Share market propaganda futile

Government news sources have tended to interpret a slight upturn in the Colombo Stock Market as an indicator of a fundamental improvement in our stock exchange. Those who know something about the recent performance of our share market are aware that it fell to very low levels and this upturn is not an indicator of any fundamental improvement in investment.

At the present stage of our capital market development it is unfortunate that misinformed judgments are made which could seriously jeopardise public understanding of the realities of the stock market. It is the uninitiated who could be duped by such statements.

Informed investors are fully aware of the real position and propaganda put out by government authorities is only likely to ridicule the sources of such information. In fact, the fear is that the credibility of such sources would be seriously eroded, such that even when there is a significant improvement, their reports may not be taken seriously.

It is much better to acquaint the public of the real situation, explain the factors which have caused the downturn and be truthful of the reasons for the slight upturn in the market. Such an approach is likely to yield better results in the long run than false propaganda.

What should be made known to the public is that the downturn in the share market is not a reflection of our corporate performances. It is a result of global developments and the decision of foreign investors to move out of South Asian markets.

These investors appear to determine their investments not on the performance of a specific country but their assessment of a region.

At first they moved out of the South East Asian markets and created a huge collapse of these share markets. Then they moved out of South Asia owing to the economic sanctions of the United States.

Sri Lanka got hurt owing to these two factors rather than due to any fault of our own. The decline in the market was so sharp because of a fundamental weakness in the Colombo Stock Exchange in that the market is foreign-driven owing to a substantial portfolio being held by foreign investors.

Not only is propaganda of very little consequence in propping up the market, even the diversion of funds purely for the sake of improving prices would have an ephemeral impact. On the other hand, local investors should be convinced that on the basis of expected share dividends of quoted companies and their growth, investment in selected shares is a good business decision.

If this is demonstrated and those responsible for the stock market educate investors about the possibility of good returns on their investments, it would be more fruitful than propaganda.

The second way in which the market could be supported is by institutional investors making substantial investments in the portfolio because the market offers good investments.

Unfortunately, some of the large resources for such investment are available only in public sector institutions like EPF, ETF and NSB. But these institutions are not in a position to invest more heavily in the stock market owing to the government's need to tap their funds for financing the budget deficit.

The release of a larger amount of funds by these institutions to the market could be one solid means by which the country's stock exchange could be made less vulnerable to the vagaries of foreign investor confidence.

The fall in share prices is a good opportunity for local institutional investors to get hold of a larger share of the market and thereby stabilise the Colombo bourse.

What is critically needed at this point in time is not false propaganda about an imagined buoyancy in the Colombo Stock Market. There should be much more information and analysis which show that the market provides excellent opportunities for investment. Institutional investors, both private and public, must take a good look at the stock market and make selected investments in shares which have good yields and growth potential.

The government must make moves to release a larger amount of investible funds from public institutions for investment in the stock market.

We must not lose the opportunity of expanding the domestic base of investments in the Colombo Stock Market. A larger domestic investment ratio would stabilise the Colombo Stock Exchange and be a healthier development for the country's capital market. Propaganda cannot help. It may even hurt.

The three "M"s of Islamic global banking

By M.H.M. Faizer

The Islamic financial service industry is globally one of the fastest growing sectors. There are over hundred financial institutions offering financial services on the basis of Sharia (The Islamic Law). The industry is around two decades old. As at today it manages around US $80 billion and is growing at around 15% per annum.

This new concept has spread to practically all parts of the world to include the Middle East, Europe, USA and Asia. Innovative banks such as the Citibank have set up full fledged Islamic subsidiaries. Islamic Finance is being studied at Postgraduate level in many leading universities in countries such as the USA, UK, Australia, India and Middle Eastern countries.

The creation of Islamic Financial Institutions has not been smooth and trouble free. The Institutions had to be created from scratch, with no past experience to draw upon. Islamic bankers faced numerous teething problems. Though some of them were resolved a great many still remain.

