Funding for Lending Scheme

FLS scheme introduced by Bank of England and HM Treasury was launched in August 2012. The £80bn scheme aims at boosting the lending industry which is now experiencing a low growth rate. This scheme will encourage banks and housing societies to lend more to houses and businesses.

According to this scheme, price of each bank’s borrowing will depend upon the reference period ie (from end-June 2012 to end-December 2013).The fees for those banks which lend during that period will be 0.25pc per year on the amount borrowed. The increase in the fees will be linear, as it would be adding 0.25pc for each 1pc fall in lending, up to a maximum fee of 1.5pc of the amount borrowed for banks.

The participating bank will be able to borrow an amount up to 5%of its stock of existing loans to the UK non financial sector. The new incentive structure will encourage bank to lend more by making them to borrow an extra £5 for every £1they lend. They will be able to borrow £10 in 2014 for every £1 they lend in 2013.

According to the recent report in February, the lending business in UK has fallen down to £4.8 bn.That shows a dip of 4.4% in loans to companies and small firms from the same period a year earlier.

Critics say that the individuals and firms may not need much loan. The first report of FLS in December 2012, said that, 6 banks or building societies have actually used the scheme. Total amount borrowed by all these institutions are £4.4bn and their net lending has only come up to £496m

In March 2013, 39 banks took part in the scheme, together they borrowed £14bn.But in 4^th quarter of 2012 the net borrowing came down to £2.4bn.These reports says that FLS will take time to give a stable performance.

UK is struggling to hold its stride in the midst of euro crisis. Chancellor George Osborne has assured that this act will improve the economy and UK is still capable overcoming the economic crisis.

BRICS going for a New Development Bank. A possible rival for World Bank and IMF?

The failure of Europe could be the success of Asia! The recent BRICS summit held at Durban showed signs of Asia being hopeful about its economic growth, which is very significant in the global economic slowdown. With mounting criticism from the West for its snail pace, BRICS managed to set up guidelines for the growth of BRICS region.

Concept of the New Development Bank got a global attention. Spokesperson for Development Bank of South Africa hold the wish that South Africa will get needed funding for its infrastructure development. South Africa will surely need a large amount of funding for their stability, since their ally China is accused of exploiting South Africa’ s mineral resources.

The BRICS Interbank collaboration concluded on two agreements. The BRICS Multilateral Infrastructure Co-Financing affirmation for Africa and The BRICS Multilateral collaboration and Co-Financing affirmation for Sustainable Development. These two affirmations will give more investment for infrastructure projects in the African countries and will help to execute   new plans for sustainable development.

South Africa, The Chairperson of the BRICS, will be responsible for the execution of all the concepts all through its Chairpersonship. For the first time, eThekwini Declaration encompassed the provisions for human privileges and gender. New Chairperson for the African Union Nkosazana Clarice Dlamini-Zuma was given an outstanding greeting as an affirmation of the woman power

Other vital areas identified by BIRCS leaders are infrastructure development, unemployment, programs on skill development, food and nutrition security, scarcity eradication and sustainable development in Africa. The BRICS leaders even put forward

an idea of a Free Trade Zone for the constituent nations

China with GDP of $ 8.25 trillion in 2012 considered as the leading force in the BRICS . According to the IMF reports, Chinese economy will grow to 8.2% in 2013. It’s population will come around 1.34 billion. India’s place in world economy is 10 with the GDP of  1.946 trillion. Russia‘s GDP was $ 1.953 trillion in 2012 will grow more with the gas export in 2013. They will be the world’s 8 largest gas exporter. Brazil‘s GDP for 2012 was $ 8.25 trillion. South Africa is the smallest economy in BRICS with GDP of $ 390 billion.

According to the report each BRICS nation is   contributing $10 billion as the primary investment for the New Development Bank. BRICS territory wants to gain self- sufficiency and they keep a vision to reduce their dependence on euros. Brazil and China even entered a treaty to do trade in their localized currencies.

There are so many hurdles for BRICS. - BRICS can never ignore the sociopolitical, cultural and economical differences among the BRICS countries. Will BRICS be able to strengthen its ties or will they lose their initial thrust and significance as UN?

The 5 the BRICS Summit: An Overview

South Africa hosted the 5 th BRICS summit on March 27, 2013 in Durban. This is a joint effort by BRICS countries for the Development, Integration and Industrialization among BRICS members. This is the first ever BRICS summit to be hosted in an African country. This summit coincided with the 50^th celebration of African Unity/African Amalgamation.

The BRICS agreed for the establishment of a New Development Bank and indicated that the primary capital assistance to the bank should be substantial and adequate for the infrastructure. In addition to that, the leaders concurred in the establishment of the Contingent Book Arrangement (CRA) with a prime dimension of US $ 100 billion.

The CRA would help BRICS nations to overcome short-term liquidity issues and for stronger economic steadiness. It would also aid to strengthen the worldwide economic security and support current economical issues. For this, BRICS leaders concurred to reassess the advancement made in these initiatives at the next gathering of BRICS Finance Ministers and Central Bank Governors in September 2013.

