The Hindu Business Line : Implementing Islamic finance

Sources of current day’s socio-economic problems, according to Muhammad Ayub, are “the unbridled creation of fictitious assets, particularly reserve currencies, and the unhindered forces of demand and supply with exploitative tools of ‘sovereignty’ of individuals, ‘unfettered self-interest,’ and the ‘interest’-based corrupt financial system.”

We could have avoided massive losses of life and property had the creation of fictitious monetary assets not been so easy and rampant, he rues in ‘Understanding Islamic Finance’ ( www.wiley.com ). A footnote explains how the recent wars, which have resulted in numerous deaths, were ‘financed in the main by deficit financing or the creation of (reserve) money.’

The Islamic theory of finance possesses a huge potential in terms of its principles and instruments, the author assures. First among the measures he suggests is the diversification of currencies in the global payments system, enhancing the role of the Euro and strong currencies like those of Japan and China, and enabling the use of regional currencies for inter-regional payments.

Another suggestion of Ayub is that money and credit creation should be commensurate with real sector development. He urges economists to devise ‘strategies such that an increase in monetary assets is matched by the real assets in an economy, with a possible allowance for realising the growth potential of respective assets.’

Of greater impact can be this proposal put forth in the book, calling for replacing loan-based finance with direct investment in commodity-producing or service sectors, project-based financing under strictly observed transparent standards, and so on.

Recommended read for the serious finance professional.

Are you comfortable with ambiguity?

To Randall Tobias, one of the key indicators for separating those who most likely have the potential to become successful leaders from those who probably do not is their level of comfort with ambiguity, their ability to be comfortable in an uncertain environment. It all boils down to how eager they are to continue to learn, he writes in ‘Lessons in Leadership’ (EastWest).

“Nearly every issue that arrives on the desk of the CEO has no right or wrong answer. If it did, it probably would have been addressed and disposed of at some lower level in the organisation. Ambiguity and learning almost define a job,” explains Tobias, drawing from his long journey as a boss in Eli Lilly and AT&T.

Now, more than ever, corporations are looking for people who can operate in the softer, more ambiguous areas of the business, he says. These people “don’t feel the need to ask questions like ‘which do you want, long-term results or short-term results?’ Rather, people who understand that if you’re going to run the business successfully, you’ve got to have it all. You’ve got to be able to strike a balance.”

Importantly, as Tobias adds, these are skills that can best be honed someplace outside a classroom.

Keen insights.

Expat remuneration

How much should you pay the expats? That depends upon their job and status, personal commitments, the territory to which they are assigned and other variables, say Michael Armstrong and Helen Murlis in ‘Reward Management,’ fifth edition ( www.vivagroupindia.com ).

“An expression commonly found in the policy documents of multinational companies runs approximately thus: ‘the aim of the expatriate remuneration policy is to ensure that individuals are ‘neither better nor worse off’ as a result of their overseas tour of duty,’” the authors mention.

“However, more and more companies are now increasingly unwilling to commit to such statements, faced with the spiralling cost of expatriate assignments and an increased focus on the real value to the company of sending employees abroad.” Three common expat remuneration systems that the book discusses are balance sheet or build-up (home based), local market rate (host based), and hybrid.

With the Budget only days away, expats in India may wish to keenly watch if the Finance Bill 2008 will make any big changes to taxation provisions that can impact their pay.

Detailed enough to be a rewarding addition to the professionals’ shelf.

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