Wednesday, August 29, 2012

Insurance Credit Funding for India

It is extremely difficult to comprehend and appreciate that those who matter in determining prudent financing policies in national interest in India are showing total ignorance and obliviousness about the crumbling world economic structures and the apparent changes which could be seen by every intellectually honest economist in India. In 1998 India issued the Resurgent India Bonds (RIB) and in 2000 the India Millennium Deposits (IMD) for a tenure of five years to target channelizing NRI savings into India, which would have even otherwise reached India in due course of time. PIOs have moved out of India for over 1000 years now, but have never lost their roots.

In 2011 India created an Infrastructure Debt Fund (IDF) for about INR 10,000 Crores and now the State owned India Infrastructure Finance Corporation Ltd.(IIFCL) are finalizing broad contours for a multi-billion-dollar 30-year proxy sovereign bond that (as projected) will allow the Indian Government to raise funds from Foreign Institutional Investors (FII). It is expected that these Bonds would be floated with a guaranteed return of about 9 % in the expectation that, with the Europe shrinking the bonds will fully subscribed, in spite of the credit rating loaded against India (by global statistic holders), for dismal and slowed growth rate of 5.3 % in the last quarter of 2011 – 12, the slowest since 2003 – 04.

80 % of the money so sought to be raised is expected to provide some solace to the parched infrastructure, which India has continued to build since independence and the balance would go to Public Sector Banks to enable them to lend more money and obviously take it back by making book entries against unpaid debts (creating more NPA’s). It is also expected that the inflow will help prop up INR which in June 2012 hit a record low of 57.32 against US$. All this is expected against the widening of current account deficit gap export earnings and import payments and rising inflation in double digits and oil prices above 110 US $ a barrel, rising FDI repatriation and large external commercial borrowing redemptions.

Interestingly and amazingly nobody is asking the questions as to why India needs to pay hard earned tax payers money to repay 9 % interest to the Foreign Institutional Investors when money is said to be available at LIBOR + 2 % or the money lying with the FII’s does not belong to them but belongs to High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) who get only 3 % interest from FII’s and would be more than willing to fund any project in India @ 6.5 % interest and continue to roll it over. The other question which nobody wish to ask is what will happen after a period of 30 years when a new generation of Indians will be hit by the tsunami of repayment.

These bonds will certainly be prescribed by those who control Global Financial Institutions and economy, directly or indirectly and would never lead to achieving a reasonable GDP. These commitments would logically and certainly take the economics down further, as the objectives are on plain logic are not achievable and will not increase production but will only increase inflation. Companies will reduce employee’s salaries budget (they can’t reduce travel, entertainment, marketing and taxes), leading to employees unrest (Maruti in Gurgaon) and will not invest anything into R & D, for the Company has to meet the direct and indirect tax demands (validated by Courts) of the Government, for the Government has to pay high rate of interest for the debt funding structured and rigorously pursued by it.

For providing long-term debt to infrastructure projects Mr. Edward Fortin, President & CEO Global Operations of Fortin Financial Group (FFG) a BVI Company, has devised a proprietary funding mechanism primarily keeping in view the global melt down of existing banking structure and currency wars which will certainly change the balance in global economics in the new age. It is not only difficult but impossible for anyone to negate that the PIO’s are making their mark all over the globe not only in the field of IT, Astronomy, finances but also politics. It is not difficult to decipher the reason for all this and that is the deep rooted ancient heritage, profound culture, traditionally oriented family structures with simple and positive values, natural entrepreneurship skills, integrity, honesty and finally adherence to relationship above mere economics.

