.

On a Friday-to-Friday comparison, the ringgit was weaker against the US dollar at 3.3980/4010 compared to 3.3790/3830 last Friday.

The local currency also weakened against the Singapore dollar at 2.4448/4496 compared to 2.4436/4500 previously.

The ringgit strengthened against the Japanese yen at 3.8227/8274 from 3.8332/8391 last Friday.

The local currency was firmer against the British pound at 5.5452/5521 compared to 5.6189/6266 last Friday and also against the euro at 5.0080/0158 from 5.0911/0982 previously.

Islamic Banking System Has Advanced To Highest Level - Najib

PEKAN, Dec 12 09 | Bernama 
-- The Islamic banking system in Malaysia has advanced to the highest level, making the country the leading exponent of the system worldwide, Prime Minister Datuk Seri Najib Tun Razak said Saturday.
He said this was based on the country's unique twin financial plan, based fully on Syariah and in line with the financial sector masterplan.

"The Islamic banking system is seen as a system which has developed to the highest level and at a fast rate when compared to conventional banking as the growth can be seen in two digits, that is 10 per cent each year," he said when officiating the new premises of Bank Muamalat Malaysia's 54th branch here.

Also present were Bank Muamalat's chairman Datuk Seri Mohd Khamil Jamil and chief executive officer Datuk Mohd Redza Shah Abdul Wahid.

Najib said the achievement was also made possible by the government's commitment in promoting Islamic teaching as a way of life.

He said effort was also carried out to provide a comprehensive training system in Islamic banking by Bank Negara Malaysia.

Najib said he also hoped that Bank Muamalat could promote the Islamic system of pawnbroking like Ar-Rahnu.

"If there is such an Islamic pawnbroking system here, then the local community would experience less Ah Long activities," he said.

At the event, Bank Muamalat open 200 "smart" deposit accounts for orphans and poor students in the Pekan and Kuantan areas as part of its corporate social responsibility.

At another function later, Najib also called on the people to add to their knowledge, especially in information technology, to continue progressing.

According to him, soft skills are important to access knowledge and for one to become more efficient in carrying out their tasks.

He said this when officiating the Pekan Resource Centre which is equipped with a library with over 5,000 books, information and communications technology lab, language lab, seminar room, theatre training studio, administration office and surau.

Najib said the transformation of the centre by Umno showed the party's commitment in meeting the changing needs of the people, such as acquiring new skills.

Najib The Ponzi scheme master

Malaysia is close to bankruptcy.

The government has no more money. 2009 must have been a horrible year with little corporate taxes collected (and expected to be collected) due to the economic slowdown. Foreign investments have also slowed to a halt.

And yet Najib's government is trying to spend their way out of the economy. Honestly, if carried out well, government spending is a key component in driving the economy up. But not in Malaysia. The leakages are too large. As a result, the expected multiplier effects do not maximise. The money disbursed end up in the pockets of those who least deserve it instead.

2009 must go on record as the year with the largest amount of government bonds issued. Amanah Saham this and Amanah Saham that. I don't have the statistics but I doubt 2009 will be too far off the numero uno spot even if it does not take the top spot. All sorts of bond were raised and for the first time, take-up quotas drawn along the usual racial lines have been removed.

What does that mean? The government is simply desperate for money. The amount that they could raise from the protected and preferred Malay race have simply maxed up. That left Najib with no choice but to loan from the desperate Chinese and Indians on the pretext of equality and sharing of wealth with all in the country. And at lower rates of returns too.

Malaysians are not well read people. And I bet you that most people do not understand what a bond is apart from it being an investment opportunity that generates interest income higher than that offered by FDs. Bonds are actually IOUs. It is a loan. When you buy a bond, you are actually lending money to the bond issuer and you get paid back upon maturity.

Upon maturity, paying back of bond money is an issue should the bond issuer (in this case the government of Malaysia) has no money to pay. But as the government, this can be solved via a few simple strategies at the expense of the rakyat.

The government may raise new bonds to pay-off the earlier bonds. And this can be done over and over again. The bet by the government is that the government's income will improve in the future and one day, these loans from the public can be paid off. Theoretically, this sounds ideal. But do you genuinely accept that from the government of a nation whose corruption index ranking have been consistently falling to an embarrassing 57 now? Regardless of how much of the nations resources are depleted (our oil is running out by the way; palm oil isn't that popular in the world market unless you are a sucker who believes in Utusan Malaysia; we do not have much rubber; we ran out of tin decades ago), the profit do not go back to the rakyat but the Swiss private bank accounts of our politicians.

So, the bonds will never get to be paid from the ideal profits. New bonds will be issued to pay off earlier bonds. And this will go on and on and on. Over time, with larger amount of bonds raised every time to cover for additional 'nation building and development', government debts will only continue to rise. This is what we call a Ponzi scheme. Read Bernie Madoff. Read cheat. Read con.

The present government is passing it's current problem to the future generation. An irresponsible government indeed. In developed nations, the people are able to appreciate this problem. Parliaments debate after debate on bond issuances. In Malaysia, the Prime Minister approves new bonds while he gobbles down his nasi lemak with ayam rendang and sotong sambal. The future is not his problem anyways. He has his hot seat to protect; lose it or he will get nagged to his death by the thing who sleeps next to him.

Has anyone actually thought that Najib knows that his days are numbered and he is maximising his personal dough collection? Think about it. Whatever he takes from the bonds will have to be paid back by the next government. If he is not going to be the next government, paying back will not be his problem.

But whatever he does now will still be a problem for the rakyat in the future. If BN continues, it will be BN's repayment problem. If PR takes over, it will be PR who is faced with the same repayment headache. The only permanent fixture is that the rakyat is at the losing end.

Some may argue that all the government has to do is to print more money. Yes, that is true. A learned friend of mine once said that the government will never run out of money because it can just print more. That is a brilliant statement. But of course it has it consequences. The amount of paper money in circulation must correspond to the amount of gold held in reserves. If paper money exceeds the value of gold - which is what the US is facing right now - then the said currency's value falls. Purchasing power declines. Inflation rises. And a whole lot of other negative economic terminologies.

So you see, printing money to repay government loans solves the loan issue but it brings the country to a whole new level of economic problems.

And yes, you got the message, the rakyat loses.

If you are lucky to live short enough, the problem will not be yours. But your kids? You better leave them enough money to buy bananas at RM1 million per comb.

Additional note by author: Najib has pledged more and more spending. But with limited funds available, other government disbursements will have to be reduced. Hence, the proposed (rumoured) removal of subsidies for petrol, sugar and flour are very real. Expect electricity tariffs to go up too. Rakyat will suffer like never before. Is he not interested in getting re-elected? Does sound like Najib is taking all he can and abandoning ship.

 Warga Marhaen   | harakahdaily

Saturday, December 12, 2009

Could a Spike in Bond Yields Cause the Economy to Stumble in the New Year?

In normal times, at their most basic level, bond prices follow some very simple laws of financial physics: When interest rates rise, bond prices fall and bond yields rise; when rates fall, bond prices rise, and bond yields drop.

However, bonds could break those laws of financial physics in the New Year - and in a big way. That could inflict some real financial pain on the U.S. recovery, the dollar, the shuddering housing market - and could even ignite a major stock-market reversal.