At this time of year, at graduation ceremonies in America and elsewhere, those about to leave university often hear some final words of advice before receiving their diplomas. To those interested in pursuing careers in finance – or related careers in insurance, accounting, auditing, law or corporate management – I submit the following address:
Best of luck to you as you leave the academy for your chosen professions in finance. Over the course of your careers, Wall Street and its kindred institutions will need you. Your training in financial theory, economics, mathematics and statistics will serve you well. But your lessons in history, philosophy, and literature will be just as important, because it is vital not only that you have the right tools, but also that you never lose sight of the purposes and overriding social goals of finance.
Unless you have been studying at the bottom of the ocean, you know that the financial sector has come under severe criticism – much of it justified – for thrusting the world economy into its worst crisis since the Great Depression. And you need only check in with some of your classmates who have populated the Occupy movements around the world to sense the widespread resentment of financiers and the top one per cent of income earners to whom they largely cater (and often belong).
While some of this criticism may be over-stated or misplaced, it nonetheless underscores the need to reform financial institutions and practices. Finance has long been central to thriving market democracies, which is why its current problems need to be addressed. With your improved sense of our interconnectedness and diverse needs, you can do that. Indeed, it is the real professional challenge ahead of you, and you should embrace it as an opportunity.
Young finance professionals need to familiarise themselves with the history of banking, and recognise that it is at its best when it serves ever-broadening spheres of society. Here, the savings-bank movement in the United Kingdom and Europe in the 19th century, and the microfinance movement pioneered by the Grameen Bank in Bangladesh in the 20th century, comes to mind. Today, the best way forward is to update financial and communications technology to offer a full array of enlightened banking services to the lower middle class and the poor.
Graduates going into mortgage banking are faced with a different, but equally vital, challenge: to design new, more flexible loans that will better help homeowners to weather the kind of economic turbulence that has buried millions of people today in debt.
Young investment bankers, for their part, have a great opportunity to devise more participatory forms of venture capital – embodied in the new crowd-funding websites – to spur the growth of innovative new small businesses. Meanwhile, opportunities will abound for rookie insurance professionals to devise new ways to hedge risks that real people worry about, and that really matter – those involving their jobs, livelihoods, and home values.
Beyond investment banks and brokerage houses, modern finance has a public and governmental dimension, which clearly needs reinventing in the wake of the recent financial crisis. Setting the rules of the game for a robust, socially useful financial sector has never been more important. Recent graduates are needed in legislative and administrative agencies to analyse the legal infrastructure of finance, and regulate it so that it produces the greatest results for society.
A new generation of political leaders needs to understand the importance of financial literacy and find ways to supply citizens with the legal and financial advice that they need. Meanwhile, economic policymakers face the great challenge of designing new financial institutions, such as pension systems and public entitlements based on the solid grounding of intergenerational risk-sharing.
Those of you deciding to pursue careers as economists and finance scholars need to develop a better understanding of asset bubbles – and better ways to communicate this understanding to the finance profession and to the public. As much as Wall Street had a hand in the current crisis, it began as a broadly held belief that housing prices could not fall – a belief that fuelled a full-blown social contagion. Learning how to spot such bubbles and deal with them before they infect entire economies will be a major challenge for the next generation of finance scholars.
Equipped with sophisticated financial ideas ranging from the capital asset pricing model to intricate options-pricing formulas, you are certainly and justifiably interested in building materially rewarding careers. There is no shame in this, and your financial success will reflect to a large degree your effectiveness in producing strong results for the firms that employ you.
But, however imperceptibly, the rewards for success on Wall Street, and in finance more generally, are changing, just as the definition of finance must change if is to reclaim its stature in society and the trust of citizens and leaders.
Finance, at its best, does not merely manage risk, but also acts as the steward of society’s assets and an advocate of its deepest goals. Beyond compensation, the next generation of finance professionals will be paid its truest rewards in the satisfaction that comes with the gains made in democratising finance – extending its benefits into corners of society where they are most needed.
This is a new challenge for a new generation, and will require all of the imagination and skill that you can bring to bear.
Good luck in reinventing finance. The world needs you to succeed.
© Project Syndicate, 2012, www.project-syndicate.org.
The author is professor of economics and finance at Yale University. His new book is Finance and the Good Society.
Is it time for another Shariah ETF? - ETF News And Commentary - NASDAQ
The concept of Islamic finance, banking and economics has gained tremendous popularity of late. It is appreciated and implemented not only in countries where Islam is the dominant religion, but also in non-Islamic nations. The basic premise of Islamic finance, banking and economics is based on 'hygienic' ways of doing business as prescribed by the Islamic Law or Shariah .