After long and deep search in existing economic structures managing the affair of the world for over 220 years (since 1791) it is necessary to shift from Banks Debt Funding to Insurance Credit Funding (ICF). ICF is a perfect solution to provide long-term funds without a baggage more particularly because the source of money is not a fund created on debt against Government Bonds. ICF will be an extremely efficient method of providing loans, on very reasonable terms as to interest and repayment to Public Sector Undertakings and Private Entrepreneurs by fully collateralizing the project only and without seeking any personal guarantees as is prevalent with Banking Sector. ICF is not faced with the inherent risks involved with the project development investment and that is that the investment made may not be returned back with interest. ICF based on the expanded vision and faith and trust in the entrepreneur executing the project. The tacit understanding is that every project is able to achieve its object and purpose, if the money is spent on the project. If the project fund is not siphoned off for other purposes, the real objective of every project of job creation and sustainment of personal wellbeing, is always achieved and that in fact and in real terms adds to the Gross Domestic Product (GDP) or Gross Personal Happiness (GPH)

The confidence that this system of funding permeates because of the inherent strength of the financial structure of Credit Fund created against actually existing insurance funds, as contradistinguished from the Debt Fund created against Government Bonds. The stake holders in this creation of these funds are:

The stake holders in this creation of money are:
1. Life Insurance Company – In USA
2. Senior Citizens – in USA
3. Otkritie - Broker, Asset Manager, Financial Consultant and Investment Banker – Russia / UK (http://www.otkritie.com/)
4. Fortin Financial Group (FFG)  – British Virgin Island
5. J.P. Morgan – in U.K.
6. Insurance Company – AXA, ING and Allianz - in Europe
7. High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) – All over the globe especially Europe
8. Greenberg Traurig – US Law Firm (http://www.gtlaw.com )
9. Law Consults – India Law Firm (http://www.law-consults.com )
10.State Government, PSUs and Private Entrepreneurs – in India
11.RITES (Rail India Technical and Economic Services) – For Engineering Consultancy and Project Management Services and BNP Paribas for Real Estate Projects – in India
12.IDBI (Capital) (Industrial Development Bank of India) – Financial Structuring and Techno Commercial Appraisal and Security of Documents in India
13.Projects – in India

The Process -
Senior Citizens in US, who are holder of LIPs and are in need of immediate funds, look forward to surrender the LIPs to the Insurance companies. However, in view of their assignable nature, the senior citizens can assign the same on a higher premium. Fortin Financial Group (‘FFG’) has got in its fold policies of senior citizens preferably above the age of 72 years (life expectancy in USA is 75 to 78 yrs.) and have paid surrender value of the LIPs along with a premium amount to the senior citizen, who is more than satisfied as having received more value, than the surrender value they would have got from the Insurance Company. FFG shall continue to pay the premium, from year to year to the Insurance Company, for the rest of the life of the person, whose policy they have assigned to themselves. FFG will be entitled to receive the insured value of the LIP at the time of death of the policy holder. A simple calculation of the surrender value paid to the policy holder with premium and the payment of annual premium to the Insurance companies vis a vis the insured value to which FFG would be entitled, reveal that FFG is conveniently left with a substantial surplus amount as their profit. 

Having purchased the policies of senior citizens for a premium, FFG has assigned the task to J.P. Morgan U.K. a Investment Banker to keep the policies in their trust and continue to pay the premium to insurance companies and to collect the insured value as and when it becomes due and payable by the insurance companies. The surplus amount left after payment of surrender value and  premium amount along with 5 % for 10 years comes to about 50 % of the total value of the insurance amount to which FFG would be entitled from the insurance companies. Any investment through FFG system with secured 5 % annual simple interest is totally secured by the J.P. Morgan U.K. A totally secured annual return of 5 % for 10 years is a perfect, lucrative and flawless investment for High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) all over USA and Europe, when LIBOR (London Inter-Bank Offered Rate) is about 1.35 % for 12 months and continues to vary at 11.45 am (London Time) every day at the behest of BBA (Britain Bankers Association). The maximum amount that the HNI, QIBs and FIBs are receiving against long term investment is LIBOR + 1 % i.e. 2.35 %. 

