Friday, August 31, 2007


Vigilance publications are, without exception, the most haunting poetry publications I've ever received. They creep. They crawl. They lay either prostrate playing dead or coiled in your mailbox like a venomous snake. There is nothing contained in any of them which indicates where or when they were produced. They simply arrive in your mailbox. First I began receiving them at work. Then at home packaged in envelopes with neither sending nor return address. The only text which appears on any of the envelopes simply reads: Vigilance 1917.

They are the flipside of the rusted coin spent on spyware and wire-tapping. They are the terror the war on terror breeds. Contagion. The colophon of each contains not the usual information but militant and aggressive slogans like "We Never Sleep" or "Speak of this to no one" or—and this is most disturbing—"Astra Castra Lumen Numen." They make it difficult to sleep at night. They make my fucking skin crawl.

Perhaps this is the work these books are intended to do. Each, in one way or another, calls attention to the somatic materiality of the body and the fragility of flesh. The covers of most of them foreground images of some aspect of the body, whether animal or man. The image on the cover of C.J. Martin's City boasts a human skeleton whose skull is the capital building, whose left hand holds the Washington Monument, whose pelvis is not a pelvis proper but the White House. The cover of Michael Cross' Cede reveals the head of a man bleeding from the mouth, the blood running down his chin forming text across a kerchief wrapped round his neck. The back cover of Eli Drabman's Daylight on the Wires features sketches of two rabbits, one which foregrounds the beast's muscle structure and one its skeletal structure.

Like Bataille's notion of death, these books and broadsides are the common inevitable and, in another way, profound and profoundly inaccessible.

Other Vigilance books include Craig Dworkin's All Saints and Rob Halpern's Disaster Suite. All are hand-stitched letterpress pubs. With the exception of Drabman's Daylight, all are small. Given their size, one can imagine their publisher concealing them like weapons, trafficking them like drugs, planting them like bombs. Despite their size, they come like Olson's America: large and without mercy.

The authors of these publications know as little about their source as those who receive them. Although each Vigilance publication appears to be a single-author work, or at least bears the name of an author, the authors of these works receive them in the same mysterious way readers do. And for those that receive them—do they arrive as a warning? Do they mark us as irresponsible poets and intellectuals? Or do they affirm the work we do as intellectual laborers, as producers of culture critical of cultural production? Each of these publications is clearly the product of labor, but I worry that this is a labor which comes for us — for our sons and daughters, our mothers and father, for the ones that we love.

Any source

The First Days of the new BVI Government: Dancia Penn Appointed as Deputy Premier, the First Meeting of the National Security Council

After the Virgin Islands Party gained the victory over the National Democratic Party ruled by Dr. Orlando Smith, the five member cabinet of the new ruling party (VIP) was sworn on Thursday. Under the new Constitution of the British Virgin Islands, the head of the party Ralph T. O'Neal was sworn as Premier, - a post that was previously titled chief minister and belonged to Orlando Smith. The legislative council now is called the House of Assembly.

The new BVI Premier Ralph O'Neal has listed the top priorities of his administration as tackling crime and making higher the standard of living for BVI residents.

The first formal day of work of the new BVI government was Friday, August 24. On Tuesday, August 28, the Governor David Pearey, acting on the advice of Premier Honourable Ralph O'Neal, appointed Honourable Dancia Penn, OBE, QC, on the post of the Deputy Premier of the British Virgin Islands. Dancia Penn had already been sworn as the Minister of Health and Social Development in the new government.

Another institution introduced by the BVI Constitution 2007 is the National Security Council, which held its first meeting at the Governor’s Office on Monday, August 2007. The meeting was chaired by his Excellency the Governor David Pearey, and attended by the Premier Ralph O'Neal, Honourable Dancia Penn, and some ex-officio members.

The National Security Council has to provide advise to the Governor on the issues concerning internal security, and to make greater sharing of responsibility for security matters between the elected Government and the Governor, constitutionally responsible for internal security matters.
Article any source

Thursday, August 30, 2007


Working closely with Gee Vaucher and Penny Rimbaud—both formerly of Crass—printer and publisher Christian Brett has spent the past couple of years bringing out strikingly immaculate letterpress publications through his own imprint, Bracketpress. The work—which comes out of Lancashire, England—synthesizes digital design and fine letterpress printing such that each publication, whether a hand-stitched book or a simple card, is indeed something to behold. Although these publications are carefully designed and produced, Brett's aesthetic sensibility seems, on a number of levels, to gesture toward the type of cultural production Crass themselves were invested in from the mid 1970s through 1984.

Often referred to as simply a band that brought out music, the scope of the work Crass did was far broader, extending into nearly every sphere of the arts. Film. Visual Art. Performance. Sound. Written work. Their lyrics, produced in a fury but thoughtfully written, often involved an investigation into the complex relations between language and ideology, the religious and political, the social and the singular. The fullest expression of this investigation can be found in "Reality Asylum." Backed by a series of discordant sounds which grow increasingly louder as the song progresses, becoming at first unsettling and then overwhelmingly ominous, the words of the song are uttered in a tone of abject defiance:

For you lord./ You are the flag-bearer of these nations/ One against the other that die in the mud/ No piety. No deity


The cross is the mast of your oppression/ You fly there, vain flag. You carry it/ Wear it on your back, Lord. Your back/ Enola is your gaiety/ Suffer little children to come unto me/ Suffer in that horror. Hirohorror. Hirrohiro/ Hiroshimmer. Shimmerhiro. Hiroshima. Hiroshima

Their lyrical work, written collectively to be performed collectively, is akin to that of Adrian Mitchell or Attila the Stockbroker. Although pegged and tauted as a punk band, most of the members of Crass were much older and far more committed to exploring the intersections of art, literature and activism.

Gee Vaucher, doing most of the visual and design work for the group, was already in her mid-thirties by the time of their first public performance. Before joining the collective, based around the Dial House in Essex, she worked in New York as a freelance artist, contributing visual work to a number of magazines and journals, including New York Magazine and Rolling Stone. Before that she worked on other commercial projects and illustrated countless children's books.

Penny Rimbaud, who performed on drums and provided the rhetorically incendiary prose included in Crass albums, was also in his mid-thirties when the group formed. As a young man in his mid-twenties he flew to the US and for two months traveled across the country, maintaining a journal throughout his travels. On returning to England he revised this journal into a work later published under the title The Diamond Signature. Lawrence Ferlinghetti later referred to the work as "An enor-mously Ambitious + sonorous work of the Eye-magination."

Once Crass broke apart in 1984 both Vaucher and Rimbaud moved onto other projects which continued to synthesize cultural production and political activity. In recent years Christian Brett has joined them in various collaborative projects.

In 2006 Vaucher and Brett constructed "The Sound of Stones in the Glass House," an installation project exhibited at various locations in both the UK and US. The project is a simple steel-framed structure of frosted glass resembling a house or home. Cut out of the frosted coating is a seemingly endless catalog of US military interventions into foreign nations. The floor within the structure is a carpet of soil and grass. The sound inside is, of course, silence. On the soil, in the grass, inside the structure which resembles home, one finds oneself surrounded by language and indeed it is only through language, through the shapes of linguistic characters, that one can from within look out to the surrounding world. It is only through the letters that outside light can get into and nourish the grass which carpets the structure. Here language mediates all vision and light which enters in and exits out of the structure. This language is a language of war and aggression. Speaking directly, the first line of the press release for the installation states: "This exhibition is staged as a response to the events of September 11th, 2001 and the ensuing global aftermath."

