Transcript Charting a Course
Ghassan Chammas Consultant Blom Development Bank Session III: Supporting Oman Real Economy and Entrepreneurships Oman Second Islamic Banking & Finance Conference
Ghassan Chammas
A ROADMAP TO SME SUPPORT
T H E L E B A N E S E E X P E R I E N C E OMAN 2ND ISLAMIC BANKING & FINANCIAL CONF. MARCH 2013
Sufficient tenure to generate profit cycles Ghassan Chammas Possibility of restructuring part of debt if needed
SME Classical Support
Grace period Custom designed amortization plan OMAN 2nd Islamic Banking & Financial Conf. March 2013 2
Sufficient TENURE profit cycles
SME ALLY#1: AMPLE TIME
Start-Up phase Towards Development phase
Marketing and penetration Inception Full growth- full throttle Ghassan Chammas installation First output PROFIT generation Expand or TRENCH OMAN 2nd Islamic Banking & Financial Conf. March 2013 3
Sufficient tenure for development
TIME TO DESTINATION…
Inception
3-6 months fixed expenses
Start Up…
Ghassan Chammas
Installation
Sometimes 1 year before full output
Marketing and penetration
Uncertain period of market adoption
Profit generation
ROI and ROA payoffs OMAN 2nd Islamic Banking & Financial Conf. March 2013
What is next? Expansion or trenching: TIME constraint Developme nt and maturity
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Ghassan Chammas
AMORTIZATION PLAN. WE CAN HELP!
N O T A L L R E I M B U R S E M E N T S C H E M E S A R E + P M T ( ) !
OMAN 2nd Islamic Banking & Financial Conf. March 2013 5
Ghassan Chammas Sufficient tenure to generate profit cycles Government supported guarantee scheme
SME Successful Support
Custom designed amortization plan- Grace period Access to governmental SUBSIDY OMAN 2nd Islamic Banking & Financial Conf. March 2013 6
Principal Profit
PRINCIPAL-PROFIT DILEMA
Small P Pricipal Amortization • If helpful P is small at start • SME breathing Ghassan Chammas Big Accm Profit BURDEN DEBT PROFIT !!
• The Smaller P the BIGGER P accum • You give with one hand and you take from the other • If not: Displacement risk OMAN 2nd Islamic Banking & Financial Conf. March 2013 End Result • Heavy debt: default risk • This must be avoided. How?
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SUBSIDY
SME SUBSIDY
Small P Amortize wisely Ghassan Chammas Subsidy Profit EASYY DEBT GIVE SUBSIDY • SME pays only a small part of profit • Remaining is subsidized OMAN 2nd Islamic Banking & Financial Conf. March 2013 ESAY DEBT: SME Growth • Win-win situation 8
SUBSIDY
HOW CAN YOU SUBSIDIZE
Usually governments subsidize “The INTERESTS” paid by SME’s. Although linguistic, the law does not cater for “PROFIT” subsidies.
Lebanon case: We have a law subsidizing “interests” to some supported sectors: Agriculture, industrial, IT and software development, Touristic projects, environmental friendly projects. BUT, ISLAMIC BANKS CLIENTS CANNOT ACCESS IT.
Subsidies come from various sources: EC, IFC, NGO’s, Government (s), Central Bank, etc… The challenge is how can you create an Islamic financial engineered structure to include the subsidy within the offered facility to your client Ghassan Chammas OMAN 2nd Islamic Banking & Financial Conf. March 2013 9
SUBSIDY
HOW CAN YOU SUBSIDIZE
One easy way is to establish a HIBA system. Some fiscal laws are not very friendly with the idea.
If the subsidy offers the capital at low cost, establish a special purpose vehicle to isolate and package the facility from SPV to client through financial entities. RED TAPE? Maybe, it depends on jurisdictions.
If subsidy is to the interest on the capital advanced by the banks to SME, then very difficult to channel the subsidy to islamic facilities, unless expressed in its charter as paying part or all of the profit: Qard Hasan from bank + profit as Hiba ; or facility at low profit margin and supplemented by subsidy Ghassan Chammas OMAN 2nd Islamic Banking & Financial Conf. March 2013 10
SUBSIDY
HOW CAN YOU SUBSIDIZE
If subsidy is from CB, then CB sells commodity to IB at a low murabaha rate, so the IB liquidates commodity spot and pass it through to SME via an Islamic financial instrument: Lebanon. Requires strict monitoring to IB from BCC to make sure the principal is channeled to SME’s.
The market requires intelligent set ups to make sure the SME’s are supported properly.
Ghassan Chammas OMAN 2nd Islamic Banking & Financial Conf. March 2013 11
IN BRIEF
GIVE AMPLE TIME TO PAYBACK CUSTOMIZE AMORTIZATION PLANS INCRUST EXISTING SUBSIDIES INTO ISLAMIC FINANCIAL SCHEMES Q&A Ghassan Chammas GHASSAN CHAMMAS ADVISOR TO THE BOARD B LOM D EVELOPMENT B ANK . SAL B EIRUT - L EBANON www.blomdevelopment.com
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