Ghassan ChammasConsultant

Blom Development Bank

Session III: Supporting Oman Real Economy and EntrepreneurshipsOman Second Islamic Banking & Finance Conference

T H E L E B A N E S E E X P E R I E N C E

A ROADMAP TO SME SUPPORT

OMAN 2ND ISLAMIC BANKING & FINANCIAL

CONF. MARCH 2013Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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SME Classical Support

Sufficient tenure to generate

profit cycles

Grace period

Custom designed

amortization plan

Possibility of restructuring part of debt

if needed

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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SME ALLY#1: AMPLE TIME

Start-Up phase

Inception

installation

First output

Towards Development

phaseMarketing and penetration

Full growth- full throttle

PROFIT generation

Expand or TRENCH

Sufficient TENURE- profit cycles

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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TIME TO DESTINATION…

Inception3-6 months fixed expenses

InstallationSometimes 1 year before full output

Marketing and penetrationUncertain period of market adoption

Profit generationROI and ROA payoffs

What is next? Expansion or trenching: TIME constraint

Sufficient tenure for development

Start-Up…

Development and

maturity

Ghassan Chammas

6OMAN 2nd Islamic Banking & Financial Conf. March 2013

N O T A L L R E I M B U R S E M E N T S C H E M E S A R E + P M T ( ) !

AMORTIZATION PLAN. WE CAN HELP!

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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SME Successful

Support

Sufficient tenure to generate

profit cycles

Custom designed

amortization plan- Grace

period

Access to governmental

SUBSIDY

Government supported guarantee

scheme

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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PRINCIPAL-PROFIT DILEMA

Pricipal Amortization• If helpful P is small at start• SME breathing

PROFIT !!• The Smaller P the BIGGER P

accum• You give with one hand and you

take from the other-• If not: Displacement risk

End Result• Heavy debt: default risk• This must be avoided.

How?

Principal - Profit

Small P Big Accm Profit

BURDEN DEBT

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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SME SUBSIDY

Amortize wisely

GIVE SUBSIDY• SME pays only a small

part of profit• Remaining is

subsidized

ESAY DEBT: SME Growth• Win-win situation

SUBSIDY

EASYY DEBT

Profit

Subsidy

Small P

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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HOW CAN YOU SUBSIDIZE

Usually governments subsidize “The INTERESTS” paid by SME’s. Although linguistic, the law does not cater for “PROFIT” subsidies.

Lebanon case: We have a law subsidizing “interests” to some supported sectors: Agriculture, industrial, IT and software development, Touristic projects, environmental friendly projects. BUT, ISLAMIC BANKS CLIENTS CANNOT ACCESS IT.

Subsidies come from various sources: EC, IFC, NGO’s, Government (s), Central Bank, etc…

The challenge is how can you create an Islamic financial engineered structure to include the subsidy within the offered facility to your client

SUBSIDY

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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HOW CAN YOU SUBSIDIZE

One easy way is to establish a HIBA system. Some fiscal laws are not very friendly with the idea.

If the subsidy offers the capital at low cost, establish a special purpose vehicle to isolate and package the facility from SPV to client through financial entities. RED TAPE? Maybe, it depends on jurisdictions.

If subsidy is to the interest on the capital advanced by the banks to SME, then very difficult to channel the subsidy to islamic facilities, unless expressed in its charter as paying part or all of the profit: Qard Hasan from bank + profit as Hiba ; or facility at low profit margin and supplemented by subsidy

SUBSIDY

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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HOW CAN YOU SUBSIDIZE

If subsidy is from CB, then CB sells commodity to IB at a low murabaha rate, so the IB liquidates commodity spot and pass it through to SME via an Islamic financial instrument: Lebanon. Requires strict monitoring to IB from BCC to make sure the principal is channeled to SME’s.

The market requires intelligent set ups to make sure the SME’s are supported properly.

SUBSIDY

Ghassan Chammas

OMAN 2nd Islamic Banking & Financial Conf. March 2013

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IN BRIEF

GIVE AMPLE TIME TO PAYBACKCUSTOMIZE AMORTIZATION PLANS INCRUST EXISTING SUBSIDIES INTO ISLAMIC FINANCIAL SCHEMES

Q&A

GHASSAN CHAMMASADVISOR TO THE BOARDBLOM DEVELOPMENT BANK. SALBEIRUT - LEBANONwww.blomdevelopment.com ghchammas@gmail.com

Ghassan Chammas