The growth of Islamic banking is not necessarily due to a growing awareness of Islam nor of Islamic fundamentalism but due to the economic growth in the Islamic world fuelled primarily by oil wealth

A key element in the Islamic Financial System is that it is based on deriving an economic benefit from a tangible economic activity and sharing its rewards and associated risks. The other key element is the Prohibition of Riba (Interest). The Islamic ban on Interest does not mean that Capital is costless in an Islamic System. It recognizes Capital as a factor of production but it does not allow the factor to make a prior or predetermined claim on the production surplus in the form of interest. The owner of the Capital can legitimately share the profits made by the entrepreneur.

A predetermined profit sharing ratio is however is permissible. Thus, as a mechanism of allocating financial resources, the rate of interest is replaced with the rate of return on real activities. To this end, a variety of methods and instruments based on risk and profit sharing are suggested.

A brief outline of some of those popular instruments developed and practised by the Islamic banks is given below:

Mudarbah: In Mudarbah, one provides the necessary financial capital and the other supplies the human capital needed for successful performance of the economic activity undertaken (The activity to be chosen must be a permissible activity according to Sharia. Therefore activities such as Gambling, Pornography, Unlawful Meat are not allowed). Mudarbah therefore is an equity-based instrument where one party provides the funds and the other the Expertise. The ratio of sharing the profit is decided in advance by the parties concerned. In the case of a loss, the investor bears the entire loss as the effort of the Expertise is already expended. This is the Sharia ruling. An Islamic bank will therefore be extremely careful in selecting the Mudarbah partner. Once it identifies the entrepreneur it goes on to invest the entire capital required for the venture taking a total exposure on its capital

The Deposits the Islamic bank receives (other than the Demand Deposits) from the general public is also based on the principles of Mudarbah. In accepting the deposits, the Islamic bank neither guarantees the capital (the deposit) nor does it specify a predetermined rate of return (Both these features are in contrast to a deposit system of a traditional bank).

The role of an Islamic bank is therefore is that of a Funds manager where the Bank is a Trustee as well as an Agent for the depositors in which position it uses its infrastructure, contacts, competence, know-how, goodwill and prudence all in good faith and in a conservative manner to extract maximum usefulness of these amounts under its trusteeship for the benefit of the depositors (investors). On their part the investors bear all the risks emanating from this relationship.

Musharaka: Musharaka literally means sharing. In the context of business it means a joint enterprise. In this form, two or more financiers provide the finance for a project (or a trading transaction). All partners are entitled for a share in the total profits of the project (or trade) according to a ratio mutually agreed upon. However, the losses are to be shared exactly in proportion to respective capital contribution This is the Sharia ruling. All partners have the right to participate in the management of the project. However they also have the right to waive this right in favour of any specific partner.

Musharaka can also be used to finance going concerns. Working capital needs of an organisation can also be met through a Musharaka, facility from an Islamic bank. As long as the Sharia principles regarding Musharaka are not violated the form and procedure of Musharaka can take any shape.

Ideally, an Islamic bank cannot request for any form of security (collateral) from the Musharaka partner. Some scholars have however allowed the Islamic banks to take security but only to be used against fraud, negligence and mismanagement by the managing partner.

Murabaha: Murabaha means a sale. The feature that distinguishes it from other forms of sale is that in a Murabaha the seller discloses the actual cost of the commodity and then adds a mutually agreed profit.

Murabaha is therefore a 'Cost plus' financing where the asset or goods are purchased by the Islamic bank and sold to the client at cost plus a negotiated profit. Most Islamic banks use Murabaha as a convenient and appropriate mode of Islamic finance.

Murabaha can be structured for almost any trade finance need ranging from import of goods, preshipment export finance, local trading etc. The use of Murabaha for the deferred payment financing is also possible and has been approved by the Sharia scholars Murabaha is not a loan given on interest but is the sale of a commodity; therefore it has to fulfil all the conditions necessary for a valid Islamic sale.

Although there are many rules, the following three are basically very important:

1. The subject of sale must exist at the time of sale;

2. It must have good title and be in the ownership of the seller;

3. It must be in the physical or constructive possession of the seller when selling it to another party.

In the case of deferred payment if the client delays payment the Islamic banks cannot charge anything more. This is the Sharia ruling. Therefore, there is no penalty (penal rates) for default in an Islamic Financial System!

