Prospects of Islamic Banking

Texts Articles Cases Internet References 3 Acknowledgment I would like to forward my utmost gratitude to a number of people, for their generous co-operation and assistance, in the course of preparing this monograph. Mr Howard Johnson for reviewing my thesis plan, Professor Bob Lee for his invaluable insight on Chapters 1-5 and finally Dr PaulBridges and Dr Simon Norton for their enlightening views on several issues. I dedicate my efforts to ‘Bhaijan’, who has always been the inspiration and my guide throughout my life. 4 Preface At present times, it would not be inappropriate to state that Muslims the world over face the dilemma that their religion, Islam, prohibits interest in stringent terms and aims at establishing an economy that is not only free from all forms and kinds of interest, but also from anything that bears any resemblance to it.The modern economy is heavily based and reliant on interest and it is hard to envisage any set of economic relations where interes t does not play a part, whether directly or indirectly. Resolving the above-mentioned contradiction seems to be a challenge that Muslim intellectuals, bankers, industrialists, businessmen, policy-makers and ordinary consumers face. In a nutshell, this monograph seeks to provide an analysis of the workings and practices of Islamic banking industry and the products it offers; covering legal, political, social and economic issues as they relate to it.Chapter 1 commences by providing a rationale to the Islamic banking and outlining its historical journey, and ends with a discussion on the riba and its prohibition in Islam. Chapter 2 deals with the modes of Islamic finance, which certainly requires a detailed study, as it is these products that form the cornerstone of the entire Islamic banking industry. Shariah precepts are also introduced at this stage (and are discussed throughout this monograph), as they aid the process of comprehension. This chapter would also serve to introduce a d iscussion on Islamic Project Finance, dealt within the following chapter.Chapter 3 deals with Islamic Project Finance in practice, focussing on the legal and other economic issues as they relate to Shariah-Related Documentation, Construction and Lease Financing and Islamic Bonds. Chapter 4 consists of two case-studies, highlighting the Common law developments in Shariah law, as it relates to the Islamic banking industry. Two recent judgments (one from UK and another from Pakistan) are specifically perused, reflecting the stance that the judiciary in the two countries have adopted towards Islamic precepts, its interpretation and application.Chapter 5 raises issues relating to structuring and offering of Shariah-Compliant investment products. In particular, focussing on the role of financial institutions, fund promoters and Shariah advisors. The chapter concludes by providing a comparative analysis on the legal issues linked to the marketing of Islamic investment products in different jurisdictions. Chapter 6 provides an insight to the regulatory and supervisory practices of Islamic banking in various countries.Obstacles faced by the Islamic banking industry in their progress as regards their set up in interest-based banking jurisdictions is further addressed, which is supplemented by a case study on the regulatory issues of Islamic banks in India. 5 Chapter 7 is meant to be general, and briefly discusses the lessons that Conventional and Islamic banks can learn from each other, addressing issues such as the effect of technology transfer and the Bank-Client relationship, which would ultimately lead to the progress of one another. Chapter 8 concludes this monograph. It ascertains the merits of introducing Islamic banking globally.Reforms and suggestions for the Islamic banks are also appended to this chapter, together with a few conclusive remarks on the subject. It is aspired that this work will be a positive contribution on the subject of Islamic banking and it s practices. Suggestions and criticisms are solely intended to enhance the progress of this relatively nascent banking industry, which has undoubtedly shown major signs of progress. 6 Glossary of Arabic Terms This section explains some of the Arabic words and terms, most of them appearing in this study, whereas others might relate to them and would thus be of interest to the reader.Allah is Arabic for God. Fatawa (singular. Fatwa) are legal decisions or opinions rendered by a qualified religious leader (mufti). Fiqh is Islamic Jurisprudence, the science of religious law, which is the interpretation of the sacred Law, Shariah. Gharar is uncertainty, speculation. Hadith (plural. ahadith) is the technical term for the source related to the Sunna; the sayings- and doings- of the Prophet Mohammed (pbuh), his traditions. Halal means permitted according to the Shariah. Haram means forbidden according to the Shariah. Jualah is the stipulated price (commission) for performing any service.May sir mean gambling, from a pre-Islamic game of hazard. Muslim is on who professes the faith of Islam or is born to a Muslim family. Qard Hasan is a benevolent loan (interest-free). Qiyas means analogical deduction. Quran is the Holy book, the revealed word of God, followed by all Muslims. Riba is literally excess or increase, and covers both interest and usury. Shariah is Islamic religious law derived from the Holy Quran and the Sunna Shirka (or Sharika) is a society or partnership. Surah is a chapter of the Holy Quran. Takaful refers to mutual support, which is the basis of the concept of insurance or solidarity among Muslims.Umma means the community; the body of Muslims. Waqf is a trust or pious foundation. Zakat is a religious levy or almsgiving as required in the Holy Quran and is one of the Islam’s five pillars. (Courtesy: Lewis & Algaoud, Islamic Banking, Edward Elgar, 2001, Glossary, x, xi. ) 7 Chapter 1 Introduction and the Basis of Islamic Banking A. Rationale from an Islamic perspective It is argued by proponents of the Islamic banking that in today’s world, the economic system that is based on interest has resulted in concentrating the wealth in the hands of selected few, creating monopolies and further widening the gap between the affluent and the poor.Islamic finance operates in compliance with the Shariah law. Islam is not anti-commerce (the Prophet Mohammad was himself a merchant). In contrast to the modern Western principles and philosophy, Islam encourages circulation of wealth and considers its role as vital to an economy. As Dr Usmani notes in his book, â€Å"just as clotting of blood paralyzes human body, concentration of wealth paralyzes economy. The fact that, today ten richest men in the world have more wealth than forty-eight poorest countries of the world is relied by the supporters of the Islamic banking as a testament to the fact that the current economical set up is unjust and has failed to distribute the wealth propor tionately, thus leading to the downfall of humanity. 1 On considering the injunctions of the Holy Quran, it is apparent that the system of distribution of wealth laid down by Islam envisages three objects, namely: (a) The establishment of a practicable system of economy. (b) Enabling every one to obtain, what is rightfully due to them. c) Eradicating the concentration of wealth. The traditional concept of Muslims that Islam is a unique way of life distinct from all other isms and ideologies extends to the economic life of the Muslims (Umma). In the process of reshaping the economy, the areas of money, banking and investment are regarded as extremely vital to the process of Islamisation of the economy. The Islamic emphasis on co-operation as the key concept in economic life has led to reliance on profit-sharing and participation as the alternative bases for banking and investments in the Islamic framework. The concept of Islamic banking is regarded as one of the few original and crea tive Islamic ideas that have been successfully tried in recent times. In the not too distant past, the entire banking system in all Muslim countries was designed on the Western banking model; the latter being inconsistent with Islamic law primarily due to the disapproval of Riba (i. e. interest) in Islam. In other words, the elimination of Riba 1 Meezan Bank’s Guide to Islamic Banking by Dr Muhammad Imran Ashraf Usmani, Preface, page 7, Darul-Ishaat, 2002. 