Mismatch Under Islamic Finance

Finding a job is often harder than expected for graduates hoping to enter Malaysia's Islamic banking industry, the world's second-largest with $124 billion (RM390 billion) in assets - employers are proving choosy about qualifications.

Thousands of students, a large number of them Muslims from across the globe, have flocked to the many Islamic finance courses offered in Malaysia, seeing them as springboards to a career.
Malaysia has an estimated 50 course providers and 18 universities which offer Islamic finance degrees, and it boasts the largest academic output globally.

 

The country has published 169 research papers on Islamic finance in the last three years, according to data from Thomson Reuters.

But while the Malaysian Islamic banking industry's output in monetary terms is growing about 20% annually, employment in it is expanding at less than half that rate - even though an additional 22,400 jobs are needed to support the growth, according to a blueprint for the financial sector prepared by the central bank.

Malaysia is experiencing a problem faced by Islamic finance sectors around the world: training and qualifications often do not provide the levels of specialism and sophistication that employers need.
The problem is limiting growth of the industry and, some say, stifling innovation that is necessary to bring Islamic finance fully into line with religious principles, and prevent its products from merely being pale reflections of conventional financial instruments.

A common misunderstanding of these young graduates is that they believe there is such a thing as a generic job in Islamic finance. In reality, the industry is looking to employ specialists  - Asian Institute of Finance (AIF), set up by Malaysia's central bank to develop human capital for the region's financial industry. This means graduates are often inadequately equipped, and few in the industry are actively trying to solve the problem. It's a major issue - nobody wants to take ownership of training graduates in areas that are most needed by the industry.

The Islamic finance sector's need for specific skills in risk management as well as internal audit and governance, plus a basic grounding in sharia law, is not being communicated. One reason for the skills mismatch in Islamic finance is the youth of the industry; it was born in its modern form in the 1970s, and in many countries has only become a mainstream industry in the past decade.

The industry has moved into relatively complex areas, such as Islamic money market instruments and hybrid Islamic bonds with equity-liked characteristics, only in the last few years. The fragmentation of Islamic financial regulation, with sharia boards and national regulators in various countries taking different approaches to some core products and concepts, may also be an obstacle to effective training.

Employers could provide some of that specialised training, but banks in Malaysia have so far been reluctant to do so because of the time and cost involved. Instead they tend to poach skilled staff from rivals, a quicker and cheaper alternative.

Universities also need to revamp their curricula to suit industry needs, but it inevitably takes a long time to evaluate and implement changes. Malaysian authorities have responded by trying to intervene directly in the job market; the International Centre for Education in Islamic Finance (INCEIF) was set up by Malaysia's central bank in 2009 to help with training.

INCEIF's chief academic officer, said the centre's signature Chartered Islamic Finance Professional qualification, a one-year postgraduate programme, had only attracted a handful of industry executives to its staff.
Only five of the centre's full-time lecturers boast actual exposure to the sector and most have retired from active involvement in the corporate world, he said. The centre's 12-member professional development panel, which meets quarterly, has only two Islamic bank heads, from Bank Islam and OCBC Al-Amin.

About 60% of INCEIF's graduates find employment within six months, according to an internal survey, the centre said, declining to provide further details of the survey.

Syed added that job opportunities for Islamic finance graduates were limited partly because companies such as Maybank Islamic, the largest Islamic bank in Asia, did not need large workforces as they could leverage staff from their parent firms - in Maybank's case, Malayan Banking. AIF hopes a new advisory panel comprising representatives from across the industry can close the gap.
A new Financial Services Talent Council, being planned by the central bank, is to include individuals from the education ministry, Islamic banks and universities, in the hope of setting a national agenda for the industry's talent needs.

 Many foreign students expect easy access to Malaysia's job market when they obtain local Islamic finance qualifications, but some are turned down because banks face costly, time-consuming visa requirements to hire foreign students.

"They waste one year here, and many of them are upset with this," said Omar Alaeddin, an INCEIF graduate and current member of its student representative council. So many students return to their home countries with Malaysian Islamic finance qualifications.

