Agile Financial Times - June 2009 Edition

Agile

FINANCIAL TIMES

Insurance Technology in Africa

CUSTOMER SPOTLIGHT

Driving the Business at Cholamandalam Mitsui Sumitomo PERSPECTIVE

Little Green Shoots of Recovery? PARTNER SPOTLIGHT

Building Bridges in Bahrain

June 2009

June 2009

Editor’s Note Greetings! We have added more products to our growing suite of banking and financial solutions to cater to our markets in Asia, the Middle East & Africa.

CONTENTS CUSTOMER SPOTLIGHT

Innovative Financial Planning on Surface Tables! A complex subject like Financial Planning made easy to understand in a relaxed and interactive way, for your clients, by using pioneering new technology of Microsoft Surface. Imagine sitting across a big table with your financial advisor and instead of staring at charts, graphs and numbers that are not easily comprehensible; the table in between itself converts to a huge canvas of life where you can touch and visually translate your life’s goals

(comfortable retirement, children’s university education, dream house) into achievable plans. Agile FT is keen to contribute to the emerging world’s economy across all realms. So while we added Financial Planning for the HNWI segment, we added even more MicroFinance solutions for the unbanked and often forgotten roots of our society - the humble labourer, the over-worked maid, the round-the-corner tailor, the family barber….to help them achieve their dreams too (steady rations,

basic schooling for kids, ‘pucca’ house).

Driving the Business at Cholamandalam Mitsui Sumitomo COVER STORY

Insurance Technology in Africa 7 PERSPECTIVE

Little Green Shoots of Recovery?

While we look towards empowerment of the poor, we are equally keen on empowerment of women. In this edition is an inspiring article from Dr. Manahel Thabet who presents an insider’s view of the glass ceilings faced by women in the Gulf and how to overcome them. She is living proof that dreams are achievable with the right environmental support as she broke into the traditional male bastion of trading and became a leading female trader to reckon with. So let us all dream, achieve, inspire and most importantly enable others to do the same….wishing you all a wonderful time whether getting rain soaked in Lagos & Mumbai, or enjoying the pleasant winter of Harare, or just plain shopping in the air-conditioned malls of Dubai!

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NEWS

Global Update Dreams big or small (whether for a yacht or a hut) are what keep the human spirit alive. Services should be tailored and made available for all to achieve them. If the poor cannot come to the banks, we provide mobile technology to enable banks to go to them, right to their village compounds and labour camps.

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ARTICLE

GCC Women’s Savings: Can it Boost the Region’s Economy? 16 PARTNERSHIPS

Partnership Announcements

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SOLUTION SPOTLIGHT

Investment Management from Agile FT 20

Be Agile! Shefali Khera Chief Marketing Officer Write to us at [email protected]

PARTNER SPOTLIGHT

Building Bridges in Bahrain

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CUSTOMER SPOTLIGHT

Driving the Business at Cholamandalam Mitsui Sumitomo Cholamandalam MS is a joint venture between The Murugappa Group and Mitsui Sumitomo Insurance Group of Japan. Set up in 2002, it is the fastest growing general insurance player in the country. Its earned premium increased by 68% to INR 5,220 million in FY08, up from INR 3,120 million in FY07. The company’s market share increased to 1.88% in FY08, compared with 1.25% in FY07. Committed to using the best technology, the company selected AGILIS - an enterprise level solution from Agile Financial Technologies for general insurance companies.

India enjoys the fifth largest general insurance market size in Asia, in terms of premium earned, after, Japan, Korea, China and Taiwan. Although India has the second largest population in the world, it has one of the lowest insurance penetration rates for property and casualty insurance (P&C). The economic potential of the country continues to be among the highest across emerging markets and therefore, the current under-insurance in the market is expected to be a key business driver. Along with low penetration levels, significant scope for products and services innovation and increase in consumer awareness for risk management are other key drivers. The evolution from a tariff-based regime to a free price level playing field has resulted in companies designing their own products. This has taken the general insurance industry to a completely different paradigm in terms of products innovation and knowledge-based risk management. However, implementing systems that can cater to new lines of business such as weather insurance has become a challenge. Further, several operations in the public sector companies, as well as many private ones as well, are still carried out semi-manually, resulting in a high error rate, slow turn-around-time and limited ability to quickly introduce new and innovative products. With technology enabling a competitive edge, there are opportunities for insurers to further increase market share and build a framework that can cater to new and innovative product development. Competition is expected to increase with the entry of foreign players. “There is a definite threat of foreign players entering the market without Indian partners. The insurance sector is already in the process of opening up further to allow 49% investment by foreign companies, up from the current 26%”, says S. N. Roy, CIO, Cholamandalam MS.

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CUSTOMER SPOTLIGHT

After the opening up of the insurance sector, private players have successfully garnered 25% of the market share. Further, deregulation has also resulted in an increased competitive landscape and is expected to increase. While competition has resulted in new products with additional features, it has also led to a lowering of prices in the form of discounts, commissions and add-on offers. Hence, profitability has been impacted and profit margins have declined across the industry. Therefore operational efficiency is now extremely important. To gain a competitive edge, Cholamandalam MS was looking for a world-class enterprise-wide solution that could help the company penetrate existing and new markets, increase market share and successfully scale up to address evolving requirements. More specifically, Cholamandalam MS was in need of state-of-the-art technology that could respond to more complex issues of general insurance, such as floaters, group insurance policies, foreign exchange fluctuations and reducing turn-around-time. Of the two competing products considered by Cholamandalam MS’ Project Team, led by S. S. Gopalarathnam, the current MD, one was incomplete and needed significant changes. The other product did not appear suitable as the user experience reported by one of its customers was adverse, with the customer unable to align and orient technology with the business. Hence AGILIS became the best fit for Cholamandalam MS’s requirements. “I would say that what we selected (AGILIS) was the best”, says Roy. “Cholamandalam MS selected Agile FT because they could see the passion within each associate for this product. Every question asked by Cholamandalam MS was answered by associates through the system,” says B Rangarajan, ED & Head - Product Management, Agile FT, a sentiment which is echoed by Roy as well. In addition to technology expertise, Agile FT possesses significant domain expertise as well. “When I spoke of complete dedication, I was talking about mastery over the intricacies as well. What we saw from the Agile FT team was complete knowledge of the industry. I found them to be extremely knowledgeable, holding their own against people who were decades ahead of them in terms of experience,” says Roy. AGILIS is an integrated on-line IT solution designed to implement all the functions of a general insurance company. It acts as a decision support system for underwriting, claims, reinsurance and accounting and, as a result, directly enhances the business processes of an insurance company. The solution is flexible in terms of defining new or revising existing insurance products and facilitates dynamically altering the process in time with the market conditions. AGILIS has the ability to cater to all classes of the general insurance business. The implementation of AGILIS has resulted in several business benefits to Cholamandalam MS.