FFG is simultaneously executing MoUs with Public Sector and Private Sectors undertaking for their infrastructure projects in India by creating an SPV or equity participation or granting loans. With the formal commitment made for projects in India, FFG will load the Mid Term Notes (‘MTN’) or Bonds from its SLS portfolio and instruct J.P. Morgan U.K, its Investment Banker to provide the HNI, QIBs and FIBs with information required to enable them to access the MTN or Bonds offered via the Bloomberg Terminal in order to perform due diligence of the projects to be executed in India. With the due diligence accomplished, the sale of MTN or Bonds can be completed with the MTN sold @ par to HNI, QIBs and FIBs all over USA and Europe assuring return of principal and a 50% fixed return (5 % per annum), both payable at the end of year ten (10). The Investor purchases these MTN, for such investment eliminates the inherent risk of any loss of principal and interest which is associated with project investment and also gives him a sense of contribution to actual genuine development and not contributing to blood money or corrupt funds.

The investor receives:
·        MTN ownership, backed with ‘A’ rated or better SLS with a non-lapse premium contingency.
·        Principal reimbursement at maturity
·        50 % fixed return, payable at maturity
·        SPV security
·        Equity stake
·        Additional windfall

Funding in India –

Having secured the principle and interest payable to the investors, FFG has to ensure use of the funds raised against these MTN or Bonds be financed for Public Sector Undertakings and Private Entrepreneurs in projects in India, that would be actually executed or lying dormant and can be executed forthwith. This funding could be provided on long term basis of 7 years at interest rate of 6.5 % for PSUs and 7.5 % for Private Sector or to be decided on case to case basis. This interest amount received by FFG would cover the expenditure that FFG has to make in maintaining the MTNs, marketing and selling the Bonds, fees and expenditures of the Investment Bankers, professionals associated with the entire project, travel and other organizational expenditure and some profit.

Experience has established that most of the projects in India have an immediate need of a bridging finance or a seed capital. In a typical Real Estate, Hotel or other Infrastructure project, persons have invested the available capital in the land and basic infrastructure and are looking for finances to complete the project to bring it to a take-off stage (in several cases the funding received from FIs has led them to courts) or have huge lands as securities and are looking for finances to develop and complete the project before they market it to the consumer. With most Indian Entrepreneur’s having burnt their fingers and lost total trust in their effort of raising finances through the Big Four (4) and in deep debt with Banks and other Financial Institutions all over the country, not only find it difficult but impossible to pay any advance or up front to bring in fresh funds.

Bridging Finance using a Credit Default Swap (CDS) –

Public Sector Undertakings are in dire needs of funds to give fillip to the infrastructure in the country.  All these PSU’s need bridging finance to initiate the process of the Project before the real project fund arrives, which would normally take 4 months. This need to bridge the gap between the submission, sanction and approval of the Project and receiving the funds through MTNs and Bonds, spreading over a period of 4 months can be met by raising finance by issuance of a CDS by a nationalized Indian Bank. The NBFC can submit the approved project and the valuable securities of the Public Sector or Private Entrepreneur to the Bank, which can issue a CDS of an amount equal to 30 % of the value of the securities. Against the CDS the NBFC can raise the bridging finances from its Credit Line existing overseas for its associate companies and provide it to the PSU or PE. As soon as the project fund is received, the CDS will be released and utilized according to the project cash flow analysis. The amount can be rolled over if the need so arise.

The entire fund which comes to India comes as Capital of BFIL, with no strings and shall continue to be rolled over in India alone with no movement of funds outside India again. Reorientation of the family structures, coming up of new entrepreneurs and modernization of technology shall continue to need fresh finances, which can continue to be provided as the total Insurance funds lying overseas are to the tune of 23 trillion US $ and 4.3 trillion US $ coming in yearly. India neither lacks entrepreneurship nor does it lack commitment to the cause, but needs correct thinking and execution with determination and will. India only needs the necessary momentum to break the existing inertia, which can be provided by FFG by resourcing funds through Insurance Credit Funds and work as a consortium with nationalized Banks.
Insurance Credit Fund Vs. Bank Debt Fund