2Issues in Islamic Banking, Selected Papers by M. N. Siddiqi, page 9, Preface, 1983. 8 from financial transactions is the raison d’etre of Islamic Banking3. Attempts to avoid dealing in interest led to the introduction of a non-interest based banking system, commonly termed as â€Å"Islamic banking†. McDowall notes that Islamic banking not only provides services that are compliant in terms of the Muslim faith, but through the fundamental concept of profit and loss sharing with their customers, deliver a highly ethical proposition to Conventional banking. As Islamic banking offers services to its customers free from interest, any dealing or transaction that involves interest is seen as erroneous and thus forbidden. Technically, riba refers to the addition in the principal amount of a loan, which the lender receives from the borrower. This deliberately simplified picture of the true complex state of affairs is something I shall return to in the following chapter in detail. B. History The Islamic financial system has a centuries-old history, as noted by Chapra and Khan (2000): From the very early stage in Islamic history, Muslims were able to establish a financial system without interest for mobilising resources to finance productive activities and consumer needs. The system worked quite effectively during the heyday of Islamic civilisation and for centuries thereafter. † However, over the centuries, the centre of economic gravity inclined towards the Western world, and the Western fi nancial institutions (including banks) became dominant and the Islamic tradition remained dormant. 5 The Muslim society never approbated interest; throughout the thirteen enturies of its history prior to domination by imperialist powers, it managed its economy and carried on domestic and international trade without any involvement of interest. Profit – sharing and different kinds of participation arrangements served as adequate basis for savings and investment and considerable capital was mobilised for mining, shipbuilding, marine trade, textiles and other industries. 6 The issue of interest free banking regained the attention of Muslim intellectuals in the 1940’s and 1950’s. By this time, numerous local and national banks were established along the lines of interest-based foreign banks.By this time, the government of Muslim countries, in particular, those who gained political independence, found themselves compelled to engage in international financial transact ions using banking systems. The necessity for commercial banking was realised. The challenge was to 3 Profit and Loss Sharing, An Islamic Experiment In Finance and Banking by Shahrukh Rafi Khan, Introduction and Overview, page 1, OUP, 1987. 4 Islamic Banking: A Brief Historical Perspective by Bob McDowall, Business and Finance, 27th May 2004. 5 Islamic Banking and Finance by Munawar Iqbal and David T.Llewellyn, Introduction, page 1, para 1, 2002. 6 Ibid at 1, page 9, para 2. 9 avoid the concept of interest within commercial banking. The path to this was the development of the concept of profit and loss sharing (Mudarabah), the key concept from which the structure of most Islamic banking products and services are derived. 7 C. Current Status All over the world, Muslim bankers and economists are faced with the question as to how they should eliminate interest and evolve new institutions and practices, which would enable economic activities to flourish without resorting to Riba in any form? In recent years, there has been a revival of interest in formulating a modern version of the historic Islamic financial system, as many Muslims’ are endeavouring to avoid interest-based practices and transactions. Islamic banking was virtually an unknown concept thirty odd years ago. Now, fifty-five developing and emerging market countries have some nexus with Islamic banking and finance and â€Å"Riba free† has become the buzzword for financial institutions that wish to attract the large and attractive customer base in the form of Muslims all over the world who are looking for Shariah-Compliant modes of investments and financings.In addition, there are Islamic financial institutions operating in 13 other locations. 9 In Pakistan, Iran and Sudan, all banks must operate under Islamic financing principles. As noted by Justice Mufti Usmani, there were 200 Islamic banks and financial institutions in forty-three countries of the world, controlling a financial pool of US$ 100 billion,10 increasing at an annual rate of 10-15 percent. The Islamic financial industry is already one of the fastest growing industries and has tremendous potential as observed by academics in general.The unorthodoxy of Islamic banking model is apparent from the fact that those who argue in favour of Islamic banking are often regarded as ‘utopians’ and ‘romanticists’, but they claim that the best form of realism could be achieved by challenging all those systems that are based on the exploitation of man in one form or the other and in seeking to set up a just socio-economic order. Dr Siddiqi argues that an Islamic economy is capable of freeing modern man from the debt-ridden economy in which he survives, and of guiding him towards a society based on justice and equity, and ultimately leading to the path of growth and stability. 1 D. Riba and its Prohibition in Islam As observed by Lewis, in order to conform to Islamic norms, five religious feature s are well established in the literature, and must be adhered to in investment behaviour. They are as follows: 7 Islamic Banking by Mervin K. Lewis & Latifa M. Algaoud, Chapter 2, Islamic Law, pages 4 & 5, Brief History, 2001. 8 Banking Without Interest by Muhammad Nejatullah Siddiqi, Foreword, para 1 &2, 1983. 9 Australia, Bahamas, Canada, Cayman Islands, Denmark, Guernsey, Jersey, Ireland, Luxembourg, Switzerland, United Kingdom, United States and the Virgin Islands. 0 New Horizon, No. 82, December 1998, p. 17. He is the Chairman of Centre for Islamic Economics, Pakistan, and a judge of the Islamic Shariah Court. 11 Ibid at 1, page 7 & 8. 10 (a) the absence of interest-based (riba) financial transactions; (b) the introduction of a religious levy or almsgiving, (zakat); (c) the prohibition of the production of goods and services that contradict the value pattern of Islam (haram); (d) the avoidance of economic activities involving gambling (maysir) and uncertainty (gharar); (e) the provision of Islamic Insurance (Takaful).These five elements give Islamic banking and finance its distinctive religious identity. 12 For the purposes of our present chapter, we need to focus briefly on element (a), i. e. absence of interest-based transactions, which is indeed the central element among the latter. Islamic finance, like Islamic commercial law in general, is dominated by the doctrine of riba, and it is imperative that we discuss this in some detail, as to its nature and prohibition. The literal meaning of the Arabic word riba is ‘increase’, ‘excess’, ‘growth’ or ‘additional’.According to Sahacht (1964), riba is simply a special case of unjustified enrichment or, in the terms of the Holy Quran, consuming (i. e. appropriating for one’s own use) the property of other for no good reason, which is prohibited. Prohibition of interest is ordained in Islam in all its forms. The latter prohibition is strict, absolute an d certain. The whole concept of interest is fundamentally repugnant to the spirit of Islam, as could be observed from the following verses of the Holy Quran: â€Å"O, believers, fear Allah, and give up what is still due to you from the interest (usury), if you are true believers. (Surah 2: Aayat 278) And: â€Å"If you do not do so, then take notice of war from Allah and His Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it. † (Surah 2 : Aayat 279) 12 Ibid at 7, page 28, para 2, 2001. 