The first Portal approach in Indian retail general insurance was a high-speed Motor Insurance page. In February 2003 this started a chain of Process engineering which then led to many other service accelerators. The unique design of the travel insurance module helped Cholamandalam MS increase its market share to over 75% in the travel insurance segment. Cholamandalam MS became one of the first companies in India to issue a motor insurance policy within two minutes as compared to the competitors’ 4-5 minutes, resulting in additional business. “Cholamandalam MS is the first insurer in the country to issue a travel policy in two minutes.” says B Rangarajan. A substantial reduction in turn-around-time, to a few seconds,

“I would say that what we selected (AGILIS) was the best” - S. N. Roy CIO Cholamandalam MS 5

CUSTOMER SPOTLIGHT










attributable to innovative product design and simplicity of operating the system, was the main contributor to the increased market share. “We sometimes issue three policies together in eight seconds!!” says Roy. AGILIS effortlessly scaled up to cater to Cholamandalam MS’s multi-fold increase in business and the introduction of a large number of new products without having to upgrade or undergo any software changes. Viewed historically, this also meant that Cholamandalam were able to start with low hardware investments and scale up gradually. Agile FT configured a unique indexing method which could retrieve complex data at high speed and high date security from the back-end database, enabling quick management reporting. This unusual and uncommon technique is really a unique service proposition. The Accounts module of AGILIS, incorporated information from all the other modules, and presented an output that would normally require a full fledged Accounts department. “Cholamandalam MS has a very small Accounts department. Our closest competitor’s Accounts department is many times bigger than ours,” says Roy. Hence, Cholamandalam MS today has one of the smallest accounts department in the general insurance industry, giving it substantial cost savings.

The implementation of AGILIS helped Cholamandalam MS garner significant incremental business, especially in travel and motor insurance.

A substantial reduction in turnaround-time, to a few seconds, attributable to innovative product design and simplicity of operating the system, was the main contributor to the increased market share. AGILIS managed to bring down the turn-around-time substantially, leading to increased market share. It was not only instrumental in providing business value, but also was a favorite amongst all users, both external and internal, due to its ease of usage and flexibility.

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In Brief Mitsui Sumitomo Lao DPR Joint Venture Mitsui Sumitomo Insurance Company Limited recently announced a partnership with the Ministry of Finance, Lao People’s Democratic Republic, to establish a joint venture company to offer a range of general insurance products across business and personal lines. The joint venture will be called MSIG Insurance (Lao) Company Limited and will have an initial paid-up capital of US$2,000,000. The company will be located in Vientiane and is expected to commence operations shortly. Atsushi Yagi, CEO, Mitsui Sumitomo Asia, said, “We are pleased to be selected by the Lao Ministry of Finance as a partner to provide general insurance solutions in the burgeoning Lao market. This agreement underpins our strength and leadership in the general insurance industry in Asia. We have a long-term commitment to developing markets in Indochina and contributing actively to its economic growth. Our strong network in the region, including operations in Thailand, Vietnam and Cambodia, will be bolstered with the addition of this joint venture.”

Cholamandalam MS Rated as the Fastest Growing Company in India After posting a Gross Written Premium (GWP) of INR 526 crore for the period of April - December 2008, Cholamandalam MS received the distinction of being the fastest growing insurance company for that period. The premium growth stood at 36 percent for the period which was the highest in the industry. Its market share increased from 1.85 percent in March 2008 to 2.31 percent in November 2008. The company management believes that this achievement is even more remarkable in the face of a challenging macroeconomic scenario which has seen a recent decline in vehicle sales. The company has also made conscious attempts at portfolio rationalisation through prudent choice of business in loss prone areas of group health, dealer business and small and medium business.

The potential for insurance in Africa is very high as the continent has a population of almost 700 million or 14.8 percent of the world’s population and occupies 6 percent of the world’s total landmass. The contention is that if Africa can realise even a part of its economic potential, it might be possible to generate, at the minimum, between 6 to 10 percent of the world’s gross premium income.

Insurance Technology in Africa A significant enabler for industry growth The Nigerian National Insurance Commission (NIC) announced a few years ago that capitalization requirements would be raised significantly for insurers, the aim being to create stronger financial entities, and provide a more solid foundation for the Nigerian economy. Despite their protests, insurers embarked on complying with capital related regulations at a feverish pace; for some insurers, the strategy to raise capital included merging with other companies. In addition to raising capital, the Nigerian authorities also wanted insurers to increase their focus on the retail business, especially life, health and motor insurance, and not restrict themselves to the traditional corporate insurance business. In their quest to garner a share of the retail insurance pie, insurance companies in Nigeria realized the need to start investing in technology to enable their growth plans specifically on the retail side. In Kenya, with the Insurance Regulatory Authority (IRA) becoming operational in late 2007, insurance companies are required to have a paid-up capital of at least Kshs 300 million for general business, Kshs 150 million for life business, and Kshs 450 million for composite insurance business, by June 2010. The Margin of Solvency of long term insurance companies was amended in line with the recommendations from the Association of Kenyan Insurers (AKI). According to

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COVER STORY

AKI, Kenya recorded a GDP growth of 7 per cent last year, which was higher than the previous year, as well as higher than African average of 5.7 per cent. Combined with this, insurers are now under pressure to complete activities within a certain mandated time frame, an example being settlement of claims within 90 days after liability has been determined by a court. While it is envisaged that this will make insurance companies more customer oriented, it also lays a foundation for a technology-enabled process to be put in place to avoid regulatory penalties. The South African market is also growing at a good pace and is rated amongst the world’s top ten insurance markets. According to Celent, in FY 2008, the total premiums collected were ~US$ 42 billion i.e. 1% of global premiums. In the current year, the South African market has suffered a slowdown and the majority of the African insurance markets are expected to post flat growth in this year.










Growth Drivers and Key Business Challenges

The potential offered by the African market has attracted both domestic and foreign investment in insurance and currently, major insurers are in the process of revamping business strategies in their quest for higher insurance penetration. The ensuing challenge for all market participants will be in developing, maintaining and increasing market share. A key theme in the insurance industry which is expected to dominate the better part of this decade, is a larger bouquet of products especially targeted at under-penetrated customer segments and an increased focus on developing low-cost distribution channels. Insurance companies are now getting much more customer conscious, are actively seeking to move beyond ‘plain vanilla’ products, and are developing risk profile-based products. African consumers are also becoming more aware of different insurance products worldwide through increased usage of internet and globalisation. Companies are expected to focus on innovation in both, product and channel development to gain competitive advantage. While theoretically there are sufficient growth drivers, some systemic issues exist within the industry which insurers have to grapple with, while seeking profitable growth.





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High insurance costs: The cost of insurance is increasing quite rapidly. According to Genesis Analytics, ~50% of the policies lapse within an average period of two years in South Africa. The value of individual policies lapsed increased by 40 percent in FY 2008. There is an immediate need to trim costs to remain afloat because the price elasticity of demand for insurance products in Africa is very high. Under-developed distribution channels: There is a lack of proper distribution channels. Cost pressures coupled with penetration imperatives have resulted in an increased interest in channels like retail networks, bancassurance, and internet/mobile access. For instance, distribution in the Nigerian insurance market is expected




to be an issue as insurance brokers have high influence and command 80 percent of the non-life business, thus leading to higher commission expenditure for the insurance companies. Low consumer awareness: Issues in distribution are translating into lesser consumer knowledge. There is an acknowledged lack of information on insurance products. Consumer awareness on new product launches, the nature of the insurer, returns and risk factors is relatively low. As a result, insurance clients are very often unable to distinguish between products. Premium collection hurdles: There aren’t many easy payment options in the African insurance industry. Facilities such as online and mobile payments are available with only a small percentage of the population. The industry is also characterised by inadequate collections and high receivables. Slow claims processing: According to Road Accident Funds (RAF), a government organisation in South Africa, slow processing has often created huge backlogs. For instance, in 2008, RAF employed a staff of 1,700 and had a backlog of ~380,000 claims waiting to be verified. Regulation: Regulation is driving considerable change in the industry. In the recent past, regulation-driven product development has been a key theme, such as Zimele-approved products announced by the Life Offices’ Association of South Africa (LOA). Zimele products are designed for the low-income sector (representing ~65% of the country’s adult population) and have been driven by the need to provide greater access to life insurance. When launched, the LOA aimed to provide at least 22 percent or 3.8 million low income earners with life insurance over the next eight years. Most of the major insurers have recognised the potential of the Zimele market. However, a key concern for them will be in making the opportunity profitable, given high lapse rates and distribution costs.

