Al-Amanah Islamic Investment Bank Of The Philippines

Al-Amanah Muslim Investment swan Of The FilipinosRe common Act no. 6848, otherwise kn let as The Charter of the Al-Amanah Moslem Investment curse of the Filipinos step uplines that the primary purpose of the Islamic bank is to promote and accelerate the socio- frugalal learning of the Autonomous Region by performing banking, financing and investment operating theaters and to establish and participate in agricultural, commercial and industrial ventures ground on the Islamic concept of banking. In addition to allowing the bank to do as a universal bank capable of offering almost(prenominal) ownd and Islamic banking merchandises and services, the Sections No. 10 11 of the charter respectively hand over incentives in the form of investor protection, and grant the bank the faculty to accept grants and donations (Congress of the Philippines, 1989).Dimapunong (2006) provides accent information and commentary on the rules and regulations governing the Al-Amanah Islamic t rust. A universe chairman of the bank, the author also wrote closely the fiber of former senator Mamintal A. Tamanos role in the establishment of the original Philippine Amanah Bank, the precursor of the cur film Al-Amanah Islamic Investment Bank of the Philippines. A rargon representative from Muslim Mindanao, the ripe senator was vati confaby the first to envision a Muslim bank in the Philippines, at a time when modern Islamic banking was at its infancy. consort to the author, the original PAB was non properly shariah lawh-compliant leading Ulama counsels to complain ab break through the de exclusively misleading the exoteric. By 1988 it had been deemed a complete failure having already gone bankrupt (Dimapunong A. A.).Sandra Isnaji (2003) conducted a SWOT (Strength-Weakness-Opportunity-Threat) analysis of the Amanah Bank and prescribes a rehabilitation plan for the institution involving infusions of capital from the governance in revision to get rid of the banks debt and to invest in new fundament. Her writing was aimed at answering three gestures with take to the beleaguered banks status (1) Where argon we now? (2) Where do we want to be? and (3) How do we get at that place? To that design, Isnaji looked at the earth of Islamic banking industry as a whole, the state of the Philippine financial system of rules, and the state of the Amanah bank itself.With catch to the Amanah Banks operations, Isnaji (2003) states that (at the time of writing) it operates on a 2-window system in which it offers some(prenominal) Islamic and conventional financial products and services. And mend the institution faced no competition from other Islamic banks, it faced sloshed competition from the pop outlandishs conventional financial institutions, both orb and informal. With run across to the Philippine banking sphere of influence, the author used Porters Five Forces role model to analyze the ABs competition at bottom it. The author findings be as follows (1) With regard to the dicker post of suppliers the smutty go for of the Bangko Sentral affords it high bargaining power, to the advantage of state-owned banks such as the Amanah Bank the bargaining power of multilateral and bilateral aid organizations(USTDA, WB, ADB, JBIC) is high callable to their involvement with micro-finance and nurture banks the monolithic size and unorganized character of the excavate sector affords it little bargaining power bargaining power among depositors is exceedingly skewed towards the higher income deciles whos deposits account for 88.3% of the savings in banks, with the lower deciles having nor bargaining power. (2) With regard to the bargaining power of buyers, the higher income deciles belonging to the middle and upper classes resided and/or did business in the National Capital Region (NCR) and necessitate services such as electronic banking, payroll services, and bill payments. The power piles of the population find it diffi cult to defend financing from formal banks due(p) to their situation, and thus do non w atomic number 18 frequently bargaining power, but their sheer numbers offer a potentially large grocery. (3) With regard to the affright of new entrants, whatever new Islamic banks allowed by the BSP could really benefit the Amanah Bank by providing much leaseed visibility for the beleaguered Philippine Islamic banking sector. (4) With regard to the threat of substitute, notable alternatives that customers may opt for are informal financial institutions, employers that provide loan programs, or complete self-restraint from banking entirely. Another threat is the outflow of capital from the country. (5) With regard to rivalry among be players, the tendency of banks to be large tends to lead them to avoid downcast borrowers and savers, as such the government has had to develop the banking system so as to include such institutions as thrift and rural banks which cater to the needs of small borrowers and savers who would otherwise resort to informal institutions. In order to income tax return the threat of oligopoly the government competes in the financial sector via the Development Bank of the Philippines (DBP) and the world Bank of the Philippines (LBP). (Isnaji, 2003)As a requirement of the Development Bank of the Philippines (DBP) acquisition of the Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP), the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) need the DBP to submit a 5-year rehabilitation plan for the bank. The initial plan, submitted on 23 April 2008, was deemed inadequate by the BSP. As such a draft of the revise plan was submitted on 18 March 2009. The revised plan was split into quaternion p arts (1) a brief background elaborating on the institutions juristic basis, purpose, and present situation, (2) a summary of its business plans, (3) details on the carrying into action of said business plans, (4) and five-year fina ncial projections. (Panganiban, 2009)The revised rehabilitation plan of the Amanah Bank centers around 4Rs, specificallyRecapitalization via capital infusions from the DBP and domestic and foreign investors this is aimed at application the expenses of the banks rehabilitationRestoration of financial viability focus on aggressive change political campaigns to introduce AAIIBPs new products and services, liquidation of non-performing assets and the sourcing of contingent fundsReorganization focused on building up institutional capacity, peculiarly with regard to Sharia compliance involves organisational restructuring, relocation and refurbishing of bank offices, expansion and automation.Reforms institutionalization involves streng soing of incorporate culture and governance, monitoring system, risk management and audit system, and review of product and operating manuals.Particular ferocity has been given to the recapitalization strategy which would provide the funds neede d for the other three points of the rehabilitation. (Development Bank of the Philippines, March 2009)Islamic BankingChong and Liu (2006) try to determine how diverse Islamic banking is from conventional banking by examining Islamic banking coiffure in Malaysia using the Engle-Granger error-correction methodology. In their study they find that despite be theoretically different, in practice Islamic banking in Malaysia is not genuinely different from conventional banking. According to their study, only a negligible portion of Islamic bank financing in Malaysia is found on the profit-and- hurt (PLS) dower-out paradigm and that Islamic deposits are not please-free, but are based on non-PLS modes that are permitted under Sharia law, but ignore the living of the usury prohibition. This parallels Islamic banking experience in other countries. The authors conclude that Islamic banking practices cannot differ too greatly from conventional banking practice due to slopped competition that makes please-free Islamic deposits closely pegged to conventional deposits. This expiration can bring on implications for the brand is Islamic banking, particularly with regard to its practically touted non-interest-based character. However, it also has analytical and regulatory implications the similarity of Islamic banking practices to conventional banking practices would simplify the task of both studying and regulating Islamic banking.The findings of this study mirror an earlier paper by Movassaghi and Zamans (2002). In it, they attempt to re-examine the concept of riba in argus-eyed of Islamic jurisprudence. In that paper they compare Islamic banking practices with conventional banking practices in order to highlight that neither all conventional practices are usurious, nor are modern Islamic banking practices significantly different from those of conventional banks. They also trust that many differences in the midst of the profit/loss sharing paradigm of Islamic ba nking and conventional interest-based merely superficial.In addition to questions of practice, Chong and Lius study also asked the question of whether or not the growth of Islamic banking over the past several(prenominal) years was due to the relative advantages of the Islamic banking paradigm, or to the Islamic revival meeting that began in the 1960s. Based on their findings, the authors are inclined to adopt the last mentioned view.This view is also compatible with the findings of a study cited by Isnaji (2003), do by the Meezan Bank of Pakistan which identified several key success factors in the experience of Islamic banks in other countries (1) strong religious cognisance among the Muslim population, (2) support from the government in the form of financial infra grammatical defecateion and favorable regulations, (3) promotion, (4) increases in respective(prenominal) wealth, and (5) a wide variety of financial products and services. semi earthly concern Enterprises/ familia r Enterprise ReformBasu (2005) gives an overview of the background and concept of reality enterprise, highlighting the particular experience of India in this matter. distinguishing it from the broader term common sector by adopting the definition adopted by the International Centre of Public Enterprises (ICPE) Any commercial, financial, industrial, agricultural or promotional undertaking owned by humans authority, either wholly or through and through majority share holding which is engaged in the sale of goods and services and whose affairs are capable of being recorded in balance sheets and profit and loss accounts. Such undertakings may welcome diverse legal and corporate forms, such as departmental undertakings, public corporations, statutory agencies, established by Acts of parliament or Joint Stock Companies registered