ghassan chammas consultant blom development bank session iii: supporting oman real economy and...
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Ghassan ChammasConsultant
Blom Development Bank
Session III: Supporting Oman Real Economy and EntrepreneurshipsOman Second Islamic Banking & Finance Conference
T H E L E B A N E S E E X P E R I E N C E
A ROADMAP TO SME SUPPORT
OMAN 2ND ISLAMIC BANKING & FINANCIAL
CONF. MARCH 2013Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
3
SME Classical Support
Sufficient tenure to generate
profit cycles
Grace period
Custom designed
amortization plan
Possibility of restructuring part of debt
if needed
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
4
SME ALLY#1: AMPLE TIME
Start-Up phase
Inception
installation
First output
Towards Development
phaseMarketing and penetration
Full growth- full throttle
PROFIT generation
Expand or TRENCH
Sufficient TENURE- profit cycles
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
5
TIME TO DESTINATION…
Inception3-6 months fixed expenses
InstallationSometimes 1 year before full output
Marketing and penetrationUncertain period of market adoption
Profit generationROI and ROA payoffs
What is next? Expansion or trenching: TIME constraint
Sufficient tenure for development
Start-Up…
Development and
maturity
Ghassan Chammas
6OMAN 2nd Islamic Banking & Financial Conf. March 2013
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 ( ) !
AMORTIZATION PLAN. WE CAN HELP!
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
7
SME Successful
Support
Sufficient tenure to generate
profit cycles
Custom designed
amortization plan- Grace
period
Access to governmental
SUBSIDY
Government supported guarantee
scheme
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
8
PRINCIPAL-PROFIT DILEMA
Pricipal Amortization• If helpful P is small at start• SME breathing
PROFIT !!• The Smaller P the BIGGER P
accum• You give with one hand and you
take from the other-• If not: Displacement risk
End Result• Heavy debt: default risk• This must be avoided.
How?
Principal - Profit
Small P Big Accm Profit
BURDEN DEBT
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
9
SME SUBSIDY
Amortize wisely
GIVE SUBSIDY• SME pays only a small
part of profit• Remaining is
subsidized
ESAY DEBT: SME Growth• Win-win situation
SUBSIDY
EASYY DEBT
Profit
Subsidy
Small P
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
10
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
SUBSIDY
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
11
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
SUBSIDY
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
12
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.
SUBSIDY
Ghassan Chammas
OMAN 2nd Islamic Banking & Financial Conf. March 2013
13
IN BRIEF
GIVE AMPLE TIME TO PAYBACKCUSTOMIZE AMORTIZATION PLANS INCRUST EXISTING SUBSIDIES INTO ISLAMIC FINANCIAL SCHEMES
Q&A
GHASSAN CHAMMASADVISOR TO THE BOARDBLOM DEVELOPMENT BANK. SALBEIRUT - LEBANONwww.blomdevelopment.com ghchammas@gmail.com
Ghassan Chammas
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