In addition to the above techniques, the Islamic banks have now got into many newer areas to include Ijara (leasing), Takafol (Islamic Insurance), Real estate business, Securitisation programmes, Infrastructure programmes based on BOT/BOO basis.

Despite impressive growth, it yet has many problems to be solved. The lack of uniform terminology, Sharia interpretation, accounting and auditing standards, cross border transactions, regulatory structures are some. In the field of accounting, there is generally no uniformity in accounting policies and standards, hence a lack of consistency in the accounting treatment of various Islamic banking operations.

Even the presentation of their financial statement differs, making it difficult and harder for the reader to relate the results of one bank to another. Attempts are now being made to seek the most appropriate means through which accounting standards could be developed and implemented in order to present adequate, reliable and relevant information to users of financial statements.

The Author is the General Manager of Amana Investments Limited, the first and so far the only Islamic Merchant Bank in Sri Lanka.

Smog hits Malaysian rubber

SUNGAI BULOH, Malaysia, (Reuters) - The smog that enveloped Malaysia after last year's forest fires in Indonesia cut by 10 percent the sunlight so vital to rubber trees,researchers said on Friday.

That inevitably hit production although officials stress that plummeting prices and a chronic labour shortage in Malaysia were key issues for the world's largest rubberproducer after Thailand and Indonesia.

Scientists working at the Malaysian Rubber Board's research institute on a plantation outside Kuala Lumpur study everything from the effect of weather to how yields can be boosted.

Drought swept through Southeast Asia last year due to the El Nino weather phenomenon and forest fires raged in Indonesia.

Choking smog, most stemming from the fires in Indonesia,plagued much of Southeast Asia for months in 1997.

Bastiah Ahmed, a research scientist at the institute, said that the fires cut photosynthesis by 10 percent. "That reduced the amount of sunshine getting through to the trees. Growth itself would be affected and reduced," she told Reuters.

"It has reduced the production of latex," she said of the fires which had an effect on humans who were hit by respiratory problems.

She is currently conducting research into water consumption to develop sturdier rubber trees.Researchers at the institute are constantly in search of the perfect rubber tree — cloning sturdy, high-yielding trees from Brazil and developing new ethylene gas applicators that can be strapped to individual trees to boost production.

But scientific advances cannot compensate for economic upheaval.

"In the current economic and currency turmoil, the consumer countries are in a position to bargain. This has been a tough year for the industry," Malaysia Rubber Board public relations chief Othman Hashim said.

"The price of rubber has been very low for so long and we have a lot of problems with labour shortages," he told Reuters.

Eighty percent of Malaysia's rubber is produced by smallholders. "It is very difficult to find tappers," he said.He also highlighted the future raw material problems that Malaysia could face. "Old rubber trees are not being replaced.It is vital to have the cycle maintained. If we don't replant,there will be problems later on."

Rubber production dropped by 10 percent in 1997 as rubber prices fell as did the value of the Malaysian ringgit currency.

Production levels in 1998 will be about the same as last year's, he said. "This year we will not hit the million tonne mark. It will be about 970,000 tonnes."

SEC elected to International body

The Securities and Exchange Commission (SEC) has been elected to the Executive Committee of the International Organisation of Securities Commissions (IOSCO).

IOSCO, which was inaugurated in 1983, comprises 134 member securities market regulatory agencies, a SEC release said.

The objectives of the organisation are: to co-operate together to promote high standards of regulation in order to maintain just, efficient and sound market, to exchange information on their respective experiences in order to promote the development of domestic markets, to unite their efforts to establish stands and an effective surveillance of international securities transactions, and to provide mutual assistance to promote the integrity of the markets by a rigorous application of the standards by any effective enforcement against offences.

Sri Lanka was admitted as a full member of the IOSCO in 1993. The Executive Committee is a core group responsible for the making of all decisions concerning the operation of the organisation and the achievement of its objectives.