11 Chapter 2 Islamic Modes of Financing Introduction One can vividly perceive the transition in the global banking sector, from core/retail banking, to the complex and detailed role of financing, which clearly depicts sophistication and organisation of international banking community.With the passage of time, the banks have undoubtedly become multifunctional bodies, performing various roles and providing their client s with numerous desired products. Speaking of the international banking community, Islamic banking is undoubtedly a part of it. To keep up with this modernised community and to compete with their fellow-competitors, Islamic banking has introduced and refined some alternative Islamic financing products, to the ones available in the Conventional markets, in order to cater for the Muslim community around the globe.Having said that, it is open to anyone, whether a Muslim or a non-Muslim, to take advantage of these products, as long as they comply with the requirements and precepts of Islamic Shariah. At this instance, it helps to add that the prohibition of interest in Islam does not imply that the capital is not to be rewarded, nor that risk is not be priced. The Islamic system has both fixed and variable return modes to price the capital and add ‘risk premia’ in relation to the degree of risk involved.Islamic banks provide financing using two methods. The first is based o n profit-sharing and the second one deals with modes, which rely on fixed return (mark up) and often conclude in creating indebtedness of the party seeking finance. The Islamic modes of finance are unique as the debt related with financing using mark-up modes results from real commodity sale/purchase operations, rather than the exchange of money for interest-bearing debt. Furthermore, unlike the Conventional debt, such debt is not marketable except at its normal value. 3 The whole idea behind the Profit and Loss Sharing (PLS) is seen as an innovation, a modern trend if you like, and it is aspired that it will bring several merits to the industry of investment and finance, thus benefiting the community at large. It must be borne in mind that the Islamic Shariah does not prohibit Islamic banks from issuing guarantees. However, the question of the legality of the commissions and charges received by banks in issuing the guarantees has been a subject of much debate and discourse.Several banks in the Middle East have sought to tackle the latter issue by agreeing to issue guarantees at no charge, while simultaneously asking for cash collateral of a specific percentage (30 %) of the guaranteed amount, which is then invested by the bank for its own account and benefit for the duration of the guarantee. 14 13 Progress and Challenges of Islamic Banking by Abbas Mirakhor, Review of Islamic Economics 4 (2) 1997. 14 Demand Guarantee in the Arab Middle East, J. I. B. L, 7, page 271, 1997. 12In order to circumvent the ambiguities raised, a group of Muslim scholars gave their opinion on the legality of Islamic banking practices as regards guarantees. Their opinion is summarised in two segments and is as follows. 1. The legality of the issuance of a bank guarantee relies on the legality of Shariah principles of the contract in question, in respect of which the guarantee was issued. It is evident that no Islamic bank should issue guarantees in relation to items that are prohibit ed under the Shariah, including guarantees for the payment of usurious interest, the sale of alcohol, drugs, the construction of gaming places, etc.The latter may seem to be an obstacle towards an entirely independent guarantee, but its scope should not be overstated. As long as the contract in question is considered lawful by the standards of Shariah precepts, a guarantee stipulated to be unconditional and payable on first demand would be deemed valid and in force under Shariah, notwithstanding the performance or termination of the underlying contract. . Banks are entitled to receive remuneration for the issue of a guarantee. Having said that, the amount of remuneration, to be in accordance with the Islamic Shariah, ought not be fixed in accordance with the amount of the issued guarantee, but should instead be calculated to provide a reasonable compensation to the issuing bank for the time and effort that the latter spent to issue and manage the guarantee. 5 This chapter will focus on the Islamic modes of finance, other than guarantees, namely Musharakah, Mudarabah, Murabaha, Bai’ Muajjal, Ijaraha, Ijaraha Wa Iqtina, Salam, Istisna’ and Istijrar, which are available in the global financial market today, whilst providing a comparison with the Conventional finance products, wherever possible. A(i). Musharakah The literal meaning of the Arabic word Musharakah is sharing, or Shirkah, which means being a partner.There are several kinds of partnership, and they all come under the heading of Shirkah. Musharakah is perceived as an ideal alternative for the interest based financing with far reaching effects on both production and distribution. 16 The term Musharakah as used in the modern terminology, has been recently introduced by Islamic Scholars writing on the subject and is normally restricted to a particular type of Shirkah, which is Shirkat-ul-Amwal, where two or more persons invest some of their capital in a joint commercial venture.However, at ti mes it could also include Shirkat-al-Aamal, where partnership takes place in the business of services, whereby all the partners jointly undertake to render some services for their customers, and a fee is charged from the latter and is distributed among the partners as per an agreed ratio. 17 15 Shariah Related Documentary Issues in Islamic Project Finance Transactions, J. I. B. L. R 2003, page 272, para(s) 2, 3 & 4. 16 Meezan Bank’s Guide to Islamic Banking by Dr Muhammad Imran Ashraf Usmani, 2002, page 87, Chapter 13 (Definition and Classification of Musharakah). 7 Ibid at 11, page 90. 13 Musharakah is a mutual contract between the parties, and thus all the mandatory ingredients of a valid contract must be present. Furthermore, the capital in Musharakah agreement should be quantified, specified, but not necessarily merged or in liquid form. If all the partners agree to work for the joint venture, each one of them shall be treated as the agent of the other, in all matters con cerning the business. Any act carried out by a single partner, in the normal course of business, shall be deemed as authorised by all other partners. 18All scholars are unanimous on the principle of loss sharing in Shariah, which is based on the saying of Syedna Ali ibn Talib, which is as follows: â€Å"Loss is distributed exactly according to the ratio of investment and the profit is divided according to the agreement of the partners. †19 Termination of the Musharakah agreement: Musharakah agreement will be terminated in the following circumstances. 1. If the purpose of forming the ‘Shirkah’ has been achieved. 2. Every partner can exercise his/her right to terminate Musharkah at any time after giving his partner a reasonable notice. . In the case of a demise of any one of the partners or any partner becoming insane or incapable of effecting the commercial transaction. 4. In the case of damage to the share capital of one partner before mixing the same in the tota l investment and before affecting the purchase, the partner will stand terminated and the loss will be borne by that particular partner. However, if the share capital of all the partners has been mixed and could not be identified singly, then the loss will be shared by all and the partnership will not be terminated. 