What is a Shariah Compliant financial product?
A Shariah compliant financial product (mutual funds, ETFs etc) is an investment avenue that is fully compliant with the principles of Shariah Law.
Let's have a look at some of the concepts and guidelines of this law. Islamic law basically divides actions into three broad categories. These are farz (compulsory), halal (permissible) and haram (prohibited). Shariah rules of doing business, therefore concentrates only on farz and halal but strictly excludes haram . Companies whose business involves interest on debt, gambling, alcohol, pork-related products, pornography or armaments are prohibited. Since interest on debt ( Riba ) is prohibited, it automatically implies that a conventional commercial bank fails to qualify as permissible business under the Shariah .
So does it mean that Islamic banks and financial institutions are charitable bodies that lend money without any expectation of income?
The answer is that a NO . Profit sharing and fee-based financing is what drives the income streams of these banks. Fee-based financing can be the result of safe deposits, fund transfer, trade financing, property sales and purchases or handling investments. Profit sharing involves partnerships (in businesses funded by the banks) and sharing of profits and losses. This means that in order to comply, the creation of debt is not facilitated through direct lending and borrowing, but through sale or lease of a real asset which is expected to provide a regular cash flow stream for the bank.
Debt financing is indispensable for any company or economy. Even companies that qualify under Shariah and countries governed by the Shariah law, have to resort to debt financing. They do this by the issuance of special types of Islamic bonds. These are sukuks and ijara bonds. These bonds do not consider interest to be the focus of any transaction. However, sukuk and ijara bonds signify ownership of assets which are tied up to a lease contract between the borrower and lender. These bonds (similarly to conventional bonds) are highly flexible and can be traded in the secondary market. Shariah also prevents a person from selling what the individual does not own; therefore Shariah compliant financial institutions abstain from short selling financial securities.
The demand for Shariah- compliant financial products is not limited to a particular community or a group of countries but involves participation of investors all around the world. Investment managers and fund managers worldwide are constantly looking for Shariah- compliant stocks in order to include them in their portfolio.
Mutual funds and exchange traded funds are also fast gaining popularity in this niche segment of the financial world and have constantly witnessed an increase in their assets under management. A recent study by Ernst and Young ( Islamic Funds and Investment Report ) shows that Islamic funds all across the globe witnessed 7% growth in their AUM as of 2011.
A number of Shariah- compliant mutual funds and exchange traded funds are being launched all around the world. The world's leading stock market index provider Standard and Poor (S&P) has a wide range of Shariah investable and benchmark indexes to meet an array of investor needs. There are 15 Shariah- compliant Benchmark Indexes and 11 Tradeable Indexes , all of which bear testimony to the fact that Shariah- Compliant financial products have come of age.
The portfolio of Shariah indexes comprises only of stocks of those companies whose businesses are in alignment with that of the Shariah law. Therefore it is prudent to note that the portfolio of the Shariah index would significantly differ from that of the broader market index. Heavyweight sectors such as financials will be ruled out of the portfolio of the Shariah- compliant Index.
So does this mean that investments in Shariah -compliant financial products will act as a perfect hedge against investments in traditional financial products during economic downturn when the market turns south?
Unfortunately, the answer is no. The broad-based S&P 500 Index and the S&P 500 Shariah index shows a correlation of 0.99 for a period of three years. The graph below shows the relative movement of the two indexes.
The S&P 500 Shariah Index includes stocks of companies whose businesses are in alignment with that of the Shariah law as well as fulfilling the following criteria on a 36 month average basis: 1) A Debt/ Market Value of Equity ratio of < 0.33, 2) Accounts receivable/ Market Value of Equity ratio < 0.49 and 3) (Cash +Interest Bearing securities)/ Market Value of Equity ratio <0.33.
The Shariah compliant financial products are flexible instruments which are open to investments across all investor classes, irrespective of their religious beliefs. Therefore, an ETF approach is always a better alternative for a targeted bet on any market index. Unfortunately, domestic investors cannot boast of many choices in this segment as far as exchange traded funds are concerned.
We would like to discuss a particular fund targeting this space which ceases to exist as of today due to lack of popularity. JETS Dow Jones Islamic Market International Index ( JVS ) intended to match the before-expenses price and yield performance of the Dow Jones Islamic Market International Titans 100 Index . The product intended to provide investors with an option to play the Shariah growth story. it also provided an exposure to Shariah -compliant companies. The ETF debuted in the year 2009 and held 94 securities in all with 31.91% of its assets in the top 10 holdings.