As typographer and book designer, Brett has collaborated with Penny Rimbaud on a number of publishing projects brought out through Bracket: How?, In The Beginning Was The Word, and most recently The Conveniences of Philosophy. Each of these chap-size publications are part-letterpress, part-offset, all hand-stitched. Although Rimbaud is credited as author, the work is collaborative inasmuch as Brett's typographical and design decisions inform in part how each work is received and read. On each we find the residual print of the human hand. Each carries the aura of care. The work is that of exacting precision but also speaks something of the same sensibility found in early Futurist publications.

Each design and typeface selection seems to be driven by the specific demands of the project, such that each is appropriate to the project, drawing out further in a tangible and material way the force which resides in each work. We see this in the colophon of each, which not only indicates the typeface used, but offers information about each typeface in order to further in rich our readings of the work.

For The Conveniences of Philosophy Brett selected Sabon, a serifed typeface which he tells us was "Designed by Jan Tschichold in 1965 for German master printers who required that it should be produced in identical form for both mechanical composition by the Linotype and Monotype foundries...." Curiously enough, Sabon was used in 1979 for setting the Episcopal Church's Book of Common Prayer. Aware of this curious relation, however accidental it may be, I find myself reading one among a number of catechismic exchanges Rimbaud includes in The Conveniences: "QUESTION: how is it Christ died for our sins two thousand years before we committed them?/ ANSWER: how is it Christ died for our sins two thousand years before we committed them?" Invested in a strange Rexrothesque anarcho-mysticism, the text, set in Sabon, becomes its own Book of Common Prayer. It is in this way that Brett collaboratively enters into the work of Rimbaud.

Like the now-classic work of Wallace Berman, Dave Haselwood, and William Everson, Christian Brett's ability to foreground through design the aura residing within a textual work is, as I say, something to behold.


ADDENDUM: Christian Brett tells me that, while the choice of the Sabon typeface was not made as a conscious gesture toward the 1979 Book of Common Prayer, Rimbaud's Conveniences was previously set in Baskerville and the two-column bible-like format of the text was designed with John Baskerville's bible of 1763 in mind.

Any source

Monday, August 27, 2007

General Elections Won by Opposition, Ralph O'Neal to be the new Premier of BVI

Last week I gave some kind of preview of the BVI general elections, as the most important event in the British Virgin Islands, which will inevitably bring changes into the economic course, first of all in tourism and in the offshore sector. Now, when the results are already known and the new government is taken to oath, we can summarize that these results really changed the political situation in the BVI.

Tough competition between the National Democratic Party with its flagships Orlando Smith, Ronnie Skelton, Elmore Stoutt and Mark Vanterpool, and the 40-years-old Virgin Islands Party with Ralph O'Neal, Keith Flax and Vernon Malone, resulted in the victory of the opposition. VIP has won seven seats in the 15-member House of Assembly (former Legislative Council), and returned to power after a 4-year interval.

Probably, the voters in the British Virgin Islands showed some kind of rejection of the ruling NDP's platform, as there was only one successful candidate from the NDP which was the government's minister before the poll.

By the voting results, the VIP received top three spots. It should be said that the forth spot belongs to former Chief Minister Orlando Smith, who is also the NDP president. Orlando Smith conceded defeat of his party, saying that his government's approach was to develop BVI economy through the sectors of tourism and financial services. The head of the Virgin Islands Party, Carvin Malone, also named growth of economy as one of the main focuses of the VIP during the campaign. Both leaders agreed that key factor in the results of these elections was public perception of the development projects initiated during the ruling period of NDP.

On Wednesday, August 22, the Governor David Pearey officially assigned ex-leader of the opposition Hon. Ralph O'Neal as the first Premier of the British Virgin Islands. On Thursday, new government of the British Virgin Islands was sworn in at a ceremony held at the Chambers of the House of Assembly. Hon. Ralph O’Neal was sworn as Premier and Minister of Finance & Tourism, Hon. Andrew Fahie – as Minister of Education & Culture, Hon. Julian Frazer became the minister of Communication and Works. The other government ministers sworn during the ceremony were Hon. Omar Wallace Hodge – Minister of Natural Resources & Labor, and Hon. Ruth Dancia Penn which will lead the Ministry of Health and Social Development.
Article any source

Sunday, August 26, 2007

Polly Toynbee - Hard Work

This prominent journalist used some time off from her usual occupation of writing for the Guardian newspaper, and lived in a semi-derelict block on a rough estate in South London, trying to live off any low paid job and whatever state benefits or charity help she could get. Her book Hard Work (Bloomsbury) is the outcome which showed the limitations of the state welfare tax-credit system which merely acts as a top-up for the wages of low paying employers. It also shows how the hallowed ‘free market’ in jobs which is supposed to be the ultimate encourager of labour mobility and self-help for the lowest paid is a sham. (See also this BLOG: New Paradigm in Economics, Aug). We are deluded by this false economic theory that condemns the poorest 30% of our society to a lifetime of servility and struggle, with few ways of escape.

But Toynbee can only point to ‘more of the same’ as a solution. She advocates encouraging trade union membership, pressure for a higher minimum wage and continued tax-credit welfare. However, her own findings deny their effectiveness: (a) union representation of the low-paid has been one of broad failure over the years (b) the 10% lowest paid in 1970 were better off then than now - they now get £164 whereas the 1970 equivalent should be £262 a week; and (c) tax credits are fiendishly complicated and many qualified do not claim them.

She should champion a Citizen’s Income, a non-withdrawable regular payment to every person, as of right. At one move this would (1) raise the average wage for those in work (2) enable people to cover the costs of looking for new, more fulfilling and better paid work (3) through the increase in economic power to workers, incentivise employers to train and look after their workers better and (4) enable workers to pay union subscriptions to press for better terms.

The Citizen’s Income Trust has much information as to how a new system is quite feasible financially. We already have the beginnings in the Child Benefit payment. Alaska pays an oil dividend to all citizens every year. Read The Free Lunch for more good news! The hardest work is opening closed minds. See , look at the cartoons.

Any source

Friday, August 24, 2007

Islamic Finance

Navid Goraya, Managing Director, Global Head Wealth Management Group, HSBC AmanahAny source

Wednesday, August 22, 2007


At long last — Damn the Caesars the Blog is active again. And after the lapse of nearly a year, it's an absolute pleasure to announce in this brief missive the publication of Brian Mornar's Repatterning. This chap-length single-author collection of poems is a first for both Mornar and the Punch Press imprint.

Comprised of four poems of moderate leng
th, Repatterning sees Mornar synthesizing the mundane, meditations on the mundane, and the poetry and critical work of others encountered while wandering through the mundane. Thinking and writing through the everyday, Mornar comes out in these poems on the other side of the everyday with the musicality of a lyric sensibility in hand. He comes "Stately, outside waiting for the bus doors to open" and finds himself situated "Between the spaces public and private". As he states in "Kleist's Puppets", "Where the garage meets the road/ I do tell the people my name".