0 Termination of Musharakah without the closure of the business: If one of the partners intends to terminate the Musharakah, in disagreement with the other partners, the latter issue could be resolved by mutual consent. The partners intending to run the business may purchase the share of the partner who wants to terminate his partnership, as the termination of Musharkah with one partner does not affect the Musharkah between the other partners.The latter seems to be a just and a viable approach, especially in the modern situations, where the success of a particular business is conditional upon its continuity, and the liquidation or separation at the instance of a single p artner may only cause irreparable damage to the other partners. 21 18 Ibid at 11, page 91 & 92. Ibid at 11, page 94 (Rules of Distribution). 20 Ibid at 11, page 95 (Termination of Musharakah). 21 Ibid at 11, page 96. 19 14 Security in Musharakah:As regards a Musharakah agreement between the bank and the client, the bank should in its own right and discretion, obtain adequate security to ensure that the capital invested/financed and the profit that may be earned are safe. As part of the usual practice, the securities obtained by the bank, are kept comprehensively insured at the party’s cost and expenses, till the Islamic mode of insurance (Takaful) becomes operational. It is understood that the purpose of the latter security is a precautionary measure to cover for damage(s) or loss of the principal amount due to the client’s negligence. 2 Differences between interest-based financing and Musharakah: 1. As regards interest-based financing, a fixed rate of return on a loan , advanced by the financier is predetermined, irrespective of the profit earned or loss suffered by the debtor. Mushrakah agreement does not envisage a fixed rate of return, it is in fact based on the actual profit earned by the ‘joint venture’. 2. The financier cannot suffer loss in an interest-based financing. The financier under a Musharakah agreement can, possibly suffer a loss, if the joint venture fails. 3.It is argued by Islamic scholars and other academics that the interest-based financing results in injustice, either to the creditor or the debtor. If the debtor suffers a loss, it is unjust on the creditor’s part, to claim a fixed rate of profit. And, if the debtor earns a high rate of profit, it is injustice to the creditor to provide him with only a small proportion of the profit, while the debtor taking the chunk of it. As regards a Musharkah agreement, the returns of the creditor are tied up with the actual profits earned through the enterprise, which he/she financed.The greater the profits of the enterprise, the higher the rate of return to the creditor. If the enterprise earns ‘substantial’ profits, the creditor cannot acquire all of it, but has to share it with the common people, e. g. depositors in the bank. 23 Tenure of Musharakah: As regards the determination of the period of the Musharakah agreement, the following conditions operate. (a) The partnership is fixed for such a duration that at the end of the tenure, no other business can be conducted. 2 23 Ibid at 11, page 97 (Security in Musharakah). Ibid at 11, page 98. 15 (b) The partnership can be for a very short term, during which neither partner can dissolve the partnership. 24 A(ii). Diminishing Musharakah Another form of Musharakah, which has developed in the recent years, is known as Diminishing Musharakah. It involves the participation of a financier and his client, either in the joint ownership of a property/equipment, or in a joint commercial enterpr ise.The financier’s share is further divided into several units, and it is intended that the client will purchase the financier’s units of the share, one at a time, periodically, increasing his own share, until all the units of the financier are purchased by him, so as to make him the sole owner of the property or the commercial enterprise, whichever be the case. 25 B. Mudarabah This is also a kind of partnership, whereby one partner provides finance to the other for investing in a commercial enterprise.The investment is provided by the first partner called the ‘Rab-ul-Maal’, while the entire responsibility for the management and work falls upon the other partner, who is called the ‘Mudarib’. The profits generated, are shared in a predetermined ratio. There are two kinds of Mudarabah – restricted and unrestricted. Rab-ul-Maal may specify a particular business for the Mudarib, in which case he shall invest the money in that specified bus iness only. This is known as ‘Al-Mudarabah-alMuqayyadah’ (restricted Mudarabah).But if he leaves it open for the Mudarib to undertake whatever business he wishes, the Mudarib shall be authorised to invest the money in any business he wishes. This type of Mudarabah is called ‘Al-Mudarabah-al-Mutlaqh’ (unrestricted Mudarabah). A Mudarib cannot forward the money lent to him, or carry out any activity that is beyond the course of his business, without the Rab-ul-Maal’s express permission or consent. Rab-ul-Maal is entitled to oversee the activities carried out by the Mudarib. The former can also work with the Mudarib, provided the latter gives his consent.A Rab-ul-Maal can contract Mudarabah with more than one person through a single transaction, for instance, he can offer financial assistance to X and Y both so that each of them becomes a Mudarib, and the capital of the Mudarabah transaction shall be utilized by both of them, jointly. 26 It is imperativ e that both the parties should decide in advance, on the proportion of profit that each one of them should receive. However, the parties cannot suggest a lump sum amount of profit, nor can they determine the share of any party ‘at a 24 Ibid at 11, page 102 (Tenure of Musharakah).An Introduction to Islamic Finance by Muhammad Taqi Usmani, Chapter 2, page 82, para 1 (Diminishing Musharakah). 26 Ibid at 11, pages 105-108. 25 16 specific rate tied up with the capital’. If the business has suffered loss in a few transactions and made profit in some others, then the profit should be used to offset the loss/losses incurred, and whatever remains, shall be a distributed between the parties according to the agreed ratio. 27 Roles of Mudarib: He is an Ameen (trustee), who is responsible to look after the investment, with an exception of natural calamities.He is a Wakeel (agent), as he makes the purchases from the funds provided. He is also a Shareek (partner), thus sharing the pro fits with Rab-ul-Maal. He can also possibly be a Zamin (liable), and thus will have to compensate for any loss suffered during the course of Mudarabah, due to any erroneous act on his part. 28 Termination of Mudarabah: The Mudarabah will come to an end when the specified period in the contract expires. It can also be terminated by either of the two parties, at any time, by giving notice.Furthermore, in case Rab-ul-Maal has terminated the services of Mudarib, the latter will continue to perform his acts under the contract, until he is informed about the termination. 29 C. Murabaha In this particular kind of sale, the seller clearly mentions the cost of the sold commodity, and then sells it to the buyer by keeping a profit margin. Thus, Murabaha should not be seen as a loan given on interest, it is rather a sale of a commodity for cash/deferred price. As regards Bai Murabaha, the bank purchases a commodity, on a client’s behalf, and then resells it to the latter, on the basis o f plus-profit.Under this kind of agreement, the bank discloses its cost and profit margins to the client. Thus, unlike Conventional banks (which advance money to a borrower), the bank will buy the goods from a third party and sell it onwards to a customer for a pre-agreed price, thus abstaining from interest. The growing use and vitality of Murabaha agreement is proven by the fact that in Islamic banks world over, 66% of all investment transactions are through Murabaha. 30 It is argued by critics of Islamic banking that Murabaha agreements are in reality interest-based contracts, under the garb of a notional sale and buy ack transaction, profit being synonymous to interest in this case. Islamic scholars have reverted to this argument by stressing that a ‘true’ Murabaha financing structure is quite different 27 Ibid at 11, 109-111. Ibid at 11, page 111, para 5. 29 Ibid at 11, page 112, para 2 (Termination of Mudarabah). 