Therefore from the insurers’ perspective, operational capabilities have to improve to increase revenues and profitability. The speed with which insurers can embrace and adopt change related to products, operations and distribution depends on the technology available to service it. In this regard, it is pertinent to note that African insurers’ adoption of new technologies has been relatively low and a big bottleneck has been their usage of old and inflexible legacy technologies. Large insurers in Africa are characterised by the adoption of several core systems which are heavy on maintenance, apart from being inadequate to service current needs of speed and innovation. A Significant Enabler for Profitable Growth

To stay customer focused and profitable, insurers have recognised the need to migrate from legacy and in-house systems to newer technologies. There are various factors that should be considered.

COVER STORY

Rapid Product Development The primary drawback of legacy systems is that they are expensive and inflexible. The benefits from new product development can be easily wiped out from the excessive costs associated with legacy system maintenance. As product development is a prime instrument to keep companies a step ahead of the competition, it is imperative to switch over to systems which can support product and growth strategies at the tactical level. For instance, a leading South African insurer had earlier introduced only one new insurance product in three years, but competitive pressures forced the company to replace its legacy systems with new modular application infrastructure. As a result, the company was able to introduce nine new products in the market, taking the competition by surprise. Insurers have gained competitive advantage by developing new payment options like scratch cards and payment facilities through mobile phones by replacing legacy technologies. Keeping Operational Costs Down

While African insurers will seek and develop growth areas, three factors will continue to pressure rates and subsequently profitability - the nature of the market (lowincome dominated and regulation-mandated), competition and recessionary pressures. Further, solvency ratios are under threat, given the volatility in equity markets. Therefore, it is vital that insurers are able to manage operational costs in these conditions to drive profitability, keep operational costs down to the bare minimum and offer insurance policies at lower costs to cater to consumers across different price points. With legacy systems, maintenance costs tend to be high because of various levels of duplication on account of fragmented systems and declining availability of the required skill sets. To illustrate, it is estimated that systems which can streamline operations and provide seamless connectivity between branches can be expected to bring operational costs down by 30-40 percent and reduce application development costs by half. Another example is micro-insurance, which has come to stay in Africa, and for which the supporting IT infrastructure will necessarily need to have a significantly different cost structure from the current legacy systems. Improve Reach and Coverage As noted earlier, distribution remains a challenge. Insurers have had to think of ways of increasing reach across various geographies without incurring huge distribution costs, and without depending extensively on the insurance brokers and agents. This has led to the emergence of new channels like mobiles, voucher cards, internet and bancassurance. These alternate channels, while enabling companies to decrease

overall policy issuance costs, are often difficult to integrate seamlessly into existing systems. Faster Claims Processing Without Linear Cost Increase There is significant scope for improving claims management, as claims processing ability remains a key competitive differentiator for insurance companies. Legacy systems do not have the bandwidth to cater to large chunks of claims processing. The backlog of un-processed claims at most insurers is high and current trends indicate a definite shift towards technologies which support speedier processing. Regulatory Compliance The African insurance industry is among the most regulated. Regulatory scrutiny continues to intensify and evolve, increasing the quantity and complexity of compliance. The cost of compliance can be high and therefore, minimising compliance costs without compromising on speed and quality of regulation-related administration is crucial. Current systems are often not able to respond quickly to administration and regulatory demands due to limited flexibility. Overcoming Challenges of Obsolete Technology The hardware and maintenance for near-obsolete legacy systems are increasingly becoming difficult to obtain. Integration of legacy systems with newer technologies has become a challenge as well. Further, it is tough to find legacy system skills as most experts have moved on to work with newer technologies. While insurers have been quick to recognise and tap growth areas, more often than not, the existing technology has been holding them back. For the African insurance market to fully meet its potential, it is important that technology not only supports the innovation, but also enables it. For example, innovation in premium collection has centered around mobile payments and flexible billing. These can be implemented only if the back-end technology is tightly integrated and truly enables quicker process implementation. The African insurance industry is set for an overhaul as competition for this high-potential market gets stronger. African insurers are changing their product strategies to work out innovative ways to grow market share. Therefore, the need of the hour is for technology to deliver beyond systems catering to disparate processes like policy management, underwriting, claims management and premium collection, and display agility in responding to business concerns. There is no doubt that the quality of technology implemented is directly correlated with an insurance company’s success, in terms of both market share and profitability. African insurers need to ensure that they have a technology strategy which can deliver on all fronts costs, speed, reliability and flexibility.

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PERSPECTIVE

Little Green Shoots of Recovery? Andrew Krieger Chairman, Agile Financial Technologies In the last decade, the asset management industry has weathered various environments. Fortunes have been made and dramatically lost all in a matter of a few months. With various players in the market both on the buy and sell side, portfolios have expanded rapidly, offerings have matured, and institutional as well as retail players have burgeoned. In advanced economies, the number of retirement funds has increased in line with the aging population, while in emerging economies, fund managers have to meet investor expectations and offer innovative products. In this scenario, predictability is a prized virtue, with investor expectations met with prompt updates and alerts, improved distribution channels and obviously better returns. In addition to complying with increasing regulations, asset managers need technology that can help them build and assess a portfolio as well as throw up various scenarios to help them predict the future.

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We are witnessing one of the most remarkable periods in modern financial history. Even the savviest investors are getting tossed to and fro by the rapidly shifting tides of market sentiment, gyrating from extreme pessimism to extreme optimism in a matter of weeks. What is most notable is that these wild fluctuations are occurring with hardly any corresponding fundamental shifts to justify the changing views. Consider for example the recent about-face of George Soros, arguably one of the greatest investors of all time. On February 20, 2009, less than three months ago, Soros noted that the world financial system had effectively disintegrated. He added that there was no prospect of a near-term resolution to the crisis and that the turbulence was more severe than that experienced during the Great Depression. In fact, he likened the current international situation to the total disarray which occurred in Moscow after the demise of the Soviet Union. While speaking at a dinner at Columbia University, Soros pointed out that the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system. “We witnessed the collapse of the financial system,” he said. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.” Just a few days later Soros added that we have seen the end of the free market economy. “The global economy is melting down. On previous occasions when the system was severely threatened, the authorities intervened and set things back on course. This time it is different.” I worked with George Soros in 1988 as his “successor” so I came to understand the man and his thinking quite well. He