This has the benefit of spreading knowledge globally, but the students can also have difficulty finding jobs back home.

"At the beginning they come here thinking there are hundreds of banks and employees," said Alaeddin, who teaches risk management and sharia auditing at Universiti Kuala Lumpur. "Then some go back and work in their previous jobs, which have nothing to do with Islamic finance."

Leadership - Thinking Outside The Box

Are leaders born or made? Has technology changed leadership style? Business thought leaders provided new insights while deliberating upon the age old issue at the World Innovation Summit for Education. Gauri Rane reports from Doha.

Leaders are born—is an often debated statement. Why is one able to take quick and effective decisions? And why is one despite having the position, falls short of expectations of the senior management?

Globalisation has definitely created several career opportunities. This has also led to the emergence of several added qualities that senior level executives need to keep in mind in order to make effective contribution to their companies. Jerry MacAurthur, senior presidential fellow at New York University says, “Leadership today is something like losing control. A leader needs to somehow magnetize people in his/ her direction to achieve a shared vision.”

This brings us to the question—has there been a shift in leadership skills? And how does a leader get people to follow and help them get empowered so they become great performers on their own?

“There has been a significant shift in the quality of leadership received and in the type of leadership needed to solve complex problems that the world is facing today,” says Eric Glustrom, founder, Educate, an organisation that delivers practical and relevant education to 16-20 year olds in Ugandan schools. Glustrom believes that it has become important to distinguish between complex and simple problems as different problems require different types of leaderships.

“Leadership now-a-days is more network-based, relational, less talk down, and more collaborative fundamentally,” he says, adding that a new mindset has been cultivated thanks to technology. Glustrom is currently working on developing a university model called the Watson University, to accelerate the ideas of student innovators, leaders and entrepreneurs.

Sandeep Aneja, Kaizen Pvt Equity, feels that just because technology has come in the principles of leadership have not changed. “In fact, leadership across time has had the same values and principles, but in the context,” says Aneja, adding that leadership of military army cannot be the same as compared to the leader of a company, versus a leader of a political party, a leader of a society, or a family. He cautions senior level professionals to distinguish between qualities of a manager versus that of a leader. “A manager can decide to be collaborative but a leadership has only one choice, to listen, learn and encourage failure,” he opines.

Ewa Iwaszuk of Earth Fellows and also a 2012 WISE Learner adds, “Being a leader in the 21st century is a courageous task as in our globally local world, we need leaders who can trust and depend on their teams.” According to Iwaszuk a good leader would be someone who facilitates the growth and learning of their teams so that they can best explore their abilities.

21st Century leader must…
Create a workplace where people work out of passion and not out of fear

Create a shared vision so that everyone contributes to achieve shared goals.

Explore capabilities and give freedom to experiment

Give people a sense of growth and achievement

Learn from subordinates

Be brave enough to give up control

Techies quit their hectic corporate life to get into full time teaching in private MBA institutes.

In what is turning out to be a trend, people are quitting their hectic corporate life to get into full time teaching. Thanks to lack of quality teachers and professors, private MBA schools are luring corporates professional to join them as full time professors and not just visiting faculty.

In fact, data available with various private MBA schools show that over 30-40% of their faculty are corporate professionals with 15-20 years of experience.

“I started teaching way back in 1992 when I was still very active in my corporate life. However, it was on and off as I did not have the time to get into full time teaching. I mainly did that to keep myself abreast with the latest development in the academic world,” says TN Swaminathan, professor of marketing and director branding, PR & alumni associations, Great Lakes Institute of Management.

Swaminathan got into full time teaching in 2004. “I was always interested in teaching. There comes a point in your life when monetary aspirations take a backseat. You want to pursue your dreams,” he says.

Unlike government colleges and institutions, private MBA schools do not take into account the research work undertaken by a person in order to qualify as full time faculty. A person need not even have a PhD.