Introduction

Technology and Infrastructure based on technological advancement brings about growth momentum of the economy in the country. Agriculture and housing led to water channels, water pipes and roads, electricity led to erection of generating systems and distribution network, TV led to satellites, cable network, mobile phones to erection of transmission towers and now Wi-Fi.  R & D will continue to take mankind towards harmonious, happy living and sustained relationship (that is what we all are looking for). After the advent of Industrial Age (1770 AD) and introduction of currency industrial growth and infrastructure projects have been financed by Banks and after the WW II formation of United Nations by the World Bank and other Development Banks and several Funds, existing globally and locally. India’s Investment in infrastructure during the Twelfth Five Year Plan (2012-17) is expected to be Rs. 45,00,000 Cr.

The source of all this Bank funding is fundamentally and basically in the nature of debt. All the currency that exists is minted by the 204 countries in exercise of its sovereign power either under a contract (Federal Reserve Fund for USA) or by an independent authority (RBI for India) against Bonds issued by Government, with promise to pay. These bonds are however never paid back, for more money is minted against more bonds when more is required and the bank debt fund continues to increase in the globe and continues to be circulated on fractional reserve basis. The total global debt fund of all the countries in 2012 is about 40 trillion US $. This money than continues to change hands for the products produced by corporations or companies (from MNCs to Proprietorship Firms) and services rendered by individuals (from those working in NASA to rag pickers). Monopoly, Trade, Vyapaar and Career were indoor children games played by us all, where the pre-existing currency was distributed by a Banker to all the players who continued to roll the dice and buy properties collect rentals or pursue their career with passion, ambition and diligence, till they were too tired and exhausted (after 4-5 hrs.) to play more and the money went back to the Bank to start all over the next time. The global economics draws a parallel and the Banks continue to dominate the life of every nation and every individual.

To meet its challenges of growth, Government of India has created an Infrastructure Debt Fund of about 2 billion US $ and is further gearing up to create further funds by issuing long term 30 yrs. Government Bonds at about 9 % fixed income to the Bond Holders, which will certainly be purchased by the FIIs, which control Global Financial Institutions and economy, directly or indirectly. A well-managed and well-connected conglomeration of seemingly unconnected Bankers, Fund and Asset Managers, Financial Consultants, MNC’s, Media called CP – GOD (Currency Pharmacy – Gold, Oil and Diamond) continue to control the affairs of the Governments and individuals on the basis of fluctuating markets (called market forces) and conflicts (ethnic, civil disobedience etc.) and amass the benefits of 7 + billion human beings. Governments and persons sees money only from the time it comes into their hand a leaves their accounts, but that is the miniscule visible part of money cycle and the mega part remains un-manifest to the commoner. But economists and people who can think and see beyond can always decipher the real play of forces.

In view of the real play of forces, interlocked in networked, the commitments sought to be made by the Government of India, would logically and certainly take the growth further down, as the objectives are not achievable from the debt fund and will not increase production but will only increase inflation. Companies will reduce employee’s salaries budget or reduce number of employees (they can’t reduce travel, entertainment, marketing and gifts), leading to employees unrest (Maruti in Gurgaon) and will not be able to invest anything in R & D and continue to depend on utran (discarded technologies), for the companies will have to meet the direct and indirect tax demands (validated by Courts) made by the Government at every taxing event from excise to sales and service to wealth. Government has also no choice for it has to pay high rate of interest on the debt funding, choicelessly received by it.