PERSPECTIVE

tends to focus on major themes and major cycles, with a particular fondness for boom/bust scenarios. George is not one who speaks of global meltdowns and economic disasters lightly. He also tends to stick with his strongly stated views quite rigorously, holding firmly onto his beliefs for long periods of time. Therefore it is quite astonishing that ten days ago, just several months after his dire forecasts, George abruptly shifted his long term views, noting that the world had averted a financial collapse and was now poised for an immediate sharp economic recovery. I was amazed that the master had jumped from a forecast of economic calamity to a relatively rosy prognosis. Granted, he conceded that the recovery would be followed by a period of stagnation, but the economic freefall had been stopped. The collapse of the financial system had been averted and the national economic stimulus programs were starting to take effect. So what happened? What changed in the world to cause this sort of shift in sentiment? Well, in terms of fundamentals, very little. The economic data coming out was still horrible, albeit not quite as horrible as some expected. On the sixth of March, however, almost immediately on the heels of Soros’ doom and gloom forecast, the global stock markets put in spike bottoms that quickly led to one of the sharpest price recoveries in history. Although this recovery has been dramatic, we really need to reflect for a moment and take measure of where things stand. Coming into the March period, the world’s major stocks markets had effectively collapsed from their October 2007 highs, with secondary tops having been established in May 2008. Using US markets as a reasonable proxy for the developed Western world’s markets, analysis shows that the combined western markets haven’t recovered even 50% of the total drop. In the big picture, it is way too early to know if this is just a technical bear market rally or the start of something bigger. During the Great Depression, there were periodic stock market rallies that had remarkable force, but those rallies proved to be shortlived and unsustainable. We now know that there was a lot of cash on the sidelines waiting to jump into the markets when the economic situation settled down a bit. There were also very substantial speculative short positions, particularly in the financials, but elsewhere as well. In my thinking, the shorts finally got squeezed and they had to run for cover. At the same time, the fund managers on the sidelines were forced into action, so they started buying as well, further fuelling the rally. Therefore, we may simply be watching a bounce which should be aggressively sold into in case the recent optimism turns out to be more wishful thinking than sound assessment about improving conditions. This rally needs to be treated with great caution, even though it may have a bit more to go. My experience over a quarter century of trading and investing in multiple markets has taught me that the vast majority of speculators and investors tend to lose significant amounts of money over time due to a) very poor money management rules; and b) a tendency to trade with little conviction. Over relatively short periods of time most speculators are prone to wild mood swings, accompanied by ill-formed views of market dynamics and economic fundamentals. Bullish views tend to turn bearish with little justification, resulting in a wild flailing about in the markets, with erratic trading and a stream of losses to match the shifting views. One thing that nearly all speculators have in common is a remarkable tendency to let their losses run and take their profits quickly. This simply won’t work over the long haul. I have traded in about seventy markets and a similar number of derivative markets, and my observations hold for nearly all traders in all markets whom I have observed. (Solid academic studies support my observation, so if you don’t believe me, consult your nearest university.) The lesson to learn is that markets rallies

Andrew J. Krieger began his meteoric rise on Wall Street at Salomon Brothers in 1984, then at Soros Fund Management, after which he moved to Banker’s Trust in 1986. He holds a BA in Philosophy (Magna Cum Laude, Phi Beta Kappa,1978); MBA in Finance from the University of Pennsylvania; and an MA in South Asian Studies. Andrew has authored the book, “The Money Bazaar” in 1992, and has been a contributing Columnist for Forbes and Forbes Global. He co-chairs the Microcredit Summit Council of Banks and Commercial Financial Institutions and is Founder CEO of IMGE Emergency Relief Fund and MD of Access Capital Management.

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PERSPECTIVE

are not necessarily linked with improving economic conditions. In today’s environment, even the greatest investors have been reduced to amateurish thinking; allowing short term market fluctuations to drive their long term fundamental views on the financial system. This is important, as it points to a deep-seated underlying component of fear and confusion which has affected nearly everyone. Investors invariably watch market behaviour for clues about how to interpret fundamental data, but at a deeper level, the best investors tend to have a strong conviction in an underlying theme. In February and March, Soros had plenty of reasons to be scared about the global economy, although he might have been a touch over-dramatic. It is safe to say, however, that he certainly had substantial justification for his original forecast. We touched on a few compelling reasons to be

The truth is that we may be at the end of a free fall. The rate of economic decline has slowed. pessimistic in my column last month, however my biggest fears have to do with much longer, much more pronounced imbalances and structural problems rather than shorter term break downs. In fact, I continue to believe that the authorities had no choice except to take drastic steps to stabilise the system and pump enough liquidity into the financial markets to guarantee their survival. In truth, if I want to err on the side of pessimism, it is quite easy. Banks are still heavily undercapitalised and largely unable to withstand a completely imaginable further deterioration in the broad economy. Government is still poised to be overly intrusive and controlling, leading to a fully undesirable combination of too much regulation and too little financing, which is bound to create a persistent, measurable drop in the long-term sustainable level of economic growth. Debt levels are still too high, savings are too low, and massive structural global imbalances threaten the very existence of the financial system, but the day of reckoning is some time off. The twin deficits of the US are looming in the background but it isn’t time for them to come cascading down in a horrible crash, ending the free floating foreign exchange regime of the past thirty six years. It would be very easy to create a realistic scenario which could lead to the breakdown of the system which Soros spoke about -- a complete implosion in the free market economy -- but fortunately we aren’t in that place yet. Sadly, band-aid doctoring by central banks and treasury departments are increasing the likelihood that one day, investors around the globe might decide that their faith in

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the US dollar is unwarranted, sparking a landslide of sales and market disruptions that would make last year’s trading activity seem tame. This eventuality has been put off into the future, however, so we needn’t obsess over it at the moment. More pertinent to our discussion, however, is that in the short term we need to come to grips with the fact that the era of plentiful funding by financial intermediaries is long gone. The heavy hand of government is taking a dominant position over the invisible hand of the markets, and the spectre of excessive regulation weighs heavily on my forecasts. The bubble from the insane over-leveraging of investment banks and commercial banks, coupled with their gigantic bet on the U.S. real estate market, has already been popped. The damage is done and the management of financial institutions around the world has found its new religion: conservatism. Regardless of how much regulation the authorities impose, bubbles will still be created, manias will still grip the minds of greedy, foolish speculators, and boom/bust cycles will persist. Recently I have read numerous articles about the little green shoots of recovery which are sprouting up around the world, causing a sudden and sharp surge in investor sentiment. Rarely have I seen so much excitement about so little. Last month’s US unemployment data, and the subsequent market interpretation, was truly amazing. The non-farm payroll data showed a loss of 539,999 jobs, causing the jobless rate to jump from 8.5% to 8.9%. Consensus market expectations were calling for worse numbers, so the markets reacted with euphoria. Does this really make sense? An unemployment rate of 8.9% is catastrophic in many ways. Perhaps in Spain where the number is now over 20%, 8.9% doesn’t sound so bad, but to millions of medium-term and chronically unemployed workers, being joined by an additional 540,000 newly unemployed is hardly a reason to celebrate. Certainly the 5% of the working population that no longer even bothers to look for work thinks this is a disastrous number, let alone the 8.9% who are quickly growing weary of finding any work to do. Overall economic growth prospects are sufficiently dismal that it is likely going to be a very, very long time before the millions of newly unemployed Americans are going to be employed again. Unemployment numbers in Europe are the same or worse. Against this backdrop, as spring comes to America, optimists are seeing “green sprouts” of recovery from the financial crisis and recession. The world is far different from what it was last spring, when the Bush administration was once again claiming to see “light at the end of the tunnel”. The metaphors and the administrations have changed, but not, it seems, the optimism. The truth is that we may be at the end of a free fall. The rate of economic decline has slowed. The bottom may be near perhaps by the end of the year. But that hardly means that