The Executive Committee which is currently chaired by Argentina includes amongst its members the securities market regulatory agencies of Australia, Brazil, Chile, Germany, Portugal, USA, UK, Japan, Malaysia, India, Quebec, Kenya, China and France

Tea imports protest

Employees of Bristol leaf tea took to the streets of Hulftsdorp hill last Thursday in a campaign to save their jobs. They claim that the import and re export of tea in packets and bulk was pushing down prices of local teas.

This has been going on for some time but seems to be causing problems only recently.

The import of tea and re-export, is cheaper than local tea; this is the reason for the low prices an employee at the scene said.

When 'The Sunday Times' spoke to some of the employees they refused to comment or said they didn't know very much about the protest.

The reason for conducting the protest at Hulftsdorp in front of the late president's statue was unknown. On the same day they conducted another protest, in front of the Tea Board, in Colombo 3.

House adds status to workers

Employment conditions in tea estates are changing after 130 years when the British Planter James Taylor first grew tea in then Ceylon.

Estate workers were undernourished, uncared for and unhealthy. Late events have revolutionised the 'thottam' and workers have gained a dignity and knowledge that working on a plantation is no longer degrading.

New series on plantations 2

By Mel Gunasekera

A row of neatly built houses dot the green hillsides. They almost resemble a Gam Udawa housing scheme. A quick peek inside reveals freshly painted walls, sparse furniture, modern electronic equipment and a few coir mats. The walls are decorated with film and pop idols. Film idols are even displayed in the glass cabinet standing proud inside the house.

This is a typical house one finds on most estates. It is a far cry from the tin roofed line rooms that were the housing facilities for plantation workers.

The small 10x12ft linerooms over crowded with people living in dilapidated conditions were built over 150 years ago. They were difficult to renovate and lacked the basic amenities like water, sanitation and electricity, with around 12 families sharing one toilet.

The newly built estate housing scheme is a major contrast from the colonial times. Under the new housing programme, families have their own private plot ranging in size from 5-7 perches. The houses built vary in size from around 240 sq. ft. (two rooms) creating extra space per person. All households have individual latrines within their premises. Water is carried to a common taps one for five families.

There is a great sense of pride of ownership as the beneficiaries proudly take you round their neatly kept houses. To own a house, being responsible for its maintenance, being able to adapt and expand the house according to their current needs and wishes, give these workers a great deal of satisfaction and pride.

"We lacked privacy when we lived in the line rooms," G T Chandrathilake of Luckyland Estate Udapussellawa said. For her, to act and speak freely without being overheard by the neighbours is a blessing. For people like her, separate housing units also freed them from the tensions and quarrels between people living in the linerooms.

Beneficiary families have more space per person than ever before. A study conducted by the Plantation Housing Social Welfare Trust (PHSWT) has shown that nearly 53 per cent of all line rooms are overcrowded.

Before privatisation, housing was a huge problem for about 240,000 family units. Linerooms are available for only 192,000 people, with overcrowding of about 50,000 families in excess, the study states.

The large majority of estate workers used to occupy a lineroom as part of an extended family of about 190-200 sq. feet. Some families came from staff quarters with a size approx. 400 sq.ft. Cooking was done either on the veranda or in separate temporary sheds.

Most linerooms have come to that condition due to deferred maintenance. Numbers of families have risen so are the number of family members, but no corresponding increase of houses.

A better house and better facilities are seen as acquiring a higher status within the community. It also raises expectations for future family and personal advancement, Luckyland Estate Superintendent Lalin Tennakoon said.

This is reflected in the aspirations for the future development of children. Further education will enhance opportunities to find work outside the estate or better and more rewarding work on the estate.

Some families engage in vegetable growing or poultry farming on their new plots. Others rear cattle to pay monthly charges for the loan re-payment.

Things are kept in order, people have an interest in maintaining the house by furnishing the rooms and install extra fittings in the kitchen to keep utensils.

The stove replaces the traditional hearth. The hearth was found to blow out smoke which circulated in the house and caused respiratory diseases among the inmates. The stove emits less smoke, while saving on fuelwood by 40 per cent and keeps cooked meals warm for a longer period.