under the Company Law. The author then goes on to elaborate these three categories. Basu further elaborates on the conjecture of public enterprises by ela borating on four types of sparing performance based on the concept of remuneration as well as that of natural monopoly. (Basu, 2005)Basu highlights the comprise importance of accountability and efficiency in the management of public enterprises, stating the heavy role of institutional arrangements in this matter. The author then elaborates on the intromission of public enterprises with regard to government policy in terms of the strategies of nationalization or introduction of a new activity and states that most post-independence cases consisted of the latter. Basu shows the composition that neither the state nor the market place is immune to failure and that current emphasis should be on the idea of public- snobby synergy, and that attention should be put on both on public- private partnership and competition to achieve the objectives of efficiency and welfare. He then highlights the link between public finance and public enterprise, stating that nearsighted approaches of several developing countries including India to reduce fiscal deficit by selling public enterprises- which follow from inadequacies of public finance management could be foreboding(a) in the long run (Basu, 2005).Stiglitz (2000) identifies two major categories in which public enterprises may systematically be more than inefficient than private enterprises organizational and individual. Under the former are sub-categories regarding organizational incentives, personnel restrictions, procurement restrictions, and figure restrictions. These pertain to public enterprises organizational rules and procedures which may hamper those enterprises efficiency and transaction. The nature of public firms can mean that they may not necessarily need worry about incurring losses in their operations since any such losses may be covered by public funding. The bureaucratic nature of these enterprises may also entail strict procedures with regard to the hiring and firing of employees and the approp riation of needed materials, increasing transaction be for both the demanding firm and possible suppliers (private forms and individuals). Lastly, there is the issue of figure restrictions due to governments having to allot limited financial resources among confused agencies and projects. (Stiglitz, 2000)The latter category pertains to the behavior of individual bureaucrats under the incentive structure of public enterprises. Low wages and protective covering of tenure may provide disincentives for bureaucrats to perform efficiently. Bureaucrats are also argued to be budget increasers in that they seek to maximize the size of their bureaucracies by supporting increased expenditures on their respective agencies. Stiglitz cites Niskanen with regard to principal-agent problems in bureaucracies wherein government bureaucrats act in their own interests and not necessarily in the interests of the citizens whom they are supposed to serve. (Stiglitz, 2000)Chang (2007) presents a discu ssion of the issue of state enterprise reform. Chang argues that theoretically there is no clear case with for or against state-owned enterprises (SOEs) by citing creases for (natural monopoly, capital market failure, externalities, equity) and against (principal-agent problem, free-rider problem, soft budget restrains), the author also points out that large SOEs and large private sector firms often face similar (principal-agent) problems.This mirrors Stiglitzs statement that Principal-agent problems burn down in all organization, whether public or private and are particularly acute in large organizations. In both private and public cases, managers often have large dos of discretion allowing them to follow up on their own interests. (Stiglitz, 2000)In citing the issues of public enterprises in comparison to private enterprises, many often larn a route the agency problems of private firms, thus comparing idealized private firms with real-life SOEs, the former of which would obvi ously come out on top (Chang, 2007). Chang 92007) points out that privatization is not the only solution to the problems of many SOEs, and that many intermediate three way solutions exist. The author elaborates that privatization as an option has its be and limitations and should only be taken on certain conditions, many of which are not met in reality leading to many failed attempts at privatization that cause more problems than they solve. As such, the third way options (organizational reform, increasing competition, political and administrative reforms) ought to be considered earlier privatization. (Chang, 2007)Rational Choice Theory/Institutional EconomicsRational/Public Choice TheoryRational Choice Theory refers to those theories of the social sciences which implement the analytical tools of neoclassical economics, particularly, the meaning assumption of demythologized (utility-maximizing) and self-interested individuals. (Hindmoor, 2006)Hindmoor (2002) states that ratio nal alternative theorists employ an instrumental conception of rationality in which actions are judged as being rational to the extent that they constitute the best way of achieving some goal. He identifies two conceptualizations of rationality The first (the axiomatic approach) conceives a rational person as someone whos preference-ordering over bundles of goods and services is reflexive, complete, transitive and continuous. The bet on (the optimizing approach) conceives the rational person as one who possesses best beliefs and acts in optimal ways given those beliefs and desires. (Hindmoor, 2006)Hindmoor writes that rationality is a controversial assumption in political science, particularly in light of the concept of bounded rationality. As such, he says that such an assumption must be justified and looks at the two approaches in order to determine which is more defensible.Under the umbrella heading of rational pickax theory can be make up the sub-theories of public superio r, which, in turn, constituted transplanting the general analytical framework of economics into political science. (Tullock, 2002)Tullocks primary contribution to rational/public choice theory is his theories on rent-seeking, which he defines as the use of resources for the purpose of obtaining rents for plurality where the rents themselves come from some activity that has negative social cheer. Tullock continues The concept of rent seeking as popularly perceived refers to legal and illegal activities to obtain specific privileges such as seeking monopoly status, special zoning, quantitative restrictions on imports, protective tariffs, bribes, threats, and smuggling. (Tullock, 2002)Indeed, rent-seeking has actually come to dominate the literature of rational choice theory. Hindmoor (2006) cites the plethora of studies done on various countries, on various topics to emphasize this point. He looks to three possible explanations for this (1) the name-recognition of the term rent-see king itself, (2) the adaptability and extendibility of Tullocks argument which can be extended to cover the analysis of any and all special economic privileges, and (3) the fact that it offered a hostile theory of state, which could be used to counter welfare economists arguments for government intervention. On the cooperate reason, Hindmoor supplements Tullocks original argument by pointing out that interest groups also spend resources to pr fifty-fiftyt rivals from obtaining rents and to secure their own and that governments may also practice rent-extraction. (Hindmoor, 2006)Tullock (2002) identifies several costs involved in rent seeking The first being the actual cost of obtaining the special privilege. Of which the author provides the example of the costs of lobbying in Washington D.C. Greater costs are incurred from the distortion of the voting attend, wherein public officials who are elected to pursue certain policies or projects often also pursue other little beneficial projects of which the true cost cannot be typically counted due to those politicians not disclosing the details of deals they have made. The greatest costs, however, are the indirect costs caused by rent seeking behavior. In particular, the involvement of intelligent and energetic heap in an activity that contributes either nothing or negatively to society. The luck cost of such activities, he argues, far exceed their direct costs. (Tullock, 2002)Tullock (2002) argues that the development of rent seeking activities is influenced by many factors, in particular the structure and design of government. In general, he argues, any rule that complicates and makes the functioning of the government government decisionmaking process less smooth exit lower the amount of rent seeking. He concludes his discussion on the topic by emphasise that there are as of yet no good measures of the costs of rent-seeking (Tullock, 2002).Hindmoor (2006) cites Von Mises in defining bureaucracy as any organi zation which specialises in the supply of those services the value of which cannot be exchanged for money at a per-unit rate. Such organizations, Von Mises suggests, find themselves effectively exempted from the demands of economic calculation and are, as a result, usually inefficient. He also cites Tullock the crucial feature of bureaucracies is not manifestly that they are hierarchies, but pyramidal hierarchies with fewer people at the top than in the lower ranks. This leads to a principal-agent relationship, with all its problems of information dissymmetry (Hindmoor, 2006).In his section of Public Choice, Tullock also discusses bureaucracy. He writes that Bureaucrats are much like other people and, like people in general, are more interested in their own well-being than in the public interest. The problem is in designing institutions in such a way as to harness bureaucrats self-interest to serve the public interest (Tullock, 2002).The core problem with bureaucracy is encapsulat ed by Tullock in one paragraph In most bureaucracies the executive whether in General Motors, the Department of State, or the treasury is in a position where only to a minor extent is his or her own interest involved. Bureaucrats will make many decisions that will have little or no direct effect on themselves and hence can be made with the best interests of General Motors or the American or the British people at heart. Unfortunately bureaucrats, in general, have only weak motives to consider these problems carefully, but they do have strong motives to improve their status in the bureaucracy, whether by income, power, or simply the ability to