In the foreward to this inaugural collection, Lisa Fishman writes, "The intelligence of this collection is formidable and hopeful, alive to lyric utterance, margin note, and notebook entry as themselves events and as sites of hearing: Shelley's West Wind cutting through Chicago's Hawk wind; Mornar's Oakland re
futing Spenser's Ireland, everywhere the self stricken but not stricken out...."

Assembled by hand, this book includes two-color letterpress wraps folded over and bound to a black bristol interior cover. To order send check or money order for $5.00 to Richard Owens, 810 Richmond Avenue, Buffalo, NY 14222-1167. Where else can fine letterpress poetry be had for the cost of pack of smokes.


NOTE: Brian Mornar was born on the South Side of Chicago, attended Beloit College in Wisconsin, St. Mary's College in California, and is now working on his PhD at SUNY-Buffalo in New York.

Any source

Monday, August 20, 2007

The Financial Services Exemptions Regulations 2007

Recently I wrote about BVI Business Companies (Company Names) Regulations 2007 defining the permitted ending of BVI private trust company. On the same day, the Executive Council, acting on the advice of the Financial Services Commission represented by Natalie Fahie Smith, adopted also the Financial Services Exemptions Regulations 2007.

These regulations is additional schedule to Exemptions Applicable to the Banks and Trust Companies Act, 1990.

This legislative act explains in details following issues: Application of Financial Services Commission Act, 2001 and Banks and Trust Companies Act to private trust companies, Duties of registered agent of private trust company and Obligations on private trust company, and also defines the meaning of “unremunerated trust business”, “related trust”, “group of related trusts” and “connected person”.

These regulations come into effect on August 1, 2007, except Qualifying BVI Company that has been “re-registered under paragraph 6(1)(b) of Part III of Schedule 2 of the Business Companies Act and, in respect of which, an election to disapply Part VI of Schedule 2 of the Business Companies Act has been registered”. Concerning the last ones, these regulations come into effect on January 1, 2008.

The full text of the document can be read on
Article any source

EU farmers need to save water

European agriculture should face the same 'user pays' principle as other EU consumers of water in the coming year in order to address the growing problem of water scarcity, according to a Commission Communication. The report by the Environment DG recognises that at least 20 per cent and maybe 40 per cent of water is wasted in the EU.

Climate change is likely to make drought a more frequent problem. Presenting the report Environment Commissioner Stavros Dinas pointed out that agriculture accounts for more water use than any other sector and as much as two-thirds in Southern Europe.

Supporting studies show that potential water savings resulting from improvements in the conveyance efficiency of irrigation systems range between 10 and 25 per cent of their withdrawals. Water savings resulting from improving application efficiency can range between 10 and 60 per cent of water use. Additional water savings can be expected from changes in irrigation practices (30 per cent), use of more drought-resistant crops (up to 50 per cent) or reuse of treated sewage effluent (10 per cent).

The potential water savings in the irrigation sector would amount to 43 per cent of the current agricultural volumes absorbed.Any source

Sunday, August 19, 2007

Wealthfare – a new definition

Many people object that welfare goes to too many people who do not ‘deserve’ it. The phrase quid pro quo illustrates the idea and is behind the move to force people into work by giving tax credits rather than handouts: ‘You do your bit of work and the state will help you out.’

The book The Free Lunch –Fairness with Freedom takes it as given, that the earth is here for the well-being of all and is to be fairly shared. However, selfishness and inadequate governance means that poverty abounds and the rich get proportionately richer. This tendency has been called wealthfare, meaning that powerful businesses and people (with access to clever advisers), whilst gaining more wealth often manage to pay declining tax contributions for the essential needs of society and the poor. Quid quo pro does not seem to apply to a fair share of tax on their increasing gains.

There are ways of paying for the needs of society and of providing for the needs of the poor in ways that would not engender the wasteful deviousness of tax avoidance followed by the rich, and would not burden the poor with bureaucratic form filling and the invasion of their privacy as to their means.

The Free Lunch is positive, practical and economically sound. For an exploration of the ideas of what might be called ‘New Wealthfare’, based on fairer shares for all from the plenty of the earth, read the book:

Any source

End protectionist biofuel barriers urges FAO chief

UN Food and Agricultural Organisation chief Jacques Diouf has urged the EU and US to lower protectionist barriers against ethanol imports to promote the development of biofuels in developing countries. They are often better suited to their production. Many analysts think that the environmental equation does not add up in the developed world for biofuels, quite apart from their likely impact on food prices.

At present, the bioenergy industry is regulated by domestic policies rather than international agreement. Diouf would like opportunities created for developing countries to take advantage of their comparative advantages in terms of ecosystems and climates that are more suited to biomass production, as well as ample reserves of land and labour.

The US, Europe and Brazil last year accounted for almost 95 per cent of the world's biofuel production with Canada, China and India produced most of the rest. Biofuel production, mostly of corn-derived ethanol in the US and rapeseed-derived biodiesel in Europe, doubled between 2000 and 2005, but still accounted for just 1 per cent of global road transport fuel. This is projected to rise to 4 per cent ny 2030.

At present rich countries' traiffs make it uneconomic for poor countries to grow biofuel crops. The problem for developing countries is exacerbated by food prices being pushed up by the biofuel industry's rising consumption of crops. Corn prices this year reached an 11-year high of $4.30 a bushel while wheat prices rose recently to $6.96 a bushel, the highest sive 1996.Any source

Friday, August 17, 2007

BVI General Elections to be Held on August 20

Although BVI Offshore World usually does not inform about political news, I cannot ignore in my blog the event of the highest political importance - general elections, which are to be held in some days. After all, the results of the elections will have great impact on the economic development of the British Virgin Islands.

The general elections will be held on August 20, with the participation of the two major political parties of the territory. These parties, to which most candidates are affiliated, are the ruling National Democratic Party of Chief Minister Orlando Smith, which was formed prior to the 1999 elections, and the main opposition Virgin Islands Party of former Chief Minister Ralph O'Neal. There are also some several independent candidates participating in the elections. The parties will outline their four year work plans in the manifestos that will be released this week.

General elections in the BVI territory are held every four years. BVI Legislative Council includes 15 members: 13 are elected to four years, nine in single-seat constituencies and four at large. The other two members are the attorney general and a speaker. The Council members will be elected among thirty-five candidates that were nominated to run in the 2007 General Elections. In 2003, there were thirty-three candidates nominated.

There are 11,115 people eligible to vote on one of the nine polling stations operational during the 2007 General Elections. Each person may cast five votes – one in the district he is registered in, and one each for four-at-large candidates.
Article any source

Wednesday, August 15, 2007

BVI Business Companies Company Names Regulations 2007

BVI Business Companies (Company Names) Regulations 2007 defining the permitted ending of BVI private trust company was signed by Clerk of the Executive Council, Natalie Fahie Smith, on August 2, and gazetted on August 3 2007. The original document can be read on

BVI Business Companies (Company Names) Regulations 2007, which is a small document consisting of two pages, simply orders that the name of private trust companies established under BVI Business Companies Act, 2004 should include designation “PTC” before company name ending. BVI company name endings are stated in section 17(1)(a), (b) or (c) of the BVI Business Companies Act 2004 and these are “Limited”, “Corporation”, “Incorporated”, “Societe Anonyme”, “Sociedad Anonima” or abbreviations “Ltd”, “Corp”, “Inc” or “S.A.”