The workers have used the extra space, particularly separate rooms, and have created an opportunity to invest in household goods like TVs, sewing machines, and furniture.

This can be seen particularly in houses where adult children are working outside the estate. At Luckyland Estate V M Heenmanike's house boasted the latest electrical equipment. She says her army corporal son, and her daughter (a juki machine operator in Colombo) paid for these things.

But Heenmanike's grouse was that the space allotted for housing was not adequate. Her husband lamented that there was no bare land close by to tie his cattle. However, Superintendent Lalin assured us a playground and land to grace cattle were on their way soon.

There are two housing loan schemes: NHDA and SMIB scheme. Both schemes give a loan of Rs. 15,000 at 15 per cent interest payable in 15 years. In addition, the Trust gives an additional Rs. 30,000 for infrastructure development like roofing, water and sanitation.

Families needed to mobilise extra financial resources to complete the house. For a great deal, they have used the assets they had built up over time for this purpose.

In self help housing process, many turned to traditional assets to raise cash. The traditional way to create assets is to invest savings in jewellery, electronic equipment, sewing machines, cattle and goats. Housing was found to be the only way to create assets, which was also a form of social security.

In case of emergency some of these could be sold for cash to solve an emerging problem. Now traditional assets are being converted to real estate property - a positive sign as the new asset has a far greater market value than the resources invested.

The workers also pitch in with unskilled labour while the management transports their raw materials like timber and cement.

Most estates have their own crèches for the benefit of estate worker families. What began earlier as a place for custodian care where women left their infants, over the years crèches have turned into a centre for nutrition growth monitoring, growth stimulation, for immunization, health education.

Nearly 55 per cent of workforce are women. Working conditions are harsh and physically demanding. Most are anaemic, even with pregnancy they continue to work till last day, this leads to low birth weight.

In the case of low birth, the first five years of an infant are important, so the crèche becomes the centre for all initiatives, Laxapana Estate Superintendent, K T Puneitha said.

H M Kusumawathie, Crèche attendant says the children have a timetable for everything.

They use throw aways like egg shells, onion peels, milk cartons, yogurt cups etc for their handwork. The commonly found glaze paper, bristol board and crepe paper are luxury items.

Musical instruments like the Maracas are made out of discarded powder tins.

The cloth cradle is another visible feature in most crèches. Superintendent Puneitha said they were looking into ways of replacing the cloth cradle as it inhibits growth. The estate provides meals for all the children, while the parents contribute Rs. 20 a month. They hope to provide uniforms in the near future.

At the Pambegama Estate, Parakaduwa, the pre-school children make do with manioc leaves, flowers, charcoal as dyes to paint and draw. "We don't have money to buy colour pencils and crayons," little Muditha told us.

They mix yellow flowers and lime to make the colour red. Manioc leaves give a brown colour, while charcoal substitutes for black.

Superintendent Mahinda Wijesekera said his crèche was renovated recently with funds from the UNICEF and PHWST. The children are provided with uniforms and meals like triposha and kola kenda.

At Great Western Estate, Talawakelle, the crèche has swings and slides for outdoor recreation. "When we first installed a swing, we had to use our own children to demonstrate its use," Superintendent Maithri Liyanage said. The crèche maintains its own wall of fame using the parapet wall surrounding the premises. Each year, details of all children and crèche attendants who were present are painted on the wall.

The Trust gives assistance to construct crèches, upgrading existing ones, buying furniture and equipment. Crèche attendants are trained regularly by the Trust.

Questions arise as to whether the facilities provided to the workers are adequate.

True the present housing schemes are a far cry from the tin roofed houses of colonial times. Someone once said the Sri Lankan economy ran on the backbone of the plantation industry. This scenario still continues with plantations being the highest net revenue earner, despite being nudged to second place by garments.

But the workers yearn for the dignity of labour. They mistakenly believe that being a Juki machine operator commands better status than being a lowly plantation worker. However, most managers themselves are aware of the issue and strive to improve the welfare of the workers.