“These schools are more practical in their approach. They are not bothered about your research papers as much as they see your industry experience. At the end of the day that is what matters as only bookish knowledge does not help students in their jobs. They need to be taught what the industry expects,” says Rajeev Paripurnam, dean of Global Institute for Corporate Education (GICE).

Like Swaminathan, Pariprnam also quit his corporate life to get into full time teaching. “Corporate life is nothing short of a rat race. You are fighting for one thing or the other. Since there are so many gaps between what the industry needs and the kind of grads our B-schools churn out, corporates with experience, who get into teaching, act as a bridge,” he says.

“Concepts come alive when you have industry experience. There are many who know only from a conceptual side, but have little practical knowledge. In such cases, it is better to have someone with industry experience,” says Jayanta Sengupta from United World School of Business.
Sengupta has 25 years of experience in the advertising industry.

“When I quit, I was sure I am quitting not only the company but the industry. Teaching gave me the opportunity to give something back to the society.”

However, there are some who feel that teaching is an art; hence one must have the expertise.
“I see many corporate professional who do not have the aptitude needed to be a good teacher, get into teaching. Not everyone is a good teacher. They think that by having the gift of garb, they can get away. Teaching is no child’s play,” says S Rajeshwar, chairperson of admission and professor of information systems, Loyola Institute of Business Administration (LIBA).

Universal Life Underlying Danger

Low interest rates are imperiling in-force universal life insurance policies, and consequently pose a potential threat to trusts and estates. Attorneys, accountants and financial advisers are struggling with universal life insurance policies that were written during periods of higher interest rates for use within an irrevocable life insurance trust to help soften the blow of estate taxes. These days, those policies – which were sold in the 1980s and '90s – are at risk of lapsing, and clients will have to make the choice between letting the policy go, taking a cut in death benefits or shelling out even more money to fund premiums and keep the policy in force.

 

“Back in the day when the estate planning attorneys drafted these trusts, many of them also became the trustees,” said Thomas J. Henske, a partner at Lenox Advisors. “They didn't think of the life insurance [inside] as an investment, but rather as something they could set and forget. These policies are now set to fail and the price for remediation is enormous.”

 The cost of failing to keep up with an insurance policy are very real. One of Mr. Henske's clients bought a policy from an agent when he was 40 and was told he would be paying premiums of $12,000 a year for $4 million of coverage. At the time, the interest paid on the policy was 6.25%.When Mr. Henske reviewed the policy six years later, the credited interest rate had come down to 4%, and now the client will need to pay up $25,000 per year to keep the policy.  “This is problematic: He budgeted for $12,000, and now he's literally paying double that amount to keep it in force,” said Mr. Henske. “If we hadn't audited the policy, it would've been even more. If you catch it early, you have a better chance of beating it.” This client wound up keeping the policy at the higher premium. The problem is that these policies were based on optimistic interest rate assumptions, back when those rates were as high as 15%. So-called UL features included not only a death benefit, but also a cash value account that receives interest and that can be funded by a portion of premium dollars. Costs of insurance are drawn from the cash value. Upbeat interest rate projections at the time meant that clients being sold these policies did not expect to pay much to fund the policy's costs. Those high credited interest rates supposedly would help foot the bill. “Even the most conservative agents and brokers were projecting 7% to 10% [long-term] interest rates,” noted Henry Montag, a partner at Financial Forums Inc., who has been discussing the issue with a number of estate planners.  But in today's low interest rate environment, it's become significantly harder for insurers to credit the rates clients were expecting 20 years ago. Now, those customers need to cough up more money to fund the cost of keeping the policy in force. If they can't, they have the option of lapsing or cutting their death benefits. Even charitable giving plans that intend to donate UL death benefits to causes have also been dinged by the development.  Mr. Montag estimates that many of the trustees overseeing the affected trusts also are relatives of the person who set up the vehicle in the first place. “They accepted the position without any knowledge of their responsibilities, duties and liabilities, nor do they have the skills necessary to successfully keep the trust's primary holding — its life insurance — from expiring prematurely,” he said. In fact, those trustees run the risk of violating the fiduciary duty they owe the trust if the insurance policy fails, according to an Oct. 17 newsletter from the Association for Advanced Life Underwriting. There's a lesson here for financial advisers and trustees: Treat life insurance as an asset that will require a periodic check-up to ensure that it's holding up in today's environment. Randy Whitelaw, managing director of Trust Asset Consultants and co-creator of The TOLI Center, a life insurance risk management services provider, uses a framework that not only employs an investment policy statement but also ponders the suitability of a given policy for a trust.  “If it's determined that it's suitable, you want to ensure that there is a credible evaluation to determine the premium amount necessary to be paid to sustain the policy,” he said. As for policies that are already in crisis, advisers should evaluate whether the client can reasonably reduce the policy's death benefit. “Many of these were bought when the estate tax exemption was far below what we have today [now at $5.25 million for individuals],” said Gavin Morrissey, senior vice president of wealth management at Commonwealth Financial Network.
Still, “there may be cases where they need the liquidity, say for state-level estate taxes or if it's part of a buy-sell agreement or for succession planning,” he added.