30 Ibid at 11, page 125, Chapter 16 (Murabaha). 28 17 from an overdraft provided by Conventional banks and the former offers various benefits to the bank and its customers, namely that depositors have a share in the bank’s profits.Furthermore, the basic difference is the Aqd (contract), which specifies the Islamic conditions, as against the interest element in Conventional banking transactions. 31 Basic Rules for a Murabaha transaction: 1. The subject of sale must be in existence at the time of the sale. 2. The seller must have the ownership of the commodity in question. 3. The subject of sale must be in physical or ‘constructive possession’32 of the seller while he is selling it. 4. The sale must be instant and absolute; no provisions for contingencies should be made part of the contract. . The goods/commodity to be sold, must reflect a value and must be specified to the buyer, leaving no room for ambiguities or confusion as between the parties. 6. The sale must be unconditional and the price of the commodity sh ould be certain. 33 If a client defaults on any payment(s) by the due date, the price cannot be changed nor can the penalty fees be charged, as against him. Nevertheless, as regards dishonest clients, who knowingly and deliberately default, they should be made liable to compensate the bank, subject to the following two conditions. a) The defaulter must be given a grace period of at least a month. (b) It must be proved beyond reasonable doubt that the client is a defaulter, and he has no justifications for his latter behaviour. 34 Murabaha can only be used when a commodity is to be purchased by a customer/client. It is highly pertinent to peruse the subject matter of the Murabaha, as the documents must be signed for obtaining funds for a specified purpose only. It needs to be stressed that the Murabaha consists of several different contracts and they all play their part one after another, in respective stages. 5 31 Ibid at 11, page 126, para 2 (Arguments against Murabaha). It refers to a situation where the possessor has not yet taken the physical delivery of the commodity, yet all rights and liabilities of the commodity are passed on to him including the risk of its destruction. 33 Ibid at 11, page 126-127 (Murabaha Rules). 34 Ibid at 11, page 129, para 1 (Penalty for Default). 35 Ibid at 11, page 130-131 (Basic Mistakes in Murabaha Financing). 32 18 D. Bai’ Muajjal This is basically a sale on deferred payment.The deferred payment becomes a loan, which the buyer pays in a lump sum or instalment (as agreed between the parties). In Bai’ Muajjal all those items/commodities can be sold on a deferred payment, which come under the heading of capital, where quality does not make a difference but the natural or intrinsic value does. The price to be paid must be agreed and fixed at the time of sale. The buyer must be given complete possession of the commodity in question, whilst the seller is free to ask the buyer to provide him with guarantee in the form of a mortgage or any other item. 6 E. Ijaraha In an Islamic leasing (Ijaraha), the owner of the asset, while retaining the corpus of the asset, transfers its usufruct to another person for an agreed period, at an agreed consideration. All the liabilities arising from the ownership must be endured by the lessor. The period of lease must be determined in clear terms and the asset must be clearly identified as between the parties. 37 The lessee is liable to compensate the lessor for all the damage(s) caused to the leased asset by any misuse or negligence on his part.The rental should be determined at the time of the contract for the whole duration of the lease. The lessor cannot increase the rental unilaterally, and must consult the lessee in that regard. 38 Lease was not originally a mode of financing, however, certain financial institutions have adopted leasing as a mode of finance instead of a long term lending arrangement, which is based on interest. The transaction of ‘fina ncial lease’ may be used for Islamic financing, subject to certain conditions. It does not suffice for the latter purpose to interchange the term ‘interest’ by ‘rent’ and ‘mortgage’ by ‘leased asset’.It must be emphasised that there is a difference between leasing and an interest-bearing loan, as regards Islamic Shariah. 39 Unlike the contract of sale, an Ijaraha agreement can be based on a future date, thus it is different from a Murabaha agreement in that respect. In majority of the cases concerning ‘financial lease’, the lessor (financial institution) will purchase the asset through the lessee himself. The lessee makes the purchase on behalf of the lessor who then pays the price to the supplier, either directly or through the lessee. 0 The lessor, being the owner of the asset, and having purchased it through his agent (lessee), is liable to bear all the expenses incurred in the process of its purchase and its import to the country of the lessor (if that is the circumstance), e. g. expenses of freight and customs duty etc. 41 36 Ibid at 21, pages 102-103 (Bai’ Muajjal). Ibid at 21, pages 158-160. 38 Ibid at 11, pages 148-149. 39 Ibid at 11, page 149 (Lease as a Mode of Finance). 40 Ibid at 11, page 150 (The Commencement of Lease). 41 Ibid at 11, page 152, para 3 (Expenses Consequent to Ownership). 37 19 Variable Rentals in Long Term Leases:Several Islamic banks use the rate of interest as a benchmark to calculate the rental amounts, e. g. London Interbank Offered Rates (LIBOR), which is the rate of interest at which Conventional banks borrow funds from other banks, in marketable size, in the London interbank market. The idea is to earn the same amount of profit through the mode of leasing, as earned by the Conventional banks by advancing loans on interest. Instead of fixing a definite amount of rental, the Islamic banks calculate the cost of purchasing the asset that is to be leas ed and intend to earn an amount equal to the rate of interest.Thus, the agreement between the parties provides that the rental will be equal to the rate of interest or to the rate of interest in addition to something. Since the rate of interest is variable, it cannot be set for the whole duration of the lease. The latter arrangement has been objected to on the following two grounds:42 (a) By subjecting the rental payments to the rate of interest , the transaction is made to resemble an interest-based financing. The modern Islamic scholars have denied that argument and have stressed that the rate of interest is only used as a benchmark.As far as the requirements of Shariah are concerned, they must be fulfilled for a valid lease to be executed, and it is the latter that counts, as regards the legality of the Islamic financial lease. The vital difference between an interest-based financing and a valid Islamic lease does not lie in the amount that has to be paid to the financier or the lessor. However, it is recommended that the use of rate of interest as a benchmark must be avoided at times, where possible, so as to distinguish it with the non-Islamic transaction. 3 (b) The second criticism relates to the situation that the variations of the rate of interest are not determined and the tying up of rental with that rate of interest implies Jahalah and Gharar (uncertainty, especially in a contract that may lead to disputes later on), which are not permissible by Shariah precepts. It is one of the basic tenets of Islamic Shariah that the parties must be well aware of the consideration in every transaction they enter into.This objection has been responded by looking at the reasons of prohibition for Jahalah, namely that Jahalah may lead to disputes between the parties and it might render the parties susceptible to an unforeseen loss. As regards the first objection, both parties make their decisions with mutual consent upon a welldefined benchmark serving as a criterio n for determining rent, thus no question of dispute arises. Relating to the second objection, several contemporary scholars suggest that the relation between rent and the rate of interest is subjected to a limit.E. g. the base contract may provide that the rental amount given after a specified period will be altered according to the change in the rate of interest, but in no instance, it will be higher than 15% or lower than 5 % of the previous monthly rent. The latter implies that if the increase in the rate of interest is more than 15%, the rent will be increased only up to 15%, and if it decreases by more than 5%, the rent shall not be decreased to more than 5%. 