Sunday, 30 October 2016

‘Committee’ System

Like other countries, developed and developing alike, there has been huge emphasis on financial inclusion in Pakistan. A number of institutions (including charities and other businesses in the services and utilities sector) are using electronic media to raise and transfer money as part of their payments or credit systems. Many businesses, however, continue to use traditional channels to raise investments from general public, primarily in an unregulated way. One recent example of failure of regulation has been in the form of Mudaraba business scam in Pakistan, which caused investors to lose billions of rupees after being lured into investing in reportedly very lucrative businesses that were presented to financially unsophisticated general public.

Given the improvement in technology, there is a need to look into some traditional forms of savings and loan businesses with a view to regulating them for the benefit of all the stakeholders. Crowd funding is a new phenomenon that emerged from the USA and now becoming a popular way of funding small and medium enterprises in a number of countries. In Pakistan, “committee” system has existed for long to pool funds to save together and help members of the committee to have access to interest-free loans for a variety of purposes, primarily for household consumption but also for businesses and projects. It is interesting to see how this traditional form of savings can be used to develop a powerful financial inclusion tool in Pakistan.

In informal sectors, there are different types of “committees,” one of them being a “lucky committee.” Although there are different variants of lucky committees in practice, all of them have the following common features:

First, a group of people contributes money to a common pool on a frequent basis (daily, weekly, monthly etc.);

Second, a draw takes place with the same frequency as that of the monetary contributions; Then one lucky member of the group whose name or number is drawn successfully receives a fixed amount of money, normally equal to or less than the common pool of contributions for the period for which the draw takes place; once a person wins, they cease to contribute further amounts for the period of the committee; other members of the group continue until their names are drawn successfully; the committee is wound up when all members of the group have received a fixed amount.

This is an interesting arrangement, as no one in the group suffers a total loss of the capital contributed by them. Everyone does receive a fixed amount, although some receive more than what they contribute and others receive less than their contributions. For example, if there are 100 members of the group each contributing Rs100 on a weekly basis, the total weekly contributions amount to Rs10,000. The total duration of such a lucky committee is 100 weeks. Normally the “lucky pot” is less than the amount collected. For simplicity, we assume that the lucky pot is Rs5,000, which is received by every winning member. Thus the winner in week 1 receives Rs5,000, while they contribute only Rs100. The last winner on the other hand receives Rs5,000, while they must have contributed Rs10,000 by that time. This actually means that all those who win in the first half of the duration of the lucky committee receive more than what they contribute while those who win in the second half contribute more than what they receive.

Another committee arrangement, mostly used by business people for their working capital financing, involves bidding for the committee pool. It works like this:

A group of traders and other businessmen agree to contribute a fixed amount on a frequent basis;

The pooled money is bid by the individual members on a frequent basis; The frequency of bidding may differ from the frequency of contributions (e.g., the contributions may be made on a daily basis while the bidding may take place on a weekly basis); The member who is willing to receive the lowest amount wins and claims the discounted pool; the successful bidders do not have any further right of bidding (i.e., they can receive money only once); all members including the successful bidders continue to contribute to the pool for the duration of the committee; once all the committee members have claimed the pool money, the committee ceases to exist.

For example, a group of 50 traders and businessmen enters into a “working capital committee” to contribute Rs1,000 on a daily basis to bid at the end of the week for the amount pooled for seven days (which should be Rs350,000). Those members of the group, who are looking for cash for their business bid for the pool. The bidding may start from a slightly discounted figure of say Rs345,000. The member who is most desperate to receive the money will be willing to receive the least amount. Thus, if there were five bids of Rs345,000, Rs343,000, Rs340,000, Rs339,000 and Rs338,500, the one bidding for Rs338,500 will win and receive this much money from the total pool of Rs350,000. The remaining amount (Rs11,500) will go into a surplus pool.

This is an interesting arrangement. If the terms and conditions of the arrangements are spelled correctly, this arrangement can serve as a great tool for developing working capital financing products and indeed can also be used for crowd funding.

In Pakistan, Mudaraba business regulations already exist and it will be helpful if Securities and Exchange Commission of Pakistan (SECP) develops a framework allowing integration of features of committees and crowd funding into Mudaraba regulations. This integrated framework will serve the following purposes:

It can be used to develop a comprehensive infrastructure for development of social enterprises in the country. It can also be helpful in expanding the scale and scope of Mudaraba business, allowing Mudarabas to have outreach into communities at large, both in the urban centres as well as in rural areas. Needless to say that this will also improve financial inclusion in Pakistan where bank penetration remains very limited. It will also help in promoting Islamic finance in Pakistan.