So if my private trust name in the BVI is “My BVI Trust Ltd”, I should name it “My BVI Trust PTC Ltd”. So easy.
Article any source

Friday, August 10, 2007

Can a credit card ever be Halal?

At first glance you'd be forgiven for thinking that a marketing brochure for an Islamic credit card must be some kind of elaborate hoax. But banks in the region are now making such seemingly impossible concepts a reality

We all know the arguments in favour of credit cards: "it enables me to spread payment for large purchases;" "it's too dangerous to carry cash;" "sometimes a card is a prerequisite for transactions such as Internet purchases and rental collateral". The problem for Muslim consumers, of course, is that the whole concept of the conventional credit card is unacceptable on religious grounds. Interest payments made when the outstanding balance is not repaid in full are Riba payments, and therefore forbidden in Islam.

Despite this clear-cut position, there are various grey areas of interpretation that enable some Muslims to align credit card usage with their religious beliefs. For example, if one commits to paying off the balance every month and therefore never utilises the credit option of the card, then one can say that Riba is being avoided and thus the card is Halal. As Islamic scholars such as Shariffa Carlo Al Andalusia have discussed when debating such interpretations, however, this argument still doesn't hold water since the signing of a credit card agreement is the signing of an agreement to pay Riba should the cardholder fail to make every repayment in full and on time. Since no human can either know what the future holds or guarantee their own infallibility, such scholars say, then Muslims cannot enter into any contract that promises that they can.

From the card issuer's point of view, therefore, several problems become instantly obvious. Not only will the bank make little or no revenue from a credit card if the balance is repaid in full, but in religious terms it will be colluding in the commitment of sin if it arranges and signs a contract wherein a Muslim agrees to pay Riba in the case of non-payment of the balance. Quite apart from that, the extension of credit with a view to making profit is not a Qard Hassan loan, and thus is unacceptable in religious terms for the creditor as well as the borrower.

Despite this daunting and complex problem, banks have tallied up the market of some 250 million Muslims in MENA and Asia who want and need financing options, and several have decided that this is an opportunity too great to pass up on. Some banks have reacted to this situation by offering credit cards that aren't credit cards at all in a conventional sense. The Dubai Islamic Bank, as just one example, offers a Visa Classic Card but then debits the balance automatically from the holder's current or savings account every month. In effect this is a debit card, as officially no credit is extended to the consumer and so no injunctions against Riba have been broken. The consumer may get a short-term loan in practice, for example if he purchases an item at the beginning of the month and the payment is not debited until the end of the month, but that is a matter of bank administration rather than any deliberate contract to loan funds with a view to paying interest on them.

This example, of course, does not look very profitable for the bank. A membership fee can be charged for the service provided by the card, but otherwise it is more of a value-added service to account holders than a significant retail revenue stream. As a result, banks that are keen to offer a fully-functional and profitable Islamic credit card have been unsatisfied with the debit card alone and so have sought ingenious ways of constructing Sharia-compliant card agreements and repayment structures. These structures one might very loosely describe as falling into either the Asian school of thought or the Gulf school of thought.

The Asian solution

Launched in December 2001, the Al Taslif Credit Card from AmBank in Malaysia (formerly the Arab Malaysian Banking Group) works off the Sharia principle of Bai' Al Inah that covers instalment repayments over a fixed period. Cardholders are charged 1.25% per month or 15% per annum on the outstanding balance, with nothing to pay if the minimum payment requested is made on time. The Bai' Al Inah contract works on the basis of two 'akad' agreements. The first is the bank's agreement to sell an item to the customer at an agreed price, with the second agreement covering the customer selling back to the bank at a lower price. The difference is the bank's profit on the transaction and is a predetermined amount.

Though a percentage repayment is being made, this differs from conventional structures in that payment of the minimum balance only does not trigger interest repayments for the outstanding balance. Just from spending on the card, consumers are also helping charities via the AmBonus scheme. For every RM100 spent on the Al Taslif card, an AmBonus of RM1 is earned that goes to pay off the annual card fee. Once that fee has been repaid, however, all future AmBonus points are donated to charities by the bank.

More recently, Bank Islam Malaysia launched its Bank Islam Card (BIC) on 23rd July 2002, the name of the product deliberately avoiding the word 'credit'. The bank claims that this card, available in MasterCard Classic or Gold, is the first credit card to be based on Sharia contracts and that is thus free from Riba or Gharar (uncertainty) due to the fact that the maximum profit earned is declared up front. BIC also has the distinction of being the first EMV Smart chip card issued in Malaysia.

The bank says that this card works off a combination of three Sharia contracts: Bai' Al Inah (as for AmBank's Al Taslif card), Wadiah and Qard Hassan. Once an initial Bai' Al Inah transaction has taken place, the item nominally transacted being "a piece of land" according to the bank, the proceeds of the second transaction are transferred into the customer's Wadiah BIC account at the bank. The customer can then use the BIC card to make payments with the collateral all coming from the funds in the Wadiah account. Finally the Qard Hassan contract is activated if the cardholder wants to spend more than the funds available in the Wadiah account and the bank agrees to make more funds available on an interest-free basis. The bank's Chairman, Datuk Mohammed Youssef Nasir, says that Bank Islam will have targeted some 55,000 banking consumers with the BIC card by June this year.
"The extension of credit with a view to making profit is not a Qard Hassan loan and thus is unacceptable in religious terms for the creditor as well as the borrower"
The more stringent Gulf view

Critics of solutions such as the two above say that the Bai' Al Inah contract is ethically flimsy when applied in this manner as the sale transacted is a fake sale and thus just a means of masking Riba. As is the case with matters of Sharia-compliance, judgements are based on the Sharia board of each financial institution and so what may be acceptable to one board may yet be Haram for another. For many Middle East bankers, therefore, the solutions found by the Asian banks are simply not stringent enough in their interpretation of Qu'ranic rules. One Bahrain-based banker who prefers to remain anonymous believes that the Asian interpretation boils down to an injunction against using the card to purchase Haram items and services, and indeed the BIC card will reject transactions related to bars, gambling, massages and so on for payment. The depth of the Sharia-compliance of the card contracts, he believes, are less important to the banks than the avoidance of involvement in any blatantly Haram transactions.
Whether you feel this is a fair accusation or not, Gulf banks do appear to be taking a different tack in their approach to credit card contracts. In September 2002 Shamil Bank in Bahrain announced the launch of what in the words of Dr Ahmed Fouad Darwish, Head of Research, Planning and Development, he believes to be "the first Islamic credit card to be launched by a bank in Bahrain and probably in the world". The word 'probably' is a fair caveat in this statement, since as has become apparent there are multiple views on what might constitute an Islamic credit card and certainly several claimants to the laurels for launching the first one.

Dr Darwish explains that the development process started with the Shamil Card, effectively a convenience charge card. The bank charged fees to cover administrative and processing costs and the collateral was the balance in the cardholder's account. Progress began, however, when the bank began to see its relationship with the cardholder in terms of guarantees. In the case of the charge card, Dr Darwish says, the customer has guaranteed himself and his purchased with the balance of his deposits, the bank making money purely off the fee structure.