Next week:Back to nature…..

Industrial relations forum

Q1: My wife is employed as a teacher in a Government aided school. She is entitled to 84 working days as maternity leave. Please let me know whether the days covered by the school vacation are counted as working days or not.

b) Can maternity leave be preceded by medical leave?

a) When calculating 84 working days only the weekend holidays (One and half days), Poya holidays, and statutory holidays, which are prescribed by the Act, are considered as non working days days. Accordingly school vacation days are considered as working days.

b) There is no provision in labour legislation for leave called medical leave. Therefore whether "maternity leave can be preceded by medical leave" depends on the leave regulations of her school

Q2: I am a tea small holder having five regular labourers who are registered and E.P.F. paid monthly. As and when necessary I employ ad-hoc labour that are paid and settled daily, based on the amount of green leaf plucked by them. Is it an offence to employ them without registration?

Under the EPF Act all employees including casuals are entitled for EPF benefits. However, for administrative reasons, The Dept. of labour is not insisting EPF contributions for casuals engaged in jobs of a casual nature. If a labour is employed for over an year, having worked for over 180 days during that year he is normally considered as a regular casual who is entitled for EPF..

Q3: When the Labour Commissioner refuses to grant permission to retrench some workers without giving reasons for his order where can the employer seek redress? The severe competition has compelled to decrease production. Can the employer retrench the workers against the commissioner's order? Has the commissioner a duty to give reasons for giving such an order?

The employer can go before the court of appeal requesting the court to quash the order of the commissioner of labour (writ of certiorari). You cannot retrench the workers without the approval of the commissioner of labour or the consent of the worker. The commissioner of labour is not bound to give reasons for his order. But in such a situation, you have good grounds to go before the court as the commissioner has failed to observe principles of Natural Justice.

Q4: I have started a Noodles Manufacturing Industry at my home. Five workers have been employed (4 women & 1 man). They have been working here for one year and ten months. I would like to know the answers for the undermentioned questions.

1. I am paying for women 75/= each per day & 150/= for the man as he is operating the machine. Is there a fixed amount approved by the Government?

2. Can they be paid daily?

3. They work Monday to Saturday except Sunday & Poya day. Is it OK?

1. At present there is no wages board for Noodles Manufacturing Trade and therefore the minimum wages have not been fixed.

2. They can be paid daily.

3. Working on weekdays except for Poya Days & Sundays can be continued.

Q5: What are the surcharges, as employer should pay for delaying to make contributors to EPF on behalf of employees?

If the contributors are in arrears for a period:

a. not exceeding 10 days = 5%

b. between 10 to 30 days = 15%

c. between 1 to 3 month s=20%

d. between 3 to 6 months =30%

e. between 6 to 12 months =40%

f. over 12 months = 50%

Q6: 1) If the Company which is a Restaurant/Catering Trade pays the executives and the staff Service Charge, incentive payments on Sales and another percentage for 100% attendance, are all these entitled for E.P.F and E.T.F? If the employer is not adding all these payments to ETF and EPF contributions what should one do?

2) If a person has not been granted his annual salary increase of Rs. I00/- for no valid reason at all for more than 6 months what should he or she do about it? Also if you are not given a salary Increase should the Management inform the worker and what can employee do to get the necessary relief? Can the Management stop a persons salary increase with no valid reason?

1. EPF contributions are made from the earnings of employee. However, service charge is exempted from EPF. Incentives tied to production or sales are included in the "Earnings". Attendance incentive is also exempted from EPF. If all earnings are not included in EPF contributions, the employee can bring that to the notice of the commissioner of labour who will issue a direction to pay them with surcharge.

2. If the employee is covered by the wages board decisions, the increments given in the wage structure should be granted. However, for disciplinary reasons employer can suspend, stop or defer increments. If increment is not paid to a wages board employee without a valid reason he can make a complaint to the commissioner of labour.

Our address

"Industrial Relations Forum", C/O Sunday Times, No. 8 Hunupitiya Cross Road, Colombo. 2 Fax no.448323,423921. E.mail. Wnlgen@wijeya.lk

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