Monday, 24 October 2016

Want to Double Your Money? The “Rule of 72” Tells You How

Bill Veeck once bought the Chicago White Sox baseball
team franchise for $10 million and then sold it 5 years
later for $20 million. In short, he doubled his money in
5 years. What compound rate of return did Veeck earn
on his investment?
A quick way to handle compound interest problems
involving doubling your money makes use of the “Rule
of 72.” This rule states that if the number of years, n, for
which an investment will be held is divided into the value
72, we will get the approximate interest rate, i, required
for the investment to double in value. In Veeck’s case,
the rule gives
72/n = i
or
72/5 = 14.4%
Alternatively, if Veeck had taken his initial investment
and placed it in a savings account earning 6 percent com-
pound interest, he would have had to wait approximately
12 years for his money to have doubled:
72/i = n
or
72/6 = 12 years
Indeed, for most interest rates we encounter, the
“Rule of 72” gives a good approximation of the interest
rate – or the number of years – required to double your
money. But the answer is not exact. For example, money
doubling in 5 years would have to earn at a 14.87 percent
compound annual rate [(1 + 0.1487)5 = 2]; the “Rule of
72” says 14.4 percent. Also, money invested at 6 percent
interest would actually require only 11.9 years to double
[(1 + 0.06)11.9 = 2]; the “Rule of 72” suggests 12.
However, for ballpark-close money-doubling approxima-
tions that can be done in your head, the “Rule of 72”
comes in pretty handy.

Agency Theory

Agency Problems
It has long been recognized that the separation of ownership and control in the modern
corporation results in potential conflicts between owners and managers. In particular, the
objectives of management may differ from those of the firm’s shareholders. In a large cor-
poration, stock may be so widely held that shareholders cannot even make known their
objectives, much less control or influence management. Thus this separation of ownership
from management creates a situation in which management may act in its own best interests
rather than those of the shareholders.
We may think of management as the agents of the owners. Shareholders, hoping that the
agents will act in the shareholders’ best interests, delegate decision-making authority to them.
Jensen and Meckling were the first to develop a comprehensive theory of the firm under
agency arrangements.1 They showed that the principals, in our case the shareholders, can
assure themselves that the agents (management) will make optimal decisions only if appro-
priate incentives are given and only if the agents are monitored. Incentives include stock
options, bonuses, and perquisites (“perks,” such as company automobiles and expensive
offices), and these must be directly related to how close management decisions come to
the interests of the shareholders. Monitoring is done by bonding the agent, systematically
reviewing management perquisites, auditing financial statements, and limiting management
decisions. These monitoring activities necessarily involve costs, an inevitable result of the
separation of ownership and control of a corporation. The less the ownership percentage
of the managers, the less the likelihood that they will behave in a manner consistent with
maximizing shareholder wealth and the greater the need for outside shareholders to monitor
their activities.
Some people suggest that the primary monitoring of managers comes not from the
owners but from the managerial labor market. They argue that efficient capital markets
provide signals about the value of a company’s securities, and thus about the performance
of its managers. Managers with good performance records should have an easier time finding
other employment (if they need to) than managers with poor performance records. Thus, if
the managerial labor market is competitive both within and outside the firm, it will tend to
discipline managers. In that situation, the signals given by changes in the total market value
of the firm’s securities become very important.

Wednesday, 15 January 2014

Small Businesess :

Add caption

Small Business :

there are four familiar types of small businesses.
1. Manufacturing 2. Wholesale 3. Retail 4. Service 
Familiar large businesses were once very small . Small businesses serve as a tool for the large businesses.

Importance of small businesses:

1. Risk taking 
2. Self inspired 
3. Initiative towards stay ahead 
4. Failure does not matter 
5. Achievements leads 

Benefits of Small businesses : 


  • Relations are personal 
  • Responsive towards problems 
  • Innovative and Inventiveness 
  • Low Overheads  

Monday, 13 January 2014

Careers in Business Adminstration :

Careers in Business Administration : 


1. Company Manager:
Business Administration leads to a wide variety of manager's jobs in organisations .
2. Entrepreneur :
As a entrepreneur anyone can start his own business .
3. Investment Banker :
"Earn return on Investment" . There programs will teach about the market and resources such as financial derivatives, fixed-income investment , foreign exchange , commodities , stocks and sale of securities.
4. Private Equity Manager : 
"managing investments in unlisted companies "
5. Strategic Consultant : 
"guidance and advice to other organisations"
6. Specialist in Finance, operations, HR, or Information systems.
Managing the different functions of organisations.

Sunday, 12 January 2014

what is Success?

Success is the achievements of the goals for whom someone is looking for .It may be refer as the the satisfaction , a satisfaction who take you away from others ,,,,,,,,,,,,,,,,

Success demand forwhat?

Everyone is waiting for a better tomorrow , but why people are not struggling for a better today?