9 Common Effects of Inflation

If greece clinches last gasp deal, who will provide money for imf


´╗┐Greece's European creditors are playing a game of pass-the-parcel about who should stump up the money to avert a default at the end of June if Athens clinches a last-gasp deal this week on a package of reforms to unlock frozen bailout funds. Greece must repay the International Monetary Fund (IMF) 1.6 billion euros ($1.8 billion) by June 30 or be declared in default, potentially triggering capital controls to prevent a bank run and pushing it closer to an exit from the euro zone. However, euro zone governments say it is already too late to release the 7.2 billion euros left in Greece's bailout before the end of the month, since national parliaments would only approve the disbursement once the Greeks pass laws to enact their reform promises - a process known as "prior actions". Another possible source of quick funds would be for the European Central Bank to let the Greek government sell more short-term Treasury bills to Greek banks and others. Greek Prime Minister Alexis Tsipras has repeatedly appealed to ECB President Mario Draghi to loosen the noose on Greece in this way. But Draghi, facing strong opposition from hawks in Germany's Bundesbank and its allies on the ECB governing council, has said the bank would only allow more T-bill issuance once it was sure the member states would disburse the frozen aid. That, too, would come too late for the June 30 deadline. That leaves two other pots of money that could be used to give Greece a lifeline to repay the IMF: 1.9 billion euros in profits from ECB holdings of Greek government bonds bought in 2010-11, which were returned to euro zone member states; or 10.9 billion euros in loans earmarked for recapitalising Greek banks, which are being held by the euro zone rescue fund.

Either of those sums could be released by a unanimous agreement of the Eurogroup of euro zone finance ministers without prior parliamentary authorization, EU sources said. JUST ENOUGH Of the two, the "SMP profits" - from the acronym of the ECB's now-defunct Securities Markets Program - seems the most likely, diplomats say.

That is because the money has already been promised to Athens in 2012 if it completed its bailout program, but also because it is just enough to keep Greece's head above water without giving the Tsipras government any change to spend. Greece laid legal claim to the larger sum in the so-called Hellenic Financial Stabilisation Fund (HFSF) early this year, but euro zone ministers exasperated by Tsipras' anti-austerity rhetoric made Athens hand back the money, stating that it was for bank recapitalization and not general government funding. A statement agreed by the ministers in February made releasing either sum subject to strict conditions.

In theory, the transfer of the 2014 SMP profits is conditional on the conclusion of the bailout review, certified by all three lending institutions - IMF, ECB and European Commission - and the approval of the Eurogroup. As for the HFSF money, it was made subject to a request by the ECB and its banking supervisory arm. EU officials say some of that amount could be released after Greece completes the "prior actions", proving its willingness to turn reform promises into legislation. That would give Athens money to redeem some 6.9 billion euros in bonds held by the ECB that mature in July and August. "Clearly, if there's a deal, someone will have to come up with the money to pay off the IMF," a person familiar with the negotiations said. "But each institution is looking at the other and saying: 'After you'...'No, after you'."

Kenyas market overhaul eyes islamic finance framework


´╗┐Kenya's financial regulator has proposed a separate regulatory framework for Islamic financial institutions as part of a broad ten-year strategy designed to boost capital markets in east Africa's biggest economy. A draft of the strategy was circulated early this year and the plan is now in its final stages of preparation. It aims to promote more sophisticated financial services in Kenya such as asset management, venture capital, private placements and Islamic finance."It will be launched in coming weeks," a spokesman for Kenya's Capital Market Authority (CMA) told Reuters. Sharia-compliant structures are seen as important to support funding of Kenya's infrastructure projects, with the CMA dubbing Islamic finance a "priority". Most estimates put the number of Muslims in Kenya at only about 15 percent of the population of 40 million. But Islamic finance, which is also being developed by several other sub-Saharan countries in Africa such as Nigeria, could help Kenya attract investment from cash-rich Islamic funds in the Gulf and southeast Asia. Islamic finance, which follows religious principles such as bans on interest and gambling, is currently offered by two full-fledged Islamic lenders in Kenya - Gulf African Bank and First Community Bank (FCB) - as well as the Islamic windows of several conventional banks.

They will be joined this year by the country's first retakaful (Islamic reinsurance) firm, as Kenya Reinsurance Corp ventures into the sector, the CMA said in its draft plan. Takaful Insurance of Africa, the first full-fledged takaful company in the country, was launched in 2011. The CMA has also approved Genghis Capital to operate an Islamic collective investment scheme, joining FCB Capital; the regulator has introduced rules allowing the creation of sharia-compliant real estate investment trusts.

STRATEGY In the short term, the CMA plans to create a regulatory framework of its own for Islamic capital markets, focusing on corporate governance, information disclosure, a policyholder compensation fund and responsible pricing. In the long term, however, the CMA would engage the central bank and national Treasury to develop a separate policy, legislative and regulatory framework for Islamic finance.

"This is a long-term project, but this framework should provide the legal basis for the Islamic finance sector by giving explicit recognition for Islamic financial services in all relevant financial sector legislation."This would include creating and giving legal recognition to a single national sharia advisory board to set rules and policies for the entire industry, a centralised approach which mirrors regulation in countries such as Malaysia and Oman. The plan would also create an industry lobby group and work with standard-setting bodies such as the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions and the Malaysia-based Islamic Financial Services Board. The CMA would seek help in developing Islamic finance from industry hubs in Malaysia and London. It has existing agreements with Malaysia's regulator and a working relationship with the London Stock Exchange. Last month, the central bank-owned Kenya School of Monetary Studies started offering courses related to Islamic finance. The central bank has been working with its Malaysian counterpart in an effort to offer sharia-compliant instruments such as Treasury bills.