From this viewpoint, the bank was then able to change tactics when exploring the possibility of an Islamic credit card. It decided that the solution to Riba avoidance was to exercise the acceptable right of charging for the provision of a financial guarantee. "There must be cost elements involved in making that guarantee," Dr Darwish explains, "and in honouring the guarantee those costs are staff costs, processing costs and so on". The guarantee system works by agreeing that the card issuer is guaranteeing the cardholder's payment to the acquirer in any transaction undertaken. That guarantee holds sway in the time lag between the issuer's payment and the acquirer's receipt of funds.

The result of this research is the Al Rubban MasterCard, available in Bahraini dinars, Saudi riyals or US dollars. No Wadiah deposit is required as the collateral comes from a direct salary transfer rather than a balance. The payment system works by treating total card spend during any given month as being payable over 12 monthly instalments. So, for a balance generated of BD100, 12 equal monthly instalments of BD8.34 will be due. The revenue comes from a 5% fee for the provision of the guarantee and administrative costs that is levied on the first statement containing the transaction. This fee must be settled by the due date on that statement and there is a fixed fee for cash advances that must also be repaid in full on the due date of that first statement. Dr Darwish adds that the repayment period is set at 12 months for ease and convenience while the card is still being tested in the market, and that the instalment period can be extended. The key point, he says, is that there is no link between the fees charged and the repayment period as in the case for conventional card repayments.

At about the same time that Shamil launched Al Rubban, fellow Bahrain-based institution, ABC Islamic Bank, also released details of its Al Buraq credit card. The bank had firstly set up a subsidiary called the Islamic Credit Card (ICC) company. The issue of Al Buraq cards began with bank employees and corporate clients and is now available to individuals through ICC participating banks. With the ABC strategy, proliferating the card through multiple markets so as to rapidly earn market share is a high priority. As a result, although ABC has kept $3 million Class a ICC shares to itself, Mohammed Buqais, GM of ABC Islamic Bank, says that major Islamic banks and financial institutions have been invited to buy ICC Class B shares and thus gain the authority to issue Al Buraq cards to their customer bases in other countries.

Neither Shamil nor ABC Islamic Bank are unique in their investigation of Sharia-compliant cards. Al Rahji Banking & Investment Corporation (ARABIC) in Saudi Arabia, for example, also offers Sharia-approved Visa and MasterCards. The question doesn't appear to be whether Halal credit cards should be created, rather the focus is on exactly how they can be designed to be profitable and cost effective for customers while also being Sharia-compliant. If the efforts of pioneers such as Shamil and ABC prove a success, we can expect to see more design ingenuity applied to the issue so that the local banks really can meet the demands of local customers, however mountainous the challenge of meeting those needs might at first appear to be.

Any source

Thursday, August 9, 2007

BVI Ranks Third with $1.43 billion FDI in Vietnam

The Foreign Investment Agency of Vietnam informed that in the first seven months of the year the country has attracted over US$7.47 billion in foreign direct investment (FDI) – the 50% increase compared to the same period of the last year.

There are 39 countries and territories making direct investments in the economy of Vietnam. The British Virgin Islands rank the third by the amount of FDI, having 13.4% of the total with over $1.43 billion invested. During long period, BVI is among the top investment sources in the economy of HCM City. This year's results confirm strong positions of BVI among FDI sources in Vietnam's economy.

The first two places in the rank of investors belong to the country's neigbours. South Korea with over $1.43 billion makes up 22.5% of the total amount, Singapore has another 20.6%, with $1.32 billion of foreign direct investments.
Article any source

Tuesday, August 7, 2007

'Islamic Investment Certificates' (held in London)

Ruggiero Omar Lomonaco Head of Middle East and Islamic Private Investor Products ABN AMRO Markets.
Date: Friday, 03rd August 2007
Venue: British Bankers' Association London
Organised by: Institute of Islamic Banking and Insurance London (IIBI)

About the Speaker:
Mr Ruggiero Omar Lomonaco is Head of Islamic Investors Products at ABN AMRO, where he is responsible for structuring and sales of Shari'ah-compliant private investors' products. Prior to this position, he was Director of Wealth Management Group at HSBC Amanah, where he spent 9 years structuring and developing a wide range of Islamic investment products; he has an accounting qualification from the Italian Public Accountant Association and has a first class honours degree in Finance.

About the Lecture:
'Islamic Investment Certificates' the latest innovation in Islamic Wealth Management. Against a backdrop of continuous growth in Islamic Banking, the need for Islamic compliant wealth management is increasing, and continuous product innovation is essential. Mr Lomonaco will give an overview of Shari'ah-compliant Investment Certificates and how important these are for Shari'ah-compliant investment landscape; he will explain how Islamic Certificates are rapidly filling a huge gap in Islamic investment portfolios, by providing access to asset classes and payoff profiles which were currently unavailable to Shari'ah compliant investor.
Any source

Saturday, August 4, 2007

New paradigm in economics needed?

Since early this year there have been increasing reports of distress in the US housing markets as more people lost their homes. In the UK too, home repossessions are up 30% on last year. The credit malaise is spreading so that some international blockbuster deals to buy out mammoth size firms with private money are in trouble. Supplies of credit are getting tight at this cutting edge of business that has had such a heyday for some years.

To understand what is happening it is most enlightening to read Richard Werner’s book New Paradigm in Macroeconomics ISBN 1403920745. (See the review on ). The book clarifies what seemed so puzzling as to why Japan boomed to the early 1990’s, then suddenly crashed and seems to have been mostly in the economic doldrums since. Werner is the Professor of International Banking at the University of Southampton and has studied the Japanese economy first hand. His book is written to prove certain things to economists, but, apart from the formulaic proofs for the specialists, its clarity makes it very accessible to anyone else. It is a fundamentally important book that explains the reasons for the boom and bust nature of our western economy which leads to such things as housing price bubbles, volatile employment patterns and widening disparities of personal wealth.

Werner shows how much of the underlying thinking behind current neoclassical economics is remote from practical reality. He exposes the realities of ‘the market’ and how they do not match up to the expectations of theorists who nevertheless take the idea as holy writ. He suggests that the prevailing wisdom of current economics favours the established economies of the world to the detriment of those of developing nations that are at the mercy of the false paradigms peddled by the strong for their own purposes. The book strengthens the case for key points made in book The Free Lunch – Freedom with Fairness. See

Any source

Legal Dispute between Telecom Operators: Digicel against C&W

After Digicel filed legal action against the BVI Telecommunications Regulatory Commission, and won it, the company has filed an application against Cable & Wireless. The company declares that the rival operator used illegal practices to delay the entry of Digicel into a number of Caribbean markets, and seeks for multi-million-pound compensation for lost revenue, profits and market share.

The lawsuit was filed last week in a British high court, the countries involved are St Lucia, Saint Vincent and the Grenadines, Grenada, Barbados, the Cayman Islands, Trinidad and Tobago, the Turks and Caicos Islands. According to Digicel, when it began expanding its operations in the markets of these countries from 2002 to 2006, C&W resisted interconnection between different mobile and fixed land providers.
Article any source

Wednesday, August 1, 2007

Islamic Securitisation: Practical Aspects
Mr. Suleiman ABDI DUALEH
The fact that Islamic institutions have a growing participation in the global securitization business is an affirmation of the success they have achieved during the last three decades. Since securitization is a recent invention in conventional financial practices, it is a considerable achievement for Islamic institutions to be involved with this new dynamic line of business. After all, they were until recently struggling to come up with a replacement for products as mundane as saving accounts.