44 42 Ibid at 11, page 154 para 1. Ibid at 11, page 155. 44 Ibid at 11, pages 155 & 156. 43 20 F.Ijaraha Wa Iqtina It is permissible in Islamic Shariah that instead of there being a sale, that the lessor signs a separate agreement, making a promise to gift the leased asset to the lessee at the end of the lease period, on c ondition that the lessee makes all the payments due for his/her rent. The latter arrangement is known as Ijaraha Wa Iqtina. It has been affirmed by a large number of contemporary Islamic scholars and is widely practised by the Islamic banks and financial institutions. Although, the validity of this arrangement is subject to two conditions.They are: (a) The agreement of Ijaraha itself should not be subjected to signing of sale or gift. The promise should be made in a separate document. (b) The promise must be unilateral and binding on the promisor only. If the leased asset is used by numerous users, the lessee cannot sub-let the asset, except with the express permission of the lessor. The lessor can sell the leased property to a third party, whereby the lessor is replaced by the new owner, and the lease agreement would then be between the new owner and the lessee. 5 This form of financial leasing has been subjected to criticism as it is not compatible with the modern financing agreem ents, as a non-binding promise cannot be enforced before courts and is thus not a legally satisfactory solution. In an attempt to reconcile Ijaraha Wa Iqtina with the modern financial structure, it is suggested that the lessor’s failure to honour his non-binding promise should be subjected to a pre-contractual liability, or culpa in contrahendo.In civil law jurisdictions, this concept of pre-contractual liability contemplates that the contracting parties will conduct their pre-contractual dealings in good faith and also points to any relevant facts, which are within the commercially usual limits, to the other party. If a party is unsuccessful in carrying out its duties, and thus in breach of contract, then it will have to pay the damages to the other party for not fulfilling the agreement. By adopting this suggestion, the promisor in breach, is made liable for the promisee’s costs, in finding another similar object to purchase. 6 G. Salam This mode of financing can be used by modern banks and financial institutions, especially in order to finance the agricultural sector. In Salam, the seller undertakes to supply specific goods to the buyer at a future date, in exchange of an advanced price fully paid at the spot. The payment is made in cash, and the supply of purchased goods is deferred. 45 Ibid at 11, pages 161-162 (Ijaraha Wa Iqtina). Construction and Lease Financing in Islamic Project Finance by Klarmann, J. I. B. L. R, page 65 (Lease Financing: Ijaraha Wa Iqtina). 6 21 Purpose of Salam Contracts: The purpose is to meet the need of farmers, who operate on a small scale, and thus need the finance for farming purposes, so that they can carry out their day-to-day activities. Moreover, it is designed to assist the traders, in their export/import transactions. Salam proves beneficial to the seller, as he receives the price in advance, and at the same time, advantageous to the buyer, as the price under the Salam arrangement is normally lower than th e price in spot sales. 7 The permissibility of Salam is seen as an exception to the general rule that prohibits forward sale and thus it is subject to certain stringent conditions, which are as follows: Conditions of Salam: 1. The buyer must pay the full price to the seller at the time of effecting the sale. The basic idea behind the Salam agreement, is to satisfy the ‘instant need’ of the seller. If it is not paid in full, the latter purpose is not achieved. 2. The quantity and the quality of the goods must be specified. 3. Salam cannot be effected on a particular commodity or on a roduct of a particular field or farm. 4. The contract must expressly state the quality of goods, thus leaving no room for ambiguities, which might lead to disputes later on. Same is the case as regards the quantity; it must be agreed upon in absolute terms. 5. The exact date and place of the delivery must be specified. 6. Salam cannot be effected in respect of things, which require them to b e delivered at the spot. 7. Since the price in Salam agreements is generally lower than the price in spot sales, the difference between the two prices may be a valid profit for the bank. . A security in the form of a guarantee, mortgage or hypothecation may be required in order to ensure the delivery from the seller. 9. The seller must deliver to the buyer, the commodity, and not the money at the time of the delivery. 48 H. Istisna’ Istisna’ is a sale transaction whereby a commodity is transacted before it comes into existence. It is an order for a manufacturer to manufacture a certain kind of commodity, to be used by the purchaser. The manufacturer uses his own material to 47 48 Ibid at 11, page 133 (Purpose of Use).Ibid at 11, pages 134-135 (Conditions of Salam). 22 manufacture the required goods. The price must be fixed with consent of all the parties involved. All other vital specifications of the commodity must also be fully settled. Subject to the acknowledgment or receipt of prior notice, either party can cancel the contract before the manufacturing party has begun the work. The time of delivery need not be fixed, however a time limit may be imposed as between the parties. 49 I. Istijrar Istijrar means purchasing the goods from time to time, in different quantities.It is an agreement, whereby the purchaser buys something at regular intervals, without any formal offer or acceptance mode or bargaining. There exists one master agreement, which contains all the terms and conditions of the purchases in a finalised form. There are two kinds of Istijrar: (a) where the price is determined after all the transactions/purchases are completed; (b) where the price is determined in advance, but the purchase payment is made from time to time. As regards the Islamic mode of financing, only (a) is relevant. Istijrar can be adopted as a viable mechanism, in the case of suppliers of the borrower.In the latter case, the bank enters into a Murabaha agreement ( Agreement to Purchase) with the suppliers (mainly trading companies), that it will purchase the assets from them at a market price or at a pre-determined discount from the market price. Whenever the customers demand, the bank can purchase that particular asset from the suppliers on the basis of Istijrar, and sell it onwards to the customer, on the basis of Murabaha. 50 49 50 Ibid at 11, pages 139-142. Ibid at 11, page 143-145 (Istijrar). 23 Chapter 3 Application of the Islamic Modes of Finance: A Research on Islamic Project Finance A. Shariah-Related Documentary and Other IssuesIn recent years, Islamic financial institutions have actively started to structure and participate in transactions, which are associated with long-term trade, as opposed to the short term trade related transactions (e. g. Murabaha). This transition has given rise to a number of important Shariah and documentary issues. The prevalent backdrop is that the Islamic bankers and their advisers now face even more st ringency, regarding the setting up of Shariah-compliant structures that are accepted commercially and are also in conformity with the existing governing law of that particular jurisdiction where they operate. 