PERSPECTIVE

the global economy is set for a robust recovery any time soon. This downturn is complex: an economic crisis combined with a financial crisis. Before its onset, America’s debtridden consumers were the engine of global growth. That model has broken down, and will not be replaced soon. For, even if America’s banks were healthy, household wealth has been devastated, as Americans were borrowing and consuming on the assumption that house prices would keep rising forever. The collapse of credit made matters worse, and firms, facing high borrowing costs and declining markets, responded quickly by cutting back inventories. Orders dropped abruptly - well out of proportion to the decline in GDP and those countries that depended on investment goods and durables (expenditures that could be postponed) were particularly hard hit. The massive destruction of stock market wealth should make investors appreciate risk better rather than worry too much about missing out on returns, but old habits die slowly. Interestingly, one of the reasons offered for the optimism seen in the stock markets (particularly in the West) is that inventories have been so dramatically worked down that they would have to be built up. The inventory- to-sales ratio for US manufacturers, however, is still quite high. In fact, sales have fallen faster than inventories, so there is less room for inventory buildup than many think. Over time, yes, the buildup can and will occur -- but it won’t be anytime soon. We are likely to see a recovery in some of these areas from the bottoms reached at the end of 2008 and the beginning of this year. But please examine the fundamentals: in America, real estate prices continue to fall, millions of homes are underwater, with the value of mortgages exceeding the market price, and unemployment is increasing, with hundreds of thousands reaching the end of their thirty nine weeks of unemployment insurance. States are being forced to lay off workers as tax revenues plummet. The banking system has just been tested to see if it is adequately capitalised in a stress-free “stress” test. Even with reasonable levels of stress removed from the analysis, many major institutions failed. Disappointingly, rather than welcoming the opportunity to recapitalise, perhaps with government help, banks seem to prefer a Japanese-style response: we will muddle through. In fact, the healthier ones can’t wait to return the government funding so that they can revert to their preferred levels of over-compensation for mediocrity. “Zombie” banks -- dead but still operating among the living - roamed the Japanese landscape for over a decade and Japan’s long-term recession is directly linked to their dismal inability to grease the wheels of industry. Banks prefer to use improper accounting (they were allowed, for example, to keep impaired assets on their books without writing them

down, on the fiction that they might be held to maturity and somehow turn healthy). Worse still, they are being allowed to borrow cheaply from the United States Federal Reserve, on the basis of poor collateral, and simultaneously to take risky positions. Some of the banks did report earnings in the first quarter of this year, although significant profits were predicated on a most amusing accounting trick. The banks were able to book billions of dollars of profits on the logic that they had issued bonds which had dropped sharply in price due to the bank’s weakened credit standing, using the twisted logic that the banks could buy back their crappy paper at lower prices. This sort of financial activity won’t get the economy going again quickly. The American government, too, is betting on muddling through, trying to buy time to avoid calamity. The Fed’s measures and government guarantees mean that banks have access to low-cost funds, and lending rates are high. If nothing really horrible happens - losses on mortgages, commercial real estate, business loans, and credit cards - the banks will make significant profits the old fashioned way (i.e. by earning a positive spread on their loans) and they just might avert another crisis - for a while. In a few years time, the banks will be recapitalised, and the economy will return to normal. This is the happy scenario. But experiences around the world suggest that this outlook is largely unrealistic. Even if banks were healthy, the deleveraging process and the associated loss of wealth means that, more likely than not, the economy will be weak. Consumption in the US will remain low, and consumption elsewhere is unlikely to pick up the slack. China, which has the potential to boost domestic consumption and spending, needs to re-direct its fiscal spending programs in order to head in this direction. At the end, the demand for bank services will be muted. Moreover, the weakened position of bank balance sheets and even when there is demand, heavily restrictive underwriting rules means that loans will not be easily forthcoming. These problems are not limited to the US. Other countries (like Spain) have their own real estate crises. Eastern Europe has its challenges, which are likely to impact western Europe’s highly leveraged banks. In a globalised world, a chink in one part of the system quickly reverberates elsewhere. In earlier crises, as in east Asia a decade ago, recovery was quick, because the affected countries could export their way to renewed prosperity. But this is a synchronous global downturn. America and Europe can’t export their way out of their doldrums. Every downturn comes to an end. The question is how long and deep this downturn will be. In spite of some spring shoots, we need to be very careful to consider the overall growing conditions and not bank on a robust economic harvest anytime soon.

13

NEWS

Global Update A quick review of industry news from around the world. VTB Capital to Establish a Presence in Dubai

Moscow headquartered VTB Capital, the investment business of VTB Group (one of the largest financial groups in Russia), is planning to set up operations in Dubai. VTB Capital has recently secured a license from the Dubai Financial Services Authority (DFSA) to operate as an Authorised Firm in the Dubai International Financial Centre (DIFC). The company already has a banking presence in London and a branch in Singapore and views Dubai as a stepping stone for its global expansion strategy. According to Yuri Soloviev, President and Global CEO of VTB Capital, ‘’Asia, the Middle East and Africa are strategic markets in terms of VTB Capital’s business development. The region contains a number of very appealing countries both from the capital and investment perspective.’’ The Dubai operation will be VTB Capital’s entry point for the Middle East and Africa, where it plans to promote its investment banking services including arranging and advising on securities, derivatives and other financial products. Government to be the Largest Banker in Venezuela

Venezuelan Superintendence of Banks indicates that financial institutions run by the state have a delinquency rate that is above average and tend to suffer significant losses (as seen in the case of Banco Industrial) and might therefore increase the burden on the tax payer. Bahrain’s Sovereign Wealth Fund to Tap Islamic Debt Market

Bahrain’s $10 billion sovereign wealth fund, Mumtalakat, is reported to be searching for international real estate bargains and may tap the Islamic debt market, including sukuk and syndicated loans, to finance parts of a commercial development around the Bahrain International Circuit. It is believed that Mumtalakat is planning to move away from private equity into other asset classes such as real estate. A large part of the funds are expected to be invested in international markets but at the same time it does not plan to divest its holdings in local firms in the near future, possibly due to low market valuations. Mumtalakat, which has the reputation of being the most transparent Gulf Sovereign Fund, has already invested in Gulf Air, McLaren and National Bank of Bahrain. Bank Central Asia to Launch Shariah Bank

In addition to the government ownership of Banfoandes, Banco Industrial, Banco Agrícola and Banco del Tesoro, the Hugo Chavez administration has announced plans to purchase Banco de Venezuela from Grupo Santander. This takeover will make the Venezuelan government the most powerful player in the financial system and will add more than 15,000 employees to its payroll. Data from the

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Following its acquisition of a small bank last year, the thirdlargest lender in Indonesia, Bank Central Asia, will be launching a Shariah bank in September. BCA, which has a market capitalisation of almost $8 billion, acquired Bank UIB in October last year and has planned to convert it into a Shariah bank. This is part of its effort to tap into a growing

NEWS

Islamic banking segment, especially in the micro, small and medium enterprise segment. According to Bank Indonesia data, the country currently has 5 Shariah banks and 26 commercial banks with Shariah units.