Dressing Up GST

Effective 1 April 2015, Malaysians like many of their counterparts in the developed world will have to pay the Goods and Services Tax (GST) when they purchase products or seek services.

However, most Malaysians are still at a loss on how the GST is going to affect their lives with many fearing they may have to pay more or by at least 6 percent of the GST rate that has been set by the government.

The confusion is further compounded by misleading information given by those antagonistic towards GST and the wrong information has spread through the grapevine.

HOW GST WORKS

GST, a broad based consumption tax, is meant to streamline taxation at every stage of the supply chain right from the manufacturer or service provider to the end-user.

Though admittedly it is not a popular move, it is implemented to enhance the efficiency of the taxation system and deter tax evasion. GST also allows a more transparent tax collection system and at 6 percent the government is expected to collect at least an additional RM30 billion in taxes annually.

GST is an innate feature of the developed nations including Malaysia's neighbour Singapore. Malaysia and Brunei are the last two nations that have yet to implement GST within ASEAN.

SINGAPORE'S EXPERIENCE

Malaysian Association of Tax Accountants (MATA) president Abd Aziz Abu Bakar was reported saying recently that when Singapore introduced GST at 3 percent, it was imposed on everything, even the essential items were not exempted.

Yet Malaysia is taking a cautious step in imposing GST so that consumers will not be burdened by higher costs. Therefore Malaysians won't be paying GST for certain essential goods like unprocessed meat, cooking oil, sugar and essential services like electricity, education, healthcare, toll, financial transactions and life insurance.

Singapore in fact took a different route to cushion the impact of GST through an offset package - reducing corporate tax rate by 3 percent to 27 percent while the personal income tax rate was cut by 3 percent to 30 percent.

The initial GST rate of 3 percent when introduced in 1994 was among the lowest in the world as the focus was not to generate substantial revenue but to allow people to get adjusted to the tax.

Later it was revised to 4 percent (1 Jan, 2003), 5 percent (1 Jan, 2004) and 7 percent (1 July, 2007).

Singapore's government argued that any exemptions would actually help the high-income group more than low income group, because well-off households usually spend much more on essentials (whether food or healthcare or other basic necessities) than lower-income households.

Therefore it is not surprising to see that many of those who abhor GST are actually from the high income households.

WHAT MALAYSIANS WILL BE PAYING

So how much more Malaysians will be paying, and will they be paying 6 percent more for goods and services?

In a recent article published on a local daily on Oct 21, Price-WaterhouseCoopers Malaysia's Executive Director Raja Kumaran and consultant Tim Simpson provided some insight into GST mechanism in layman's terms.

A closer look into the country's taxation regime will reveal that Malaysians at present already paying the sales and service tax (SST) that has been subtly incorporated in the cost of products and services.