1 As noted earlier, one of the basic principles of Islamic finance is that at a particular stage in the transaction, the financial institution will be the owner of all or part of the asset that is being financed, and under Shariah precepts, several forms of risk related with being an owner cannot possibly be passed on to the customer or a third party. The latter is the most defining difference between an Islamic financial system and a Conventional one. These additional ownership risks become more serious when the transaction involves complex capital assets, e. . a power plant or an aircraft, as the potential exposure faced by the Islamic financier as an owner can be very critical and significant. It is expected that since the Islamic financial institutions are willing to take g reater risks as compared to their Conventional counterparts, this should result in greater rewards for the former. It is submitted by the academics that this is not necessarily the case. 52 In several countries, e. g. the idea of interest is sanctioned by an Act of Parliament, and the latter being affirmed by the courts.Having said that, it is imperative to notice that laws of several states are embedded in Shariah law and concepts, if not in whole then in part. It is observed that a proposed Islamic structure that has the approval of a Shariah board must be examined against the local statutes of that particular state to check whether the structure raises any adverse issues under those laws, and if so, then the proposed structure will surely need amendment and another approval from the Shariah Board.For example, under the Shariah precepts, a transfer of an interest in real estate is effective upon an agreement, signed between the buyer and seller. However, such an agreement may not be recognised by the local laws (at least as regards the bona fide third parties) until and unless the transfer is recorded in the concerned land registry. Sometimes, the problem might be such that a person to whom a real estate interest has been validly transferred under Shariah principles, would not necessarily be recognised as the legal owner under the local municipal 51 2 Ibid at 14, page 317. Ibid at 39, page 317 (Risk Reward Issues). 24 laws. In such situations, the legal and financial consultants, giving their expert advice on such structures, are required to strike a balance, so that the Shariah conditions and requirements are satisfied and are also accepted and applicable under the governing law. 53 There are certain issues relating to the nature of Islamic financing that come up too often and thus need to be discussed. Some of these are discussed below but the list is not intended to be exhaustive. Indemnities:The Shariah principle governing the operation and conditions of Islamic financing expressly prohibits indemnity for a loss or damage that is not caused by the customer’s default. Shariah sees the whole idea of seeking indemnity from the customer as unfair, notwithstanding the fact that the particular asset may have been chosen by the customer. Matters relating to the title to the asset, its fitness for its intended purpose and taxes that are imposed on ownership raise some serious and significant credit issues when one is dealing with a major capital asset, e. . aircraft or a vessel. Having said that, there must be some alternate basis for an Islamic financier to claim indemnity. Suggestions have been forthcoming in the form of seeking indemnities based on the concept of public need or necessity or by other methods, to cover the risks. E. g. such methods could include obtaining the benefit of warranties from the supplier or the manufacturer of the asset and assurances that the asset(s) are in perfect condition and have been validly perfe cted for the intended use.The financial position of the assignor (and any available insurance protection relating to the assignor) would also have to be assessed. 54 In contrast, in the case of Conventional financing, the customer often provides wideranging indemnities in order to protect the bank from any risks related with the ownership or use of the asset. The banks are not concerned with the issue of fault and are more keen to ensure that they are insulated from credit risks, arising from the ownership, use or operation of the asset. 55Warranties: As the owner of the asset, the Islamic financier may not be able to exclude the benefit of some warranties to its customer under the Shariah principles. In few instances, the Islamic financier has the benefit of the warranty from a third party that can be assigned to the customer (i. e. from a manufacturer). It has been permitted that the Islamic financier could expressly exclude any warranty from the Islamic financial institution in t he customer’s favour to the extent that it is covered by the assigned warranty.This does not seem to be an adequate solution in that it is often impossible to describe with accuracy the extent of the warranty being assigned. Inevitably, some of the warranties may not be covered by a third party assignment and thus the Islamic financier will still be providing the benefit of some warranties to the customer. In a Ijaraha (leasing) transaction the balance of such warranties, which cannot be excluded under Islamic principles may possibly be covered by insurance. 3 Ibid at 39, page 318, para 2 & 3. Ibid at 39, page 319 (Indemnities). 55 Ibid at 39, page 319. 54 25 Thus, if warranties will raise Shariah related issues, the Islamic financier must immediately try to identify those residuary warranties that cannot be covered to decide whether or not this renders the transaction commercially unacceptable, particularly, if its financial return will not reflect these additional risks. 56 Compensation and Liquidated damages:In Conventional financing, if the borrower defaults on any payment due on him, default interest is charged as against him, thus compensating the banks. This approach is unacceptable as regards Islamic financing, due to the obvious reason of any such compensation/liquidated damages tantamount to charging interest. Unfortunately, the experience of Islamic financiers in trusting their customers, that they would pay on time, has not really been successful, and there is a general agreement that there must be some form of penalty if a customer does not pay on time.The Islamic financier can only claim compensation if it suffers loss or damage due to the true fault of the customer. The compensation must reflect the actual loss of the financier. Most Islamic financings have a compensation provision dealing with failure to pay on a due date and which uses a benchmark linked to LIBOR, as discussed above. The entire purpose of such provisions is not to compe nsate the financier, but to treat it as an incentive to the customer to make payments by the due date. 57 Events of default:In a Conventional financing, there will be a progression of events of default, which will give rise to rights in the favour of the banks, and in particular, the right to demand the repayment of outstanding debts. As a general principle, the latter view is accepted by the Shariah law, as long as the customer is at fault. In a Conventional financing, there will be events of default that are not within the customer’s control. It is considered as unviable to include such events of default in an Islamic financing, and each event must be diligently drafted to take account of the latter. 8 This, however, raises credit risks, which if not compensated for by the customer in the form of an increased return to the Islamic financier, may force the latter to take on extra risk, which will be without any reward. This issue becomes even more vital in the case of a co-f inancing that involves both Islamic and Conventional financing. The Conventional banks will surely not like the idea of Islamic facility not going into default at the same time as them, and this could possibly have adverse effects on the security sharing under inter-creditor arrangements.It has been argued that in these circumstances the Conventional banks should accept the position of Islamic financiers, however, the prevailing position is that the Conventional financing is the controlling financial force in the world and thus it is often arduous for Islamic financial institutions to have their views stand in a co-financing. Examples of events of default that can potentially cause dispute between Conventional and Islamic financiers would be nationalisation, requisition, loss of air traffic rights and force majeure. If there is disagreement as regards any of the above mentioned events of 56Ibid at 39, page 320, para(s) 2 & 3. Ibid at 39, page 321, para 1. 