Nepal. United’s market share last fiscal increased to 13.98 per cent from 13.33 per cent the previous year. OECD Drives Co-operation to Help Combat Tax Evasion

Shanghai to be Centre of Insurance Innovation

China’s insurance regulator, CIRC, plans to convert the eastern metropolis of Shanghai into a centre for insurance innovation and technology research and development. “Shanghai has the right infrastructure, an experienced pool of insurance professionals, highly globalised insurance institutions and a well-regulated insurance market to set up an insurance innovation and technology R&D centre,” says Wu Dingfu, Chairman, CIRC. Shanghai is home to 37 insurance companies, which is almost one third of the total number of insurers in China. Five of the nine insurance asset management companies in China are also based in Shanghai. New Re-Insurers Enter India

The finalisation of re-insurance rates in India by regular players such as General Insurance Company (GIC), Munich Re and Swiss Re has resulted in the entry of a group of new re-insurers into the country in the recent past. These include Asia Capital Re, Slovenian Re, Best Re, Malaysia Re and Kuwait Re. In a shift from trends this year, regular reinsurers refused to offer re-insurance covers following large discounts required by insurance companies. With exposures growing and premium reducing, re-insurers were unwilling to hike the commissions payable to insurers. On an average, reinsurance rates grew by 5-10 per cent during the recently concluded renewals season. Five International Banks Gain Approval for Local Incorporation in Vietnam

In the recent past, five international banks have gained approval from the State Bank of Vietnam to convert their branch presence into wholly owned, locally incorporated entities. The first bank to complete the incorporation process has been HSBC with Standard Chartered Bank, ANZ Bank, Shinhan Bank of South Korea and Hong Leong Bank of Malaysia expected to follow shortly. United India Insurance Mulls International Foray

Indian public sector non-life insurer United India Insurance Company has announced plans to launch overseas operations soon. The insurer is in the process of appointing a consultant to recommend new market entry strategy. Of the four government-owned general insurers, New India Assurance has the biggest international presence in countries like United Kingdom, Netherlands, Nigeria and Kenya. Oriental Insurance has a presence in Dubai, Kuwait and Nepal, whereas National Insurance has a presence in

Following initiatives of the Organisation for Economic Cooperation and Development (OECD), Switzerland, Luxembourg, Hong Kong and Liechtenstein have consented to follow international standards on sharing bank data and improving transparency mechanisms to aid the global effort to combat tax evasion. It is believed that Switzerland holds $2 trillion of all wealth held abroad and the recent move to cooperate has been hailed by the international banking community. New Takaful Programme Launched by Dubai Islamic Bank

Dubai Islamic Bank has launched the Al Islami Takaful Programme, its Shariah-compliant savings plan with takaful benefits, which is designed to meet the needs of customers looking for Islamic financial planning solutions. This has been developed specifically for the needs of the bank’s existing customers by FWU - a leader in takaful expertise, with Dubai Islamic Insurance & Reinsurance Co (Aman) as the Wakeel. The programme combines savings and investment plans with personal takaful protection. According to Dr Adnan Chilwan, Chief of Retail and Business Banking, DIB, “This programme gives customers the flexibility to switch between investment options at any time, make partial withdrawals and early encashments or even continue their investment plan after maturity. The annual solidarity Takaful fund surpluses are distributed among all participants, proportionate to their contribution.” Moody’s Upgrades Chile

Moody’s Investors Service has recently raised its rating on Chilean sovereign debt from A2 to A1 and has also upgraded the foreign currency ratings of the country’s top four banks. Chile is the first investment grade country to be upgraded since the economic crisis started. It is believed to have been saved from the brunt of the slowdown by the precrisis high in copper prices, the profits from which were incorporated into two special funds (which are now worth $22 billion) and around $23 billion into international reserves. IMF Predicts US$ 4,100 Billion Write-down

According to the International Monetary Fund (IMF), global write-downs on toxic assets by banks and other financial institutions may reach US$ 4,100 billion. IMF, in its Global Financial Stability Report, has stated that North American institutions were only half way through the process of cleansing their balance sheets and European institutions lagged even further behind.

15

ARTICLE

GCC Women’s Savings: Can it Boost the Region’s Economy? Dr Manahel Thabet Founder, Al Salasa As a result of the oil boom during 2002-2008, the GCC Region had generated significant wealth exceeding $6trn, including about $350bn controlled by nearly 50,000 GCC women. Other statistics show that the size of investments managed by GCC businesswomen is estimated at $38bn, including nearly $16bn by Saudi women. In the UAE, there are around 15,000 women managing $4bn while nearly 1,300 women in Qatar control $6bn.

There are some key factors that contributed to the accumulation of this wealth and the expansion of women’s role in investment and economic activities in the Gulf Region. These include the oil and economic boom, encouragement of women to enter new business fields, and the growing flexibility in economic and investment laws in the region. However, I believe that there are still a number of challenges blocking Gulf women efforts to play a more active role in the domestic economy and entering new business sectors, especially in the small and medium enterprises. These include the lack of incentives, as well as lack of financing by banks, other financial institutions and funds. Another major challenge is the lack of sufficient incubators that provide financial support and training for new businesswomen or those seeking to set up a venture. There is also the social factor, with many investment opportunities not reaching women because they are circulated or discussed among men, which women are not privy to. So, the business opportunities reaching are only those that have already been rejected by men! I also feel that women require more independence, incentives for their projects, and flexibility in procedures to set up their own businesses and make a bigger impact on the economy. Some women have proposed that they have access to investment in products and tools that are specially tailored for them, but thought it is unfair to present some products

16

ARTICLE

and tools only for women because they want to break out of the traditional female investment sectors and embark on contemporary ventures. Although GCC women aspire investing in new business areas, they lack sufficient investment information to break out of the traditional female investment spheres such as gold, deposits and properties, which limits their success and curtails their activity in the region. I urge women to become proactive and make the move. Sticking to certain traditional investment fields will create setbacks such as assets’ decline or gold price downturn; moreover, it will limit their success. Women may be on the edge of the Gulf ’s financial world but their savings could provide a major boost for the region’s flagging economy, especially as a significant portion of their savings is in cash, land and jewellery. It is truly surprising to see such vast potential remain untouched. The social standing of women in the GCC has improved, but there is still a long way to go, I believe. In most of the GCC countries, men take care of women’s money, and in some cases women do not know anything about their portfolios’ status until it is too late. Though a lot of women have cash, they don’t know how to invest it. Many young women have revolted against male domination over women’s wealth and have started occupying high positions in banks to manage women’s money. For instance, until 2003, women in Kuwait Stock Exchange could only make deals by making a telephone call to the broker. Now, they have a separate room with female brokers and real-time information. Having said that, however, the playing field has not completely leveled out; female traders are still a fraction in the trading community and in some GCC countries women do not have the full authority to execute deals (they still have to pass the deals on to the men to finalize them).

The hitherto untouched women’s wealth can generate large profits for women as well as the GCC economy. Western countries have recognized the increasing role of women in the Arabian Gulf states, even as the region is witnessing radical changes in social composition, and this development is reflected in many areas of employment, especially in the financial sectors and investment in the government sector and the area of consulting, engineering, medicine and information technology. I have personally witnessed that Gulf women occupying senior positions in various sectors, both in government agencies and private sector institutions, have demonstrated exceptional performance and represent a great source of inspiration for other women. The future of the hitherto untouched women’s wealth can generate large profits for women as well as the GCC economy if utilized correctly. Through financial education that energizes, empowers and enables women to lead effective roles in the financial world, we can ensure GCC women’s participation in enhancing the global financial situation.