In order to appreciate the importance of securitization to Islamic institutions, one must learn how securitization is commonly understood. Then, it is useful to proceed to highlight the specific concerns of Islamic institutions in the securitization process, and touch upon some limitations of Islamic institutions' practices in securitization. Finally, it is worth elucidating some structures and comment on two case studies. Upon completion of this review, we will understand the importance and the future of Islamic institutions applying this financial method.


In defining securitization we focus on processes - the process of pooling assets, the process of packaging them into securities, and the process of distributing securities to investors. As Islamic institutions are more concerned with the Islamic acceptability of the securitization business, their focus is more on the content of the "package" rather than the process of packaging. Therefore, they tend to ensure that the assets in the package - and not the package alone - are Islamically acceptable.

A more specific definition characterises securitization as the process of packaging designated pools of assets with or without credit enhancement into securities, and the sale of these securities to the appropriate investors. The process involves the creation of homogenous assets - both in kind and in underwriting criteria - and then pooling them into a significant saleable size. Generally, a pool, on the whole, has a better credit characteristic (through diversification of credit risk, transaction size, geography, etc.) than an individual asset. The process may also involve the provision of additional protection for the investors against late payments, pre-payments, potential write-offs, as well as cash-flow timing mismatches. Such protection is often provided in the form of credit and/or liquidity enhancement schemes, as will be explained later.
The Case for Securitization
Securitization is an American invention, but no longer remains an American curiosity. Almost all the major financial systems have certain securitization schemes. The sale of whole loans could be dated as far back as the 1880's in the USA. The origins of secunitization of assets, however, is traced to the 1970's when the Government National Mortgage Association ("GNMA") developed the GNMA pass-through, a mortgage -backed security collateralized by single-family Federal Housing Administration ("FHA") and Veterans Administration ("VA") mortgage loans. Securitization grew into a significant business in the 1990's. Today, securitized assets not only include mortgages on properties, but also credit card receivables, computer leases, equipment notes financing, auto loans, and even future sales of music records. There was even an attempt to securitize the life insurance policies of people with full-blown AIDS, enabling them to monetize their polices. As one can observe, both Islamically permissible and impermissible assets are routinely securitized in the US and international financial markets.
The growth of securitization is basically driven by four factors; first, the imposition of capital adequacy ratios and reserve requirements on financial institutions by the regulatory agencies have made financial institutions safer place to invest in. But these restrictions have "costs" as they either add direct cost or restrict the ability of these financial institutions to increase their volume of business. Securitization enables these institutions to efficiently remove assets from their balance sheet. It allows them to monetize previously illiquid assets, recycle cash to be reinvested and, hence, expand the volume of their business without a corresponding increase in their equity capital. In simple terms, securitization allows financial institutions to serve more customers without having to raise new funds in the form or either equity or deposits.

Second, whenever the global cost of capital increases, securitization helps financial institutions to raise cheaper capital for their businesses at the asset level instead of the enterprise level.

Third, there is a growing convergence of many capital markets into one, as the barriers between them were removed. As all segments of the economy now compete for the same capital, efficient, low cost of financing have become more necessary.

Fourth, increased ability to generate and utilise information through popular use of rapidly improving computer technology has resulted in significant gains for the securitization business. It is now possible to obtain credit and liquidity information on millions of financial assets, enabling the market players to isolate certain types of assets with the objective of making them self-financing. The availability of information enables institutions to remove certain assets from their balance sheets and obtain better credit than what the originators could command in the market, and, hence, lower cost of funding.
These four trends have helped the growth of global securitization industrysince the 1980’s. By the end of 1994, the total volume of asset-backed securities issued in the USA and Europe alone exceeded 400 billion US dollars, a significant progress for a line of business that was largely unknown before the 1970s. As of this writing, the asset backed markets have blossomed to $ ? trillion despite the weak global economy.

The securitization process has also some specific benefits for Islamic institutions. As Islamic finance tends to relate finance to assets, asset backed securitization is the right product for Islamic institutions, as long as these assets are structured in accordance with Islamic principles. The concept of asset backing is prevalent in all other Islamically- structured transactions. For example, in trade finance we use "morabaha" contract, which enables the Islamic institutions to purchase certain goods and sell the same to a client at a pre-agreed profit margin, rather than giving an interest-bearing loan to the client, which then purchases the goods. In project finance, we prefer to buy equipment and lease it to a project-promoter, instead of providing him with liquid capital against payment of interest. Therefore, the use of securitization will bring in much needed liquidity to these institutions, by enabling Islamic institutions to free part of their capital which is tied-up with these illiquid project and trade financing activities.

Word of caution
The question, therefore, is not whether Islamic banks should play a role in this dynamic market; it is the "how" which intrigues many market observers. But before we examine the mechanisms to be employed, we should, perhaps, drive home certain realities about Islamic institutions; realities that can sharpen their focus on this line business.

As Muslim-owned banking and non-banking entities, Islamic institutions conduct the major part of their business in the Muslim world. Being a regulation-driven process, securitization, however, is prevalent only in countries with developed regulatory framework i.e., the OECD countries like the United States and United Kingdom and a few emerging economies like Kuwait, Singapore and Malaysia. While Islamic institutions, therefore, can easily securitize the assets they own in the most developed economies, they may not easily do the same with the bulk of their assets in the Muslim world. In addition, the successful use of securitization requires the availability of credit and financial information on the underlying assets, the existence of accounting standards, and the possibility of having some rating systems. None of these conditions are satisfied in most of the Islamic countries. The only exception to this rule is where securitization is employed to raise funds for certain self-contained projects with guarantees from host governments, and with possible backing from international funding organisations, as has been implemented in recent years in countries like Turkey, Pakistan, Malaysia, and Egypt.

When I was at Faisal Finance (Switzerland) in the 1990’s or ("FFS"), we opted to use securitization to compliment our investments in real estate and equipment leasing operations in the USA. Through our involvement in securitizations, we have identified four main issues of concern to Islamic institutions:

- The type of asset must be acceptable to Islamic investors; 9 The structures to be used must be acceptable;
- A sufficient element of ownership must be conveyed to comply with Islamic principles governing asset sales and assignments; and
- Any form of credit enhancement must be in a permissible form..

The Assets
As securitization is established and developed primarily in non-Islamic economies, the assets typically included in securitized pools do not necessarily conform to Islamic norms. The assets in Western securitized pools are invariably interest-bearing debt instruments, such as credit card receivables, mortgages, etc. As Islam does not permit the use of interest, it is important for Islamic banks to originate their own Islamically acceptable assets, rather than buy pools of assets in the market. They should therefore use securitization as a secondary tool to provide certain efficiencies to their own operations, and not as a primary business for servicing or underwriting transactions for third-party financial institutions and investors, which are probably non-Islamic in their investment practices. The latter course will invariably involve them in benefiting from restructuring non-halal assets into Islamically permissible investments. As Islam does not permit the payment or receipt of interest, the sale or purchase of debt instruments is not permitted.

unless this debt is interest-free and is sold on its face value, which is not the most profitable proposition for any organization.