According to Brint Frith, the president and founder of Javelin (The fund managers), they "found it difficult to reach target investors through the marketing channels typically used by ETFs". This clearly shows that the fund was targeted at a particular section of the community, rather than the public at large. It was probably the reason why the product failed.
The article does not intend to compare the ethical and the unethical. Neither does it intend to identify a better investment avenue. But it does aim to highlight Shariah- compliant investments as an asset, solely from a returns and coverage point of view without any geo-political comment. Nevertheless, given the growth and popularity of Shariah- compliant financial products, we can only infer that Shariah ETFs are to be looked out for.
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Money Wisdom for Women book tour is coming to Charlotte North Carolina - Examiner
Anita Renee Johnson, a native of Oakdale, Louisiana, has been passionate about finance for many years. She received her Bachelor of Business Science in Financial Accounting from National University in Sacramento, California, she then continued on to obtain her Masters of Science in Taxation. Currently she is enrolled in a Doctoral program with Walden University, in Minneapolis Minnesota, studying for her degree in Applied Management and Decision Sciences, specializing in Finance.
Ms. Johnson has extensive experience in teaching throughout the Sacramento area. She was a facilitator for the Elk Grove School District Adult Education Always Learning program, faculty member at Heald Business College, math tutor for Genesis High School, and Adjunct Assistant Professor at Cosumnes River College. The coursework ranged from preparing high school students for the mathematics exit exam, basic bookkeeping, business management, and how to be a successful entrepreneur.
Currently, Ms. Johnson is part of the faculty for Brandman University, in Sacramento, California. Here she instructs graduate students in financial statement analysis through online coursework. In addition, she is a faculty member at University of Phoenix also in Sacramento, California, where she provides instruction to adult students in such course topics as accounting, finance, writing, American Psychological Association (APA) Citation, conflict management, and how to conduct research.
In 2010, Ms. Johnson was awarded the Success Story Blog, from Walden University. She received the Business of the Year, Northern California, from the California State Black Chamber of Commerce, award in 1999, as well being recognized as Business of the Year, Sacramento, California in 1999.
Her professional affiliations are numerous, they include: Chairperson for the Small Business Development & Employment Advisory Board for the City of Sacramento, National Associates of Women Business Owners, Member of the Public Policy Committee, National Association of Black Accountants, to name a few.
During her career, Ms. Johnson has developed and instructed numerous courses designed to assist all ages in making sound financial decisions. These courses include: “Big Girls Don’t Cry – Taking the Emotion Out of Finances”, “Emotional & Financial Freedom”, “Entrepreneur Planning”, and “The Game of Life-Foster Youth”.
The most current project for Ms. Johnson is AR Johnson & Associates- “Money Wisdom for Women”. Established in 1998, her goal is to provide sound financial advice to her clients. This information is offered either in one-on-one consulting sessions, workshops, seminars, or conferences. Through ARJ & Associates, Ms. Johnson and her team have counseled over two thousand businesses and individuals in personal and business finance. Their topics include: tax preparation and planning, estate planning, Money Wisdom – the Board Game, Money Wisdom for Small Businesses, pre-retirement for Federal Employees, specifically the Environmental Protection Agency, and Race to Retirement.
I had the opportunity to interview Ms. Johnson and ask her some additional questions about her career and upcoming book signing event.
Who or what sparked your interest in finance?
I have been around money for over 30 years. I enjoy finances. It is interesting.
Why did Financial Advisor become a career path for you?
I have been in business since 1998, first with taxes and accounting. Now I am helping women realize their true worth when it comes to their finances. Women are emotional and do things that put their finances at risk.
I see that you are the CEO of your own company called Money Wisdom for Women; what made you decide to focus on women and their financial wellbeing?
For years I have been servicing women with their finances, there are some who have no clue.
Tell me a little about your book ‘Big Girls Don’t Cry: Taking the Emotion out of Finance’. How did you come up with the title of the book and briefly what is the book about?
This is not a novel about finances, but a book that you need a pencil or pen. When you finish you will have an idea of how your finances work and what you want to do about it.
It is estimated that 80% of women live in poverty after they retire. Women are care givers, always taking care of others and not ourselves.
The title is saying it is time we take care of ourselves, be selfish, don't cry about it, and stop being emotional.
For women we need to know we can control our finances.
Where is the location of the book signing?
Springhill Suites
12325 Johnston Road, Charlotte, NC 28777
What is the time range that you will be present?
6:00pm until 8:00pm
Ms. Johnson says: “my commitment is to inform and educate my clients so that they can make sound financial decisions” and “my job, purpose, mission is to equip women with wealth building skills”.
Anita Renee Johnson and associates website is www.moneywisdomforwomen.net
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