The incorrectly structured economic cycle will only lead to disastrous consequences like corruption and civil disobedience movement, fuelled by those very people who have first got the policies in place to receive the debt and thereafter landed the money to legally extract money out of the system. This is simply a global manifestation or a globally expanded form of the old Zamindari system, where money was lent for fertilizer and seed, to the farmer by mortgaging his land. The loan would never be paid because the crop was burnt or money spent in rituals (dowry, mritubhoj…) and the debt and mortgage continued in perpetuity. The Zamindar would openly molest and rape the females in the house and not only laugh it out but glorify his misdeeds, misdoings and misadventures. The system was fully supported and fuelled in British Raj and the Privy Council said “Once a mortgage always a mortgage”. All that was the reason for all the land reforms by giving khudkasht (self-tilling) rights to all the cultivating land less persons and abolition of Zamindari system at the dawn of independence. It is not difficult to understand that the supports by judiciary to land reforms led to the first amendment of the Constitution of India for the leaders, with their vast readings (free time spent in jail) were able to understand and appreciate the interplay of global economic forces. Incidentally industrial age ended and e-age started in 1955, making all information available to individuals and after 1990 though there is a deep quest of making the world unipolar to enable them (CP-GOD) to mint a global currency, the same is becoming multi polar and slipping out of their management and control.
          
         For providing long-term debt to infrastructure projects, it would be necessary to shift from Bank Funding to Insurance Funding that has the capacity to provide long-term funding mechanism and the source of money is not a fund created on debt. In the existing economic structure insurance funds will be able to provide an extremely efficient method of providing loans, on very reasonable terms as to interest and repayment to Public Sector Undertakings and Private Entrepreneurs by fully collateralizing the project only and without seeking any personal guarantees as is prevalent with Banking Sector. From the financer point of view there are always inherent risks involved with the project development investment and that is, that the investment made may not be returned back with interest and penal interest. However, as the horizon of the vision expands and more faith and trust is imbued on the entrepreneur and those executing the project, it will be possible to see that every project is able to achieve its object and purpose, if the money is spent on the project. The real object of every project is job creation and sustainment of personal wellbeing, which is always achieved if the project fund is not siphoned off in land banking, share markets or other projects not under the management of the entrepreneur and somebody provokes him and shows the possibilities of making some quick money, which is never made.

The confidence that this system of funding permeates because of the inherent strength of the financial structure of Credit Funding raised against actually existing Insurance funds from those who care for the world and have feelings for the mankind, as contradistinguished from the money raised against Government Bonds from those who do not care. The stake holders in creation of these funds are:
1.Life Insurance Company – in USA
2.Senior Citizens – in USA
3.Broker, Asset Manager, Financial Consultant and Investment Banker
4.Overseas Financial Group (‘OVG’)
5.NBFC in India
6.Insurance Company
7.High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) – All over the globe especially Europe and USA
8.Law Firms in USA and India
9.PSUs and Private Entrepreneurs – in India
10.Engineering and Techno Consultants and Project Managers - in India
11.Financial Consultants and Asset Valuers – in India
12.Projects – in India
Backdrop -
Insurance appeared simultaneously with the appearance of the human society. Since 1680, all over the world first marine insurance, then fire insurance and thereafter several other forms of insurance have continued to grow. Life Insurance Companies continue to provide and citizens continue to take Life Insurance Policies (LIP) to provide security to their families after their death. Citizens continue to pay premiums against these LIPs on monthly, quarterly, half yearly or yearly basis. In view of the judgement of Supreme Court of USA, in USA these LIPs are transferable and/or assignable to third party. Over the centuries, the insurance surplus fund has continued to accumulate all over the world. This wealth is in fact the fund generated by beings which existed on planet earth, had worked and had deposited premiums with the Insurance companies and the insurance companies even after paying the legitimate dues to the people have been left with legitimate profits, which they have continued to invest against securities including government securities on low interest rates.

These profits constitute about 40 % of actual cash deposits in the Bank as contra-distinguished from digital money and freshly minted currency and is to the tune of about US $ 23 trillion in US and Europe with an premium of 4.3 trillion US $ coming in every year, for it is inherent in the human functionality, that nobody consumes more than he produces. The only exceptions are those who do not produce anything but live as looters and moochers (CP-GOD) on the wealth produced by other private entrepreneurs. All the currency printed in the world does not get destroyed except when burnt in wars, attack by terrorists or natural disasters.