Malaysians already familiar with the 6 percent service tax for selected services, for example at hotels and posh restaurants. There is another consumption tax, namely the sales tax, that Malaysians have been paying but may not be aware of it.

"For example a carbonated drink sold is subject to a sales tax of 10 percent, but the tax is not generally itemised to the end user by the manufacturer. If the drink costs RM11, the drink actually costs RM10 and the tax amount is RM1.

However, as far as the consumer is aware he/she is buying a drink for RM11, not RM10 plus the RM1 tax," they explained in the article.

GST PREVENTS DOUBLE TAXATION

They also pointed out the SST could lead to double taxation, that can prove to be a demerit to consumers.

"Going back to the carbonated drink example. When buying the carbonated drink at a hotel, not only does the consumer pays an additional RM1.08 in tax under the current system, the hotel's profit carries a 6 percent service tax on the sales tax already charged by the drink manufacturer," both of them explained further in their article.

However, they pointed out the problem of double taxation is addressed in GST as the tax paid by the hotelier is recoverable as input tax credit and does not form part of the cost to the hotel.

Therefore under the current system, the drink costs the consumer RM14.58. Under GST, the drink will cost the consumer RM13.25, that is 9 percent (or RM1.33) less.

So did the carbonated drink become 6 percent more expensive? Definitely not. Therefore, consumers should not forget that they still stand to benefit under GST.

Proposed Changes Life & Takaful

Bank Negara Malaysia is issuing a concept paper on the Life Insurance and Family Takaful Framework (the Framework) for public consultation. The concept paper aims to seek feedback from members of the public, industry players, intermediaries and related stakeholders on proposals to further develop the life insurance and family takaful industry in Malaysia as envisaged in the Financial Sector Blueprint.

Objective

The Framework encapsulates initiatives to support a higher level of insurance and takaful penetration in line with Malaysia’s transition to a high-income economy. Under the Framework, life insurers and family takaful operators will be given greater operational flexibility to spur innovation and higher productivity.  In addition, wider channels will be developed for the provision of life insurance and family takaful products to the public.  At the same time, consumers’ interest will be further promoted through the preservation of policyholders’ value, the intensification of consumer education efforts, higher quality of services provided by intermediaries and enhanced disclosure standards to promote greater consumer empowerment.

 

Key recommendations

The Framework provides for the partial liberalisation of the commission, management expenses and agency related expenses limits to allow competitive forces to work more effectively, while strengthening incentives for product innovation and high standards of service provided by insurance and takaful intermediaries. Consumers’ interests will continue to be preserved through important safeguards that will be implemented under the Framework, specifically:

1: The introduction of the Minimum Allocation Rate for investment-linked products that will ensure a specific proportion of premiums paid by policyholders/participants will be allocated to the policyholder’s/participant’s unit fund for investment purposes; and

2: Improved disclosures to facilitate comparisons by consumers between products and to help consumers better understand the financial implications of purchasing an insurance or takaful product.

The Framework will accelerate the development of a wider choice of delivery channels. This will be achieved through the rationalisation of incentive structures between channels, while providing options for consumers to purchase pure protection products (term cover, medical and health and critical illness) through cost efficient direct channels, including over-the-counter and online channels.

In addition, the minimum financial and qualification requirements for financial advisers will be reviewed to deepen the pool of financial advisers in the insurance and takaful industry.

Limits on financing facilities provided to agents by insurers and takaful operators will be removed to allow greater flexibility for insurance and takaful firms to support the professional development of agents, in particular new agents.  This will be accompanied by requirements for insurers and takaful operators to proactively uplift the professional conduct of intermediaries through an increased emphasis on product suitability, quality of advice and service, and productivity, in the design and implementation of intermediary remuneration schemes.

To facilitate consumers in making informed decisions, a customised online product aggregator will be introduced to assist comparison of pure protection products from various providers. The online insurance account will also be introduced to provide consumers with easy access to the status of their policies. These initiatives will continue to be reinforced by targeted financial education and awareness programs to better equip consumers with the required knowledge, skills and tools to make sound financial decisions.