Dr Manahel Thabet is the only woman in the Gulf listed as a trader in the international bourse dealing with stock and bonds on Nasdaq, Nikkei, Dow Jones and FTSE 100, and managing portfolios in offshore financial centres such as the Cayman Islands, Switzerland and Panama. Dr Thabet has founded Al Salasa, a general trading company established in Dubai, which diversifies into managing portfolios, consultancy, joint ventures and creating new business opportunities for those who are looking to invest either in the GCC, Yemen or worldwide.

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PARTNERSHIPS

Partnership Announcements New partnerships enable entry into Financial Planning and MicroFinance Financial Planning

Agile FT signs partnership with Figlo and SRE Financial Planners to Provide Financial Planning Software Agile FT has begun its entry into the emerging field of financial planning by partnering with Figlo, the Dutch market leader in financial planning software and SRE Financial Planners, a well-known financial planning company that also runs a financial planning academy. With this new partnership, Agile FT adds niche financial planning software and consultancy to its existing comprehensive portfolio of solutions. Figlo is the market leader in the Netherlands financial industry and has pioneered the use of Microsoft’s Surface Table computing for financial planning. Microsoft recently showcased the Figlo Surface software in the ACORD conference in Orlando as well as in Greece, Germany and Russia. Agile FT and Figlo have formed an exclusive consortium to market this solution in the Middle East, Africa and South Asia. In India, SRE FP is also a part of this consortium. The Financial Planning platform, aptly called Hawanedo (Have-Want-Need-Do in action), helps banks, asset management companies and insurance companies to graphically analyse the financial requirements of their clients and then recommend the right products to them. The solution is available on both, traditional platform as well as on Microsoft Surface, an intuitive, touch screen table that

18

enables Financial Advisors to interactively work with their clients. With leading financial institutions looking at gaining a competitive edge using Surface Table to leverage the firstmover advantage, there has been a huge response to the asset management offering from Agile FT and the addition of this intuitive financial planning platform is set to take the market by storm. On the occasion of the signing ceremony, Kalpesh Desai, CEO, Agile FT, said, “We are very excited to partner with Figlo to offer a futuristic platform to the market that will create a paradigm shift in how financial planners can service their clients. Hawanedo promises to change the way we look at our personal finances and financial planning, providing an intuitive and easy to use interface on the web, and even on surface tables where financial planners could sit across the table with their clients and enable the advisory process intuitively and interactively. We are also pleased to partner with Sykes and Ray Equities (SRE) who will enable the knowledge platform and will be our knowledge partners to enable financial planners use the software in India.” Jenze Bosma, CEO, Figlo, who is already getting accustomed to the Indian way of life commented, “This combination will make real changes in India in terms of how clients understand their financial situation and future.” “With Agile FT and SRE, we are confident that we have found the perfect combination to serve the financial industry, both from a financial planning knowledge

PARTNERSHIPS

perspective as well as from an IT point of view,” added Albert van den Broek, Figlo’s Chief Globalisation Officer. Yogesh Gupta of SRE Financial Planners, given his experience in financial planning shares his outlook, “SRE Financial Planners, being the pioneers in providing financial planning services in India, are glad to tie-up as knowledge partners with Figlo and Agile FT to bring revolutionary financial planning software to the fast-growing financial services industry in India. It is very important to move from product selling to need-based product recommendations and we believe that this kind of software helps financial planners deliver greater value to their clients.”

MicroFinance Agile FT concludes agreement to acquire solution for MicroFinance from Chennai-based Theme Technologies. Agile FT has announced the conclusion of an agreement with Theme Technologies, Chennai, that would enable Agile FT to acquire

Theme’s

MicroFinance,

MicroCredit

and

Credit

Management product stack, Themepro Universal MicroFinance Solution, in an earn-out mechanism over three years. Themepro UMFS is compliant with CGAP standards. The products will be rebranded and launched as AGILIS Universal Microfinance Solution and will enable Agile FT offer it both as a software platform and as an outsourced service to MicroFinance institutions in emerging markets. The immediate thrust will be in South Asia, Anglophone and

About Figlo

www.figlo.com Figlo, a 14-year old Dutch market leader in financial planning software, serves banks, insurance companies, other financial institutions and independent financial advisors. It offers new ways of calculating and communicating personal financial information and solutions by offering a whole new range of software products for the financial industry worldwide.

Francophone Africa, Middle Eastern markets like Saudi Arabia and Egypt and South East Asian markets including Indonesia, Malaysia, Philippines and Vietnam. AGILIS UMFS is an all encompassing solution that enables MF institutions rapidly reach the under-banked rural populace using mobile and smart card technology. It includes a comprehensive loan and savings product definition engine, channel interfaces, data repository enabling centralised data

processing

and

management

of

remotely

captured

transactions in the field. A compelling feature is an integrated microcredit scoring and rating engine based on socio-economic factors. Kalpesh Desai, CEO, Agile FT, said, “With the addition of Theme’s products in our stack, we intend to service the MicroFinance sector

About SRE Financial Planners

www.srefp.in SRE Financial Planners, a division of Sykes & Ray Equities, was established to offer an entirely customer need-driven platform for delivering Financial Planning services professionally and ethically. Through its desk of dedicated, experienced and highly skilled Certified Financial Planners (CFP Certificants), it is spearheading the Financial Planning movement in India by providing unbiased, client need-based advice. SRE Financial Planners is dedicated to help and advice its clients achieve their life goals through proper management of their personal finances. Further it is disseminating knowledge and training to budding Financial Planners through its education division called Financial Planning Academy.

by offering our software as well as our platform as a service. From a modest beginning on a pilot basis in 1992, the microfinance industry in India has now touched the lives of more than 50 million people. The need of the hour is to enable delivery of services such as credit, pensions and insurance to this community quickly and efficiently, which is possible only through cost effective yet scalable technology. Agile FT is proud to partner in India’s development and progress by launching Agile UFMS and making a positive impact on the lives of millions of people who can benefit through our technology.” With Africa being an important market for Agile FT, Desai said, “The last twenty five years have seen tremendous improvement in understanding and providing financial services to advance development and eradicate poverty, including provision of financial means to save, access credit, and start small businesses, and finally enhance community development. Agile FT’s solutions will enable MicroFinance initiatives to scale up beyond the ‘micro level’ and become a sustainable part of economic empowerment.”