The Process -

Senior Citizens in US, who are holder of LIPs and are in need of immediate funds, look forward to surrender the LIPs to the Insurance companies. In view of the assignable nature of these policies, the senior citizens can assign the same on a premium higher than the surrender value. An Overseas Financing Company (‘OFC’) can get in their fold, policies of senior citizens and pay the surrender value of the LIPs along with a premium amount to the senior citizen, who is more than satisfied as having received more value, than the surrender value they would have got from the Insurance Company.

The OFC than continues to pay the premium, from year to year to the Insurance Company, for the rest of the life of the person, whose policy they have assigned to themselves. The OFC will be entitled to receive the insured value of the LIP at the time of death of the policy holder. Having purchased the policies of senior citizens for a premium, OFC can assign the task to an Investment Banker to keep the policies in their trust and continue to pay the premium to insurance companies and to collect the insured value as and when it becomes due and payable by the insurance companies. A simple calculation of the surrender value paid to the policy holder with premium and the payment of annual premium to the Insurance companies vis a vis the insured value to which OFC would be entitled, reveal that OFC is conveniently left with a substantial surplus amount as their profit. This surplus amount along can constitute a reasonable fixed return of, say 5 % for 10 years, and is a complete security of any long term investor and is totally secured by any Investment Banker. A totally secured annual return backed by existing securities is a perfect, lucrative and flawless investment for High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) all over USA and Europe, when LIBOR (London Inter-Bank Offered Rate) is about 1.35 % for 12 months and continues to vary at 11.45 am (London Time) every day at the behest of BBA (Britain Bankers Association – and extension arm of CP-GOD). The maximum amount that the HNI, QIBs and FIBs are receiving against long term investment is LIBOR + 1 % i.e. 2.35 % and they are not aware, where the money was being invested.

Having secured the funds raised by OFC, OFC’s would execute MoUs with Public Sector and Private Sectors undertaking infrastructure projects in India by creating an SPV or equity participation or granting loan. With the formal commitment made for projects in India, OFC will load their Mid Term Notes (‘MTN’) or Bonds from its SLS portfolio and instruct its Investment Banker to provide the HNI, QIBs and FIBs with information required to enable them to access the MTN or Bonds offered via the Bloomberg Terminal in order to perform due diligence of the projects to be executed in India. With the due diligence accomplished and the HNI, QIBs and FIBs becoming exactly aware of where the funds are flowing, the sale can be completed with the MTN or Bonds sold @ par to HNI, QIBs and FIBs all over USA and Europe assuring return of principal and a 50% fixed return (5 % per annum for 10 years, payable at the end of 10 years). The Investor purchases these MTN, for such investment eliminates the inherent risk of any loss of principal and interest which is associated with project investment and also gives him a sense of contribution to actual genuine development of the world and not contributing or underwriting the blood money used to exploit the commoners around the globe

The investor receives:
·        
            MTN ownership, backed with ‘A’ rated or better SLS with a non-lapse premium contingency.
·           Principal reimbursement at maturity
·           50 % fixed return, payable at maturity
·           SPV security
·           Equity stake
·           Additional windfall

      Reorientation of the family structures, coming up of new entrepreneurs and modernization of technology shall continue to need fresh funding ad infinitum. The quest and the will of every human being to create world anew and a will to create a better human society or natural disasters will continue to take the infrastructure and the world around to the next level year after year, whether it is basic like bijli (electricity), pani (water), sarak (road) or real estate and housing, telecommunication, sports, old homes, education or heavy medium and small industry, to next level and continued reconstruction. India neither lacks entrepreneurship nor lacks commitment, but needs the necessary restructuring and momentum to break the existing inertia, which can be provided by Insurance Credit Funds and help India to take a quantum leap.