Feedback from the Public and various stakeholders
Members of the public, industry players, intermediaries and related stakeholders are encouraged to provide written feedback on the concept paper. The concept paper can be downloaded from Bank Negara Malaysia’s website at www.bnm.gov.my.  The deadline for the submission of feedback and comments is by 9 December 2013.

                               

 

Innovating Life Insurance Industry

Bank Negara Malaysia (BNM) has launched a concept paper on the introduction of a framework that seeks to provide life insurers and family takaful operators greater operational flexibility to spur innovation and higher productivity, for public consultation.

Under the Life Insurance and Family Takaful Framework, wider channels will also be developed for the provision of life insurance and family takaful products to the public.

"The concept paper aims to seek feedback from members of the public, industry players, intermediaries and related stakeholders on proposals to further develop the life insurance and family takaful industry in Malaysia as envisaged in the Financial Sector Blueprint," BNM added.

BNM said the framework encapsulates initiatives to support a higher level of insurance and takaful penetration in line with Malaysia's transition to a high-income economy.

At the same time, consumers' interest will be further promoted through the preservation of policyholders' value, the intensification of consumer education efforts, higher quality of services provided by intermediaries and enhanced disclosure standards to promote greater consumer empowerment.

"The framework provides for the partial liberalisation of the commission, management expenses and agency related expenses limits to allow competitive forces to work more effectively, while strengthening incentives for product innovation and high standards of service provided by insurance and takaful intermediaries.

"Consumers' interests will continue to be preserved through important safeguards that will be implemented under the framework, specifically wit the introduction of the minimum allocation rate for investment-linked products that will ensure a specific proportion of premiums paid by policyholders and participants will be allocated to the their unit fund for investment purposes," said BNM.

This includes improved disclosures to facilitate comparisons by consumers between products and to help consumers better understand the financial implications of purchasing an insurance or takaful product.

On the development of a wider choice of delivery channels, BNM said this will be achieved through the rationalisation of incentive structures between channels, while providing options for consumers to purchase pure protection products (term cover, medical and health and critical illness) through cost efficient direct channels, including over-the-counter and online channels.

"In addition, the minimum financial and qualification requirements for financial advisers will be reviewed to deepen the pool of financial advisers in the insurance and takaful industry," it explained.
Limits on financing facilities provided to agents by insurers and takaful operators will be removed to allow greater flexibility for insurance and takaful firms to support the professional development of agents, in particular new agents.

This will be accompanied by requirements for insurers and takaful operators to proactively uplift the professional conduct of intermediaries through an increased emphasis on product suitability, quality of advice and service, and productivity, in the design and implementation of intermediary remuneration schemes.

To facilitate consumers in making informed decisions, a customised online product aggregator will be introduced to assist comparison of pure protection products from various providers.
The online insurance account will also be introduced to provide consumers with easy access to the status of their policies.

The concept paper can be downloaded from BNM's website at www.bnm.gov.my. The deadline for submission of feedback and comments is by Dec 9, 2013.

Top 10 Things To Get Fired

LYING, gossiping and looking for a new job while you're at work are among the things most likely to get you fired.
 

Jobs website Monster.com partnered with a New York-based recruiter to release a list of the top 10 things that will cause you to lose your job, WTOP reports.

Top of the list is lying on your CV. False qualifications and made up experience may get you in the door, but there will be a major backlash when your lie is discovered.

Other things on the list seem like harmless mistakes, but can be just as damaging to your career. We all spend time making personal phone calls and surfing the internet at work, but doing either of these things too much can result in your getting fired.

Here is Monster's full list:
1. Lying on your resume or application
2. Job-hunting while at work
3. Gossiping
4. Spending too much time on personal phone calls
5. Boozing on the job
6. Too much web surfing
7. Sleeping with the boss
8. Being careless with numbers
9. Alienating your co-workers
10. Not accepting responsibility, aka pointing the finger at someone else.