take leisure while sitting in unstinting offices. They are more likely to be more concerned with this second set of objectives than the first, although they may not put genuinely much effort into it because not much effort is required (Tullock, 2002).Tullock then further draws parallels between public and private bureaucrats. He argues that both will attempt to maximize gains for their respective employers if it pays off for them. But in neither case does the institutional structure lead bureaucrats to maximizing the well-being of their superiors. He qualifies, though, that private corporations have a much easier time in pursing their goals efficiently than do governments. He cites three reasons for this the comparatively simple objective of stockbrokers (profit maximization), the reasonably accurate methods of bar the performance of corporate managers (bureaucrats) in the form of accounting, and the difference in the self-command of benefits from the efficient management of bureaucracies (private profit vs. public interest) (Tullock, 2002).Lastly, Tullock elaborates upon several proposals with regard to bureaucratic reform decentralization, depriving bureaucrats of the vote, and downsizing the size of bureaucracy. He discusses how it is often in the interest of bureaucrats to increase the size of their departments , although in some cases downsizing does occur without the remonstration of senior bureaucrats due to such measures not affecting them aversely or even benefiting them by, for example, leading to more highly paid positions at the top while cutting down from below. Most intriguing is his characterization of bureaucratic deportment as resembling that of people with hobbies, albeit with two major differences it does not cost bureaucrats very much since they are predominantly using other peoples resources and that most bureaucrats frankly think that whatever it is they do is not for their benefit alone, but for the country or their bureau. (Tullock, 2002)This mirrors Niskanens theory on bureaucracy, wherein he asserts that bureaucrats find it in their interest to maximize their budgets and that they are often successful in doing so. Niskanen, himself defines bureaucracies as nonprofit organization whose revenues derive from periodic grants (Hindmoor, 2006). Niskanen also follows Down s in assuming that bureaucrats value a range of goods including power, monetary income, prestige and security. Yet he cuts through the complexities o Downs argument by suggesting that nearly all of these variables are positively related to the size of the bureaucrats budget (Hindmoor, 2006).Tullock (2002) elaborates goes on to the relationship between bureaucrats and two other major groups of political actors politicians and stuff groups. Tullock focuses on the ability of bureaucrats to often lord over their superiors thanks to their security of tenure. Two bureaucratic tactic are discussed the use of leaks to undermine or embarrass superiors, and the use of all important(p) programs as proverbial shields in the fact of budget cuts. With regard to pressure groups, the collusion is the cited issue, wherein bureaus and interest groups work together to gain usual benefits from government. (Tullock, 2002) With regard to this relationship Niskanen argues that the bureaucrats have two advantages over politicians which allow them to increase their budgets (1) great information on the costs involved in their bureaucracies provision of goods, and (2) the ability to make take-it-or-leave-it offers to their political patrons (Hindmoor, 2006). Politicians on the other hand are attributed four capacities (1) the ability to select the bureaucracys overall fruit, (2) the ability to ensure that bureaucrats fulfill their promises in return for an agreed budget, (3) the ability to ensure that the total benefits individuals derive from devour whatever output it is that the bureaucracy provides are equal to or greater than the total costs of providing it (Hindmoor, 2006) and (4) the ability to ensure that the marginal benefits of any output are not negative (Hindmoor, 2006).As Hindmoor points out, however, Niskanen has accepted the argument of Jean-Luc Migue and Gerard Belanger (1974) that bureaucrats do not so much maximize the size of their budget, but preferably that of their discretionary budget, defined as the difference between their budget and the nominal costs of supplying their expected output. They argue that though this discretionary budget cannot be used by the bureaucrat for personal profit, it can be used to gain greater power, patronage, prestige, and so on (Hindmoor, 2006). Regardless of this distinction, however, the conclusion is still that the bureaucracies are inefficient because their budgets are too large. (Hindmoor, 2006)Hindmoor further critiques Niskanens argument by citing several works by multiple authors who point out that (1) politicians actually hold great power over bureaucrats, so much so that bureaucrats can be deterred from making excessive demands (2) politicians can invention bureaucrats into revealing information on minimal costs by communicate them how much output they would be willing to provide at various per unit prices. (3) constituents and interest-groups may raise alarms about with regard to ineffective bureaucracies, (4) administrative rules and standard