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SOLUTION SPOTLIGHT

Investment Management from Agile FT Presenting iDEAL Funds In the last decade, the asset management industry has weathered many storms. Fortunes have been made and dramatically lost all in a matter of a few months. With various players in the market both on the buy and sell side, offerings have matured and institutional as well as retail players have burgeoned. In this scenario of increased uncertainty, investors are demanding more information, transparency, detailed analysis and well worked out strategies from their portfolio managers. Hence, in addition to complying with increasing regulation, asset managers need to meet unprecedented investor expectations and are looking at technology to enable them do so.

iDEAL Funds is a multi-currency, integrated asset management solution designed to automate the complete investment management operations of an investment bank or an asset management company. iDEAL Funds manages and controls all asset classes ranging from Equity, Fixed Income (including Sukuks), Money Market, Derivatives, Real estate, Alternative Investments among others. It automates the complete process right from pre-deal analytics, order management, deal capture, position management, valuation, bank account management, reconciliation, accounting to NAV generation. The software is intuitive, interactive and provides real-time information. The solution also has a powerful risk management module for maintaining limits and tracking exposure for regulatory and internal compliance. It is designed to monitor and administer all portfolios on investment allocation rules as per regulatory as well internal investment guidelines. iDEAL Funds allows the asset managers to innovate, scale up operations and deliver superior performance through the robust, flexible and powerful tools available. Platform Enabled Outsourcing Platform enabled outsourcing services is emerging as the definitive model for many banks as they strive to lower operational costs to ensure a high return on investment. Agile FT provides its services around its functionality rich application software platform that is used for fulfillment and dissemination. Platform enabled outsourcing is likely to experience tremendous uptake in the coming months, especially in the wake of the current credit crisis. Financial

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SOLUTION SPOTLIGHT

institutions should take advantage of the benefits that can be sought from this model in order to stay ahead of the competition and drive innovation.

comparing the positions as they exist with the fund’s custodian and reporting any exceptions. Asset Valuation

Using its knowledge and business process outsourcing capabilities, Agile FT helps clients define projects, align them to organisational goals and builds flexible and scalable systems and processes to deliver services at an optimum cost. The key features of iDeal Funds include: Pre-Deal Analytics Sophisticated analytical tools are available for fund managers to perform Simulation and Security-level analysis (duration, convexity and yield to put/call) at the touch of a button. These analytics equip the users with powerful information even before the deal takes place (that is at the Pre-Deal stage). The manager can thus take informed decisions. Simulation enables the users to view the impact of their proposed trades on each of their portfolios, the underlying limits and predicted performance vis-à-vis a benchmark or a model portfolio. Risk Management Powerful Risk Management engine ensures compliance as per regulatory guidelines, internal investment policies (at organization as well as portfolio level), risk parameters, investors’ risk appetite among various other considerations. In case of Islamic investment, adherence to Shariah principles is provided for. The limit checks are configured as online or offline, hard or soft based on user requirements. Built in security alerts warn fund managers, risk managers and other users in advance in case of any event that is beyond set parameters.

Portfolio managers need to track and measure various important metrics for a wide range of funds under management. iDEAL Funds simplifies portfolio valuation using sound portfolio wise policies. The software uses multiple valuation methods for internal and regulatory compliance. Built into the system is also a performance monitoring module that has performance indicators and compliance mechanisms for management of assets. The software performs factsheet and attribution analysis as well as evaluates risk parameters on the entire portfolio or individual scrips using industry standard practices including Beta, Sharpe’s Ratio and Treynor’s Ratio. Interfacing with Third Party Systems iDEAL Funds has a robust integration engine which has the capability of interfacing with third party systems and comparing feeds with the master data resident in the system. The third party systems include Custodian system from leading banks including Citibank, Deutsche Bank and HSBC; Core Banking solutions or Central General Ledger [GL]/ERP Systems; Equity Trade Interfaces and Market Price Feeds from Bloomberg and Reuters. Managing Banking and Accounting Transactions

Dealing

The banking and accounting module helps the fund managers to track appropriation, payments and receipts and provide a comprehensive and reconciled view of the accounts. The accounting engine can also be configured to generate vouchers and accounting statements as required by the customers.

The solution has built-in flexibility to cater to specific workflows of an organization for instance where an order mandate can originate from a fund manager’s desk and flow direct to the dealing room or where a chief dealer may want a single-step order processing or where complete STP with the broker may be desired. iDEAL Funds has been successfully working in all such scenarios.

Most important in this process is a feature where straightthrough-processing of files is possible for confirmation of automatic trades and reconciliations. Deal reporting to the custodian and fund accountant is also system generated. The system also has the ability to generate a periodic cashflow report as well as projections which is vital for the liquidity of the fund management process.

Post Deal

Administering Users

All Post Deal functions such as Corporate Actions, Valuation, Banking, Settlement, Accounting and NAV calculation is taken care of in the system. iDEAL Funds is intuitively built to cater to various types of asset classes in multiple currencies. The system is able to offer calculations in both WAC as well as in the First in First Out [FIFO] method. It also provides for accurate accrual calculations on both a fixed and floating basis. Another key feature of the system is the ability to define portfolio level policy for straight line and constant yield. The software is capable of

iDEAL Funds allows for easy administration of users through a centralised console. Every user has a secure login id to the system and access to the system is defined based on his/her function, role and status in the organisation. Generating MIS Reports iDEAL Funds has the ability to intuitively generate a variety of reports that are required by different executives in the management from time-to-time.

21

PARTNER SPOTLIGHT

Building Bridges in Bahrain A profile of Almoayed Group, Agile FT’s business partner in Bahrain Almoayed (www.almoayedgroup.com) Almoayed Group was established in 1982 in Bahrain by Mr. Nabeel Almoayed with the vision of becoming a truly global technology and telecommunications solutions provider, committed to best value services and solutions. Almoayed Group also has operations in Qatar, Pakistan, UAE, India and Kenya. The company strongly believes in providing better products, efficient solutions and support to its customers. Over the years, it has nurtured and developed reputed clients across different industries, including banking, financial services and insurance.

As a leading technology company in Bahrain, Almoayed Group helps its clients innovate, automate and deploy business processes at an optimum investment coupled with very high quality. With a dynamic pool of resources at its disposal, the group has the ability to implement complex technology solutions. The main essence of the group’s approach is the willingness and ability to understand the customer’s business before proposing or creating a solution. This customer centric approach, coupled with strong industry domain knowledge, sets the group apart from the rest of the pack, and has enabled them to become one of the largest and highly credible technology suppliers in Bahrain. Almoayed Group has spent many years building and maintaining close business relationships with its partners to offer clients with best-of-breed solutions for their business. The group has leveraged its partners’ products to configure, install and service third party solutions for enterprise-level clients across various vertical markets and geographies. The company has an impressive list of customers, including National Bank of Bahrain, Arab Banking Corporation, Ministry of Finance, Bank of Bahrain and Kuwait, United Gulf Bank and Grindlays Bank. Almoayed Group has a strong focus on quality, and is dedicated to continuous process improvement to ensure that customer expectations are met.

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www.agile-ft.com

Agile Financial Technologies Pvt Ltd 701-A, Prism Towers Mindspace, Malad (West) Mumbai 400064 India Tel : +91-22-42501200 Fax: +91-22-42501234

Agile Financial Technologies 808-A, Business Central Towers TECOM, Dubai Internet City P.O. Box 503007 Dubai United Arab Emirates Tel: +971-4-4331825 Fax: +971-4-435-5709

Agile Financial Technologies Pte Ltd 20 Cecil Street, #14-01 Equity Plaza Singapore 049705 Tel: +65-64388887 Fax: +65-64382436

Views expressed in this publication do not necessarily represent the views of Agile FT and the information contained herein is only a brief synopsis of the issues discussed herein. Agile FT makes no representation as regards the accuracy and completeness of the information contained herein and the same should not be construed as legal, business or technology advice. Agile FT, the authors and publishers, shall not be responsible for any loss or damage caused to any person on account of errors or omissions.