For an Islamic institution, the underlying assets to be securitized will include leasing, equity ownership, and morabaha contracts. As explained earlier, these contracts may mimic inancings by trading or leasing assets and are Islamically acceptable. They are also applied to a wide range of industries, For example, leasing could be applied to funding the lease of equipment required by businesses, funding purchase of computer and cars by individuals, and funding the acquisition of homes by individuals, in effect replacing straight mortgages. In the latter case the ownership of the financed house remains with the financier but the house is leased back to the client with an option or a promise to buy out the house from the financier at a predetermined price at some future date. While the leasing law differentiates between operating and financial leases, this distinction is not very pertinent for Islamic scholars, and are all generally considered acceptable. Alternatively in the housing case, an investor could share equity ownership with a consumer in a house, with a an agreement for the consumer to buy out the investor’s equity stake over a specific term at a mutually agreed price and profit. Similarly, morabaha contract could also be used for all the above, but the unsolved issues, including the Islamic restrictions on trading in debts or managing prepayment risk, may limit its use in securitization, but not syndication.

The Structures
In a securitization structure, the players include the originators, servicers, issuers, investment bankers, credit enhancers, rating agencies, and trustees. Originators originate the assets, but can also serve as the servicers, which are responsible for the management and maintenance of assets and the related cashflows. Assets are first sold to Issuers, which are bankruptcy-remote Special Purpose Vehicle ("SPV"). The SPV then issues securities, which are claims on the assets held by the issuer. Such claims carry a specific form of attachment to the ownership of the asset. When assets are not sold to an incorporated SPV, they are sold to a trust, which takes the form of either a guarantor trust or an owner trust. Trusts are created and managed by trustees for the benefit of beneficial owners. Investment bankers underwrite the securities for public offering or place them privately to institutional or wealthy investors, while rating agencies provide the necessary rating, based on certain recommended level of credit enhancement. Finally, the credit enhancers provide the required credit and/or liquidity enhancement, which could be a reserve fund from the asset’s cash flow or collateral pledged to support the asset or a guarantee, in order to obtain the required credit rating.

To obtain a reasonable degree of tax efficiency for non-US tax paying investors, it is invariably recommended for Islamic international investors investing in the USA, for example, to set-up their SPVs in a tax-free jurisdiction like the Channel Islands or in a country with a tax-treaty with the USA like Ireland or Luxembourg. The choice depends on the specific tax circumstances of the investor and the underlying asset and trust or SPV. Given the complexity of international tax issues, I recommend consulting with the propriate experts when structuring investment into the US or other jurisdictions with high taxes for foreign investors.
With this background, we may now specify the three main structures commonly used in securitization. The originators choose between three types of structures; pass-throughs, asset-backed bonds, and pay-throughs. These structures have been developed in the secondary mortgage and non-mortgage market.

A pass-through represents direct ownership in a portfolio of assets that are usually similar in terms of maturity, yield, and quality. The originator services the portfolio, makes collections, passes them on, less a servicing fee, to the investors. Ownership of the assets in the portfolio lies with the investors; thus, pass-throughs are not debt obligations of the originator and do not appear on the originator's financial statement. Pass-throughs may also be designed to represent an assignment of a portion of ownership, rights and obligations, but not a conveyance of title. Sometimes complex tax or investor issues, and in many Islamic countries, rules restricting foreign ownership of locally domiciled assets require the partial assignment or sale without recordation.

Like the pass-through, the Asset-Backed Bond ("ABB") is collateralized by a portfolio of assets, or sometimes by a portfolio of pass-throughs. The ABB is a debt obligation of the issuer, so the portfolio of assets used as a collateral remains on the issuer's books as assets, and the ABBs are reported as a liability. Also, the cash flows from the collateral are not dedicated to the investors. They are often reconfigured, with the residual often remaining with the issuer/ originator.

One important aspect of the ABBs is that they are over-collateralized, i.e., the value of the underlying assets is significantly in excess of the total obligation. This is largely done in order to provide some level of comfort to the investors.

The pay-through bond, however, combines some of the features of the pass-through with some of those of the asset-backed bond. The bond is collateralized by a pool of assets and appears on the issuer's balance sheet as debt. The cash-flow from the assets, however, are dedicated to servicing the bond in a way similar to the pass-throughs.

In addition to collateralized bonds and pay-through notes, commercial paper and preferred stock were also used in the past as alternative structures.

Of the above widely used securitization structures, the pass-through is perhaps the structure closest to satisfying a strict interpretation of Islamic principles. The pay-through, the ABB and the Commercial Paper are debt- structures, which make explicit use of interest. Therefore, only a pass-through with underlying pool of assets structured as morabaha, equity statkes or ijara, could facilitate Islamic institutions to expand their current activities in the securitzation business.

Having said that, it is also possible to use certain variations of a pay-through, which closely resemble the pass-through. We may have a pass-through with certain degree of credit enhancement for the investors as follows; [Suleiman - what was your example?]

Ownership Conveyance
The structures that I have discussed must, in order to comply with Sharia’a, transfer some minimum level of ownership. This is not necessarily registered title. It could be a rather simple collection of ownership attributes that allow the investor to step into the shoes of the issuer or co-owner and perform duties related to ownership. Likewise, these could also be rights granting access, subject to notice. Such access might result in curing a defect caused by the operator or issuer, or even result in the taking over operations by the investor. Such rights and obligations might ultimately empower the investor to take control of the asset and sell it outright into the market place. As we will see in our examples, the level of conveyance varies for practical reasons and our Scholars have asked us to observe a specific level of conveyance in order to avoid the deconstruction of asset investment into debt sale.

All three structures described above may result in the issuance of a number of documents that flow from lessee or home buyer, that is the recipient of the investment to the investor. These may include promissory notes, mortgages or security instruments, and various documents of conveyance or assignment. Generally, these have no bearing on the Islamic contract, assuming that they do not contradict it. For instance, there is no restriction in Sharia’a to promise to make specific payments as is required by a promissory note. But, there are customary judicial procedures that make it difficult for an investor to act against the holder of an asset if a promissory note does not exist. The same applies to security documents like chattel liens or mortgages. Even though the investor has some aspect of ownership, it the end customary procedures in many jurisdictions require the investor to hold a right of enforcement like a mortgage in order to secure legal satisfaction in a contentious case.

There is, however, a single dominant Sharia’a rule governing all documents, namely that they are conveyed together. In an interest bearing securitization, two securities might be derived from a single lease - a principal only instrument governed by the contract of lease and any security instrument, and an interest only instrument governed by the promissory note. This practice is not acceptable in Islamic investing, and an assignment of any document, contract, promissory note or security instrument, must be accompanied by all of the documents. In other words, Islamic institutions are not allowed to derive multiple instruments from one in a manner that creates either the sale of a debt, sale of an isolated cash flow, or a direct interest obligation.