operating procedures keep bureaucracies in line, and (5) that Congressional Committees have the formal power to hire and fire senior bureaucrats, ring-fence particular investments and hold investigations and public-hearings into an agencys performance (Hindmoor, 2006).In his discussion, Tullock concludes by emphasizing that bureaucrats are not necessarily no-good people, but that the institutional arrangement often frees them of the constraint of efficiently carrying out the tasks to which they have been assigned. The author then iterates that both large governments and large private corporations necessitate bureaucracies, and that such bureaucracies can be both conducive and/or obstructive to good government. (Tullock, 2002)Now, while rational choice theory sure dominates discussion of government inefficiency Field (1979) argues that while it provides an easy framework for analysis, it is incapable(p) of providing explanations . He argues that since rational choice models are as incapable of providing sufficiently restrictive predictions, which provide accounts which tell why a certain exit was reached instead of another. He points to the inability of neoclassical economic analysis in informing oligopolies, citing that Economists can analyze an existing stipulation by pointing to the benefits which participating companies receive as the result of restricting output and raising prices. But economist can equally well analyze the absence of a cartel by pointing to the benefits individual members would obtain by violating such an agreement. (Field, 1979)Field goes on to critique the idea of explaining social outcomes based on the conception that they bouncing from economic forces. He mentions that while rational choice models have the comparative advantage when it comes to understanding outcomes which are caused by economic forces, they do not take into consideration the ways in which social forces affect the operation of markets. (Field, 1979)Field thus argues that the inherent limitations of rational choice/economic models in explaining systems of rules mean that they are no replacement for institutional economists qualitative approach, which holds historical understanding of the laws and customs organizing the process under investigation as essential. However, he does make the consideration that while rational choice models cannot satisfactorily explain institutions by themselves, they can help. (Field, 1979)Institutional EconomicsR.A. Gordon (1963) attempts to outline the characteristics of institutional economics in the form of several propositions (1) Economic behavior is strongly in condition(p) by the institutional environment (in all its manifestation) within which economic activity takes place, and economic behavior in turn affects the institutional environment. (2) This process of mutual interaction is an evolutionary one. The environment changes, and as it does, so do t he determinants of economic behavior. Hence the need for an evolutionary approach to economics. (3) In this evolutionary process of interaction, a key role is played by the (largely conflicting) conditions imposed by modern technology and by the pecuniary institutions of modern capitalism. (4) Economics is more concerned with conflict than with a harmonious order in which unconscious mind cooperation results from the free play of market forces. (5) Since conflict underlies so many economic relationships, and since these relationships are not immutable, there is room and need for social control of economic activity. (6) We need to learn all that we can from psychology, sociology, anthropology, and law if we are to understand why human beings act as they do in their economic roles. People are not maximizing automata reacting mechanically in an institutional vacuum. (7) Granted the preceding assumptions, much of orthodox economic theory is either wrong or irrelevant because it makes d emonstrably false assumptions and does not ask the really important questions. A new, broader, evolutionary theory based on behavioral assumptions derived from the other social sciences and on detailed experience of the evolution and present characteristics of the institutional environment needs to be constructed. A wide variety of empirical studies must precede the attempt to construct such a broader, evolutionary, and more realistic corpus of theory (Gordon, 1963).Thorstein Veblen is normallyregarded as the founding father or guiding spirit of American institutionalism. (Ayres, 1964) In Institutional Economics, Ayres argues that the central idea of Veblens works was a call for a completely different ontology of economics with a completely different conception of what constituted the economy. Whereas the conception of mainstream economics has been that the economic system is bear on on the concept of the market and tied together by individuals self-interest. Instead, Ayres asse rts that Veblen took on an anthropological conception of the economy. One where in it is the state of industrial arts that gives occasion to exchange, so the extent of the market must always be limited by the state of the industrial arts. This was the direct opposite of the mentation of mainstream economics at that point that the various aspects of civilizations development could be attributed to market forces. (Ayres, 1964)Ayres puts Veb