Another outcome of the summit was the establishment of BRICS Think Tank Council and BRICS Business Council. The Think Tank Council will work as true Think Tank to evolve policy options like the evaluation and future long-term strategy for BRICS. The BRICS Business Council will bring simultaneous business associations in each of the BRICS countries and coordinate commitment between the business groups on an ongoing foundation. 

South Africa will be the Chairperson of both council and they will reinforce intra BRICS collaboration to develop new paradigms for sustainable and inclusive development, as well as new learning and information paradigms.

Do you need a Debt Management Plan?

   

Bad debt crisis is hovering Asia region.

In 2012 South East Asia’s total debt was US$22.9 billion. In 2011 it was $14.6 billion. ICICI bank sold 500 million Yuan of 2015 bonds in September 2012, 83% more than of 2011.This was issued in India and Asia pacific countries.

These figures show how much Asia will need debt management programs. May be Asia is going the European way! These signs are warning signals for people as well as governments to take preventive measures.

The burden of the debt can make life stressful.  Enrolling in a debt management plan would be wise if you are in a financial crunch. Debt Management Plans are a systematic approach to clear off the debts. This structured workout proposal is an agreement between client and creditors. A third-party provides this service and they work in terms with the creditors.

If your total debts  come around $7893 from 2 different cards and the other sources, and the current monthly instalments work out to be $ 534, then after adopting the debt management plan your monthly instalments can come down to  $ 230 giving you the least of $ 299 as the savings.

Personal debt in UK itself has culminated to £1451 trillion. The household debt excluding mortgages is £7,948 trillion. The debt all over the world is increasing and various countries have adopted Debt Management Plans and found it successful.

Adoption of Debt Management Plans follows an effective credit counselling session. Choose your credit counselling agency with due care, some may give you false hope. Inform your creditor about every proceeding with the credit counsellor.

Taking up a Debt Management Plan is good, and it will help you to get financial literacy and discipline. None of us want to stay in the debt trap. And a stitch in time saves nine

Quantitative Easing in Japan ! A blessing or curse for Asia?

Appreciate or criticize? Economists worldwide is confused when Japan’s 20 year old monetary policy was replaced by quantitative easing. The decision taken by Mr. Haruhiko Kudera , the governor of the  Bank of Japan has brought mixed reaction throughout the world . This decision has been quiet revolutionary since household savings in the country was in a deep slumber all these years.

Central Bank will be buying 70% of government’s current Japanese Government Bond issuance & the rate of investor money will be rising to huge levels.

Nobody knows where all that money will go!! Not only Japan, but the whole of Asia might benefit out of this. Quantitative Easing has been applied in  the US and other European countries in the past and Asia was a beneficiary.

Some economists think that this sudden flow of money may not help the Asian credit segment. Southeast Asia has witnessed a fresh level of high yielding bond issuance along with Chinese property issuers. The property bubble in China is creating a record number of bonds and the developers are taking additional loans. But no one is sure about their ability to repay all these loans.

It seems like Japanese investors are not bothered about the background of the borrowers, they simply want the returns. Bank of Japan’s quantity easing strategy will generate so much money, that they are likely to bring more volatility and inflating yields.

Will this be good for Asia? Will Asia be able to handle the related market swings which can impact the entire region? Will this make or break the entire Asian credit market?

These questions are to be answered yet.

Debt drowned Asia seeks relief. Going for Credit Counselling

Requirement of credit counseling occurs when your monthly payment exec 20% of your monthly income, excluding mortgage and rent.  Credit management has its own role in Asia region since it is the part of a larger world and a big portion of the investments are from the west.

Debt level in Asia is higher than that was in the past 6 or 7 years and hence credit counseling has so much to do in Asia Pacific. This may help the region from falling into a crisis which the west is experiencing now.

However the region of Asia has shown a positive attitude towards the credit counseling. Banks like Bank Negara have started their credit counseling departments. As we say prevention is better than cure, better we prepare to face the crisis. The idea of credit counseling is being tested and proved success in major economies. It’s time for Asia Pacific to go and get benefit out of this scheme.

Asian leaders keep the hope in public debt management plans. During the Third Asian Regional Public Debt Management Forum, it was firmly concluded that the emerging economies in Asia are going to get benefited from the good public debt management systems and the development of local bond markets, which will in turn support economic stability.

Bank Negara of Malaysia has set up its own subsidiary, Agensi Counseling Dan Pengurusan Kredit ( AKPK) with the purpose of counseling and debt management . This is a great step taken for the well being of the individuals, who is in debt threat. It teaches them financial literacy and to take control of their financial situation. To date, 140,462 individuals have attended its counseling sessions. Among those 52,947, after being counseled, are still unable to manage their debts. But the good thing is that AKPK, has assisted in restructuring the loans worth RM5bil. This record is as per the official reports.

The number of people who took the counseling was 30,010, among that 15,603 participated in debt management programs. The rate of participants in counseling and debt management programs in 2009 were 36,848 and 16, 184 respectively. But the figure was less compared to that in 2008. It was on the higher side with 41,447 attending the counseling and among those, 11,958 went through the debt management programs.

The report says that Malaysia household debt as November 2010, is RM577bil and its 50% consists of total loans and gross domestic product was totaled up to 74% 

Will credit counseling be a good tool to overcome the debt threat of Asia or will Asia go the Greece, Cyprus way? Well….. Only time will tell!!