Credit Enhancement
In an effort to obtain best pricing for the securities to be sold by the SPV to the investors, the originator in a traditional securitization chooses to issue two classes of securities, A and B, such that class A gets priority over class B on the payment priority scale. The originator retains security Class B, which is subordinate to class A. In this case, the SPV receives the total cash-flow attributable to both classes of securities and distributes the same in the order of priorities stipulated in the incorporation documents. This is normally done in order to secure a better rating for the Class A certificates, hence better pricing, which is supported by the cushion provided by Class B certificates.
Under Islamic securitization scheme, we can achieve the same objective by assigning the full ownership rights of the total assets in the pool to class A holders, but with a lease back agreement to lease to the issuer the entire portfolio with some fixed rental payments. The issuer also gets an option (or an obligation) to buy back the entire portfolio at a pre-determined prices on some future dates. Both the sale price and the rent are prefixed in order to ensure that the holders of class A certificate get a fair market value for the risks they took.

Another form of enhancement is for the issuer and servicer to set aside some of the asset cash flow that was allocated to them. This becomes a first loss pool, a form of self insurance for the asset pool if you like. In this case, no guarantee, insurance, or complicated buy back structure is required. Sometimes this is a very efficient form of enhancement as some rating agencies will dictate the size of the pool based on the past performance of similar assets, and to everyone’s surprise the level of funding is not excessive.

Securitization can also involve other types of credit enhancement such as the creation of spread accounts, bank letters of credit, pool insurance, mono-line insurance for up to 100% of the pool size or straight sub-ordination. We have also touched upon the issue of over-collateralization as provided in the pay-through structure.

Islamic institutions should be very selective in using the credit enhancement methods; the use of some of them changes the character of the transaction. For example, the existence of spread accounts for the excess cash implies the transaction was not a pass-through as the originator was able to keep certain undistributed cash over and above what was paid to the investors and administrators. The investors themselves can, however, willingly deduct part of their income in a reserve account, which is perhaps managed by the investors, to meet eventual losses, if any.

Likewise, the investors may also buy pool insurance, obtain a letter of credit, or blanket the pool with a mono-line insurance. There is nothing wrong with the use of these products as long as the investors are willing to buy them and have the choice to use or not to use them. Likewise, it is possible for the Islamic investors to use certain liquidity facility to cover any possible temporary shortfalls, due to mismatches in cash-flow timing, etc., as long as these facilities are arranged on terms acceptable to Islamic practices. Perhaps the best way to explain securitization is to take some case studies as follows;

Case Studies
In 1994, FFS undertook the securitization of a large Master Lease Investment in a single property in Boston, USA. The securitization was facilitated by the creation of a REMIC -Real Estate Mortgage Investment Conduit - to which the Master Lease was deposited. The securities were sold to a major insurance company in U.S.A., which was comfortable with the Master Leases characteristic of the underlying assets as against straight mortgage. The securities were issued in accordance with characteristics, which conform to the established norms of the business. These characteristics included the issuance of tranche B certificate retained by FFS by way of providing over collateralization for the buyer of the senior securities. This over-collaterlization was achieved in accordance with the arrangements explained earlier in this presentation. Through the engineering of the deal, FFS was able to enhance its return on the underlying fixed-income asset by more than 1.25%, without changing its risk profile in the deal. In fact, with the underlying master lease being retired on an early basis, the enhancement of the early termination payments on the lease provided FFS with an internal rate of return of over 14%, net of fees. This was all established through securitization process. This also was the first U.S. securitization of an asset specifically originated on an Islamically acceptable basis.

In 1998, FFS utilised the new FASIT laws to pool more than $50 million of Master Lease assets into a trust. FASIT stands for Financial Asset Securitization Investment Trust; it is a type of trust established in the 1990’s under United States law, for use in pooling various types of assets in order to issue securities backed by those assets. The trust pool can be established with various types of assets.
In creating the FASIT, FFS originated assets from some of its sister organizations as well as from U.S. corporations. The assets consisted of Islamically acceptable Master Lease financings on properties.

The FASIT was set up with Crescent Capital (Jersey) Limited, an affiliate of FFS, as the depositor, contributing 13 assets, all Senior Master Lease financing on commercial building in the U.S. ranging in size from $2.5 -$8.5 million. The FASIT was engineered with three classes of securities, with the fast-pay amortizing class A being sold to a major insurance company, and the remaining other two classes held by an FFS affiliate.

This is consistent with the Islamic practices as we ensured that not only the underlying financial assets all conform to Islamic principles, but that the trust structure allowed investors to have ownership rights in the trust. The sub-ordinate classes were held by the issuer and not sold to other investors.

The FASIT allows for replacement of any asset (subject to approval rights), which will allow the equity owner of the property to be able to sell unencumbered so long as a suitable asset is available for replacement. The FASIT is designed to provide for all of the deals to achieve long-term permanent financing, but with the flexibility of pre-payment through the replacement mechanism. This is a great benefit to equity investors in the various FFS funds, which own the assets. The FASIT also provided a significant net capital gain on the sale of the securities.

The Freddie Mac process recently instigated in the US is another example of a securitization process. The Federal Home Loan Mortgage Corp. also called Freddie Mac has committed to expanding home ownership among a wide variety of US citizens deemed to be under housed. Freddie Mac’s research has shown Muslims to fall into that category. Initially, the program worked with ‘lease to own’ Islamic structures, but it is planned to include declining balance partnership structures like those employed by Guidance Residential, LLC. In this process, the originator, a bank or mortgage bank invests in the property (sometimes using trusts and ometimes using SPV’s) either as sole owner or as co-owner. To facilitate US legal custom and comfort Freddie Mac, the consumer agrees to a form of note and the ownership of the property grants a security interest in the property. These together are then assigned to Freddie Mac, which may or may not hold them in its own portfolio or set up a special Islamic portfolio for international investors. Prior to the Freddie Mac commitment, Muslims paid huge premiums for mortgage alternative programs, up to 5% over the conventional market. Thanks to this new process, Muslim consumers face marginal differences in cost compared to conventional mortgage loans, but comply fully with Sharia’a.

Each of these examples is a distinct, but constructive live example of how Islamic institutions have used securitization for the benefit of both Muslim investors and consumers.

Since its debut in the early 1970's, securitization has grown into a significant business, with credible players and definable rules. It is driven by enactment of various legislation, which made the widespread use of securitization possible. Securitization created net gains for the community as almost everybody gained something from the process. It reduced overall industry concentration risks, resulted in better transparency of operations, imposed industry bench-marks, created significant fee-income for originators and investment bankers, reduced cost of funding to businesses and consumers, and provided better returns for investors.

As information about pools of assets become more and more available -through moreextensive use of electronic information providers like the Internet, through deregulation of global financial markets, and as a result of on-going globalisation of banking and finance - it is envisioned that securitization business will only grow. The trend is also consistent with the growing demand for disintermediation in the financial markets, which is widely documented.
Islamic institutions, on the other hand, have all along promoted a philosophy in financing based on direct asset financing, rather than lending funds to entities and individuals. They have all along suffered from having to deal with financial intermediaries whose interest-based products are not Islamically acceptable. Securitization enables Islamic institutions to by-pass these shortcomings by engaging themselves directly with the assets to be financed, and with investors in the pools of these assets. It also enables Islamic institutions to negotiate the Islamic acceptability of the terms under which the users hold these assets.

Because of these benefits, we consider securitization as yet another venue for Islamic institutions to demonstrate their competitiveness and to broaden their markets

Any source