58 Ibid at 39, page 321, (E vents of Default) para 1. 57 26 default, then it is advised that they must be put into a separate category of events called by some other name, such as events of ‘mandatory prepayment’. 59 If there is an event of default the customer may be obliged to purchase the asset, at a predetermined price. That obligation must not be listed in the same document (i. e. the lease) to avoid concerns regarding conditionality but should be contained in a separate document, e. g. an option or a deed of covenant.If the event of mandatory prepayment arises, the customer will not be in default but the happening of such an event will enable the financier to exercise a right or option granted to it by the customer in a separate document requiring the customer to purchase the asset. The conclusion to this whole procedure being that, on the face of the document, the events of default will be Shariah-compliant and for events of mandatory prepayment, there will be a Shariah-compliant system tha t results in the asset being purchased, thus clearing the amount that the customer owed the Islamic financier. 0 Set-off: It has often been disputed that the grant of set-off rights that are solely in favour of the Islamic financier, is against the Shariah precepts, which require an Islamic finance transaction to be fair and reasonable when taken in the context of the customer. The aforementioned issue has been resolved in various transactions by providing that there are statutory set-off rights that cannot be waived and which keep an acceptable balance as regards favouring the financier and the customer. 61 B. Construction and Lease FinancingSpecific Issues in Relation to Ijaraha (Leasing) Transactions Insurance and Maintenance Obligations: As per the Shariah principles, the lessor must remain liable for several insurance and major maintenance obligations. Obligation and the financial consequences cannot be transferred on to the lessee, pursuant to the terms of the lease. The insur ance obligations relate to the structural or property insurance. However, the lessee can be held responsible and liable for the cost of operational insurance, such as the business interruption insurance and third party insurance (to the extent that it relates to operational risks).The latter mentioned principles can possibly have serious implications for an Islamic financier. The direct costs involved in, e. g. maintaining an aircraft and the indirect costs and liability resulting from the failure to perform such maintenance can prove to be very significant. 62 There must be some mechanism to transfer some risk on to the lessee, or sharing of risk if you like, which, on the face of the document is Shariah-compliant. 59 Ibid at 39, page 321, para 3. Ibid at 39, page 321, para(s) 4 & 5. 61 Ibid at 39, page 321, (Set-off), para 1. 62Ibid at 39, page 322, (Insurance and Maintenance Obligations). 60 27 The most obvious approach is to appoint the lessee as the ‘service agent’ of the lessor (Islamic financier) in order to perform these activities, which would include paying the insurance premiums and the maintenance costs. The service agency agreement must specify that the service agent will indemnify the lessor for any default on his part, in the performance of these obligations. However, on the basis of general precepts, an agent must be compensated for any costs properly incurred on behalf of its principal.Usually, a nominal fee is paid to the se

International Issues Essay

Abstract No two countries have the same political and legal system. Each country has its own laws and regulations on business and products. When doing business in another country it is important to know the laws and abide by them. Culture plays a huge part in a business’s success when venturing into a foreign market. Being sensitive to the cultural and religious beliefs in that country is important to a business’s long term success. A business needs to be educated in the laws, customs and cultures of that country so that business will be able to comply and coincide with that country. A business needs to know how and where to resolve any legal issues that may arise while doing business in that country. Disputes need to be handled in a way that is respectful to that country and adheres to the contract in which the parties agreed. International Issues Issues in Legal Disputes in International Transactions â€Å"International transactions and dispute resolution requires both an understanding of the law and a sensitivity to foreign culture, politics, formal and informal power structures and decision-making approaches† (White and Williams LLP, 2013). When entering into a contract with a foreign country, one needs to be very specific in the contract about how to resolve any issues that could come up between the two companies. Deciding and agreeing on where issues will be resolved is a key element in the contract. Going to court can be costly for both companies and the decision made by the court could take an extended amount of time. If the companies were to go to court, deciding in where the court hearing would take place is another issue. If the hearing was to be held in the foreign country, the laws might not be the same and that country might not have much experience in international disputes. If the hearing was to be held in the United States, the other company and the country’s government it resides in could become hostile and not uphold the ruling. Arbitration would be the best way to resolve any disputes between the two countries. Arbitration can save a lot of time and money for both companies while also protecting the images of both companies by not having a lengthy trial in the press. â€Å"Arbitration is often less costly, less litigious, and less time-consuming, and offers more privacy to the parties than litigation† (Companies Export, 2008).The ruling from the arbitration could be binding or non-binding depending on what is agreed upon in the contract. Practical Considerations When trying to resolve a dispute with a company in a foreign country, one would need to look over the written contract that was drawn up at the beginning of the relationship. â€Å"The governing law clause will set out which country’s law will apply to any dispute under the contract, and the jurisdiction clause will state in which country the legal action must be taken† (Smith, 2007). The U.S. based company needs to be aware of the laws that affect the company and the business dealings in the other country. The company needs to consider the cultural aspects, the ethical behavior, and the legal structure within that country. â€Å"U.S. laws governing the international business activities of the U.S. companies fall into two categories. The first consists of laws, such as antitrust, employment, and economic-espionage laws, that are also applied frequently in the domestic context. With respect to these laws, the international business activities of the U.S. companies are a rguably at special risk because management educated and trained outside the United States might be less familiar with these laws than management educated and trained in the United States† (Winer, 2013). Bribery is also a consideration when taking legal action against a foreign business partner because this is illegal under the U.S. Foreign Corrupt Practices Act (FCPA). In some countries, bribery and gift giving is not seen as an illegal or unethical act but a form of showing respect and gratitude. A company needs to be careful on how this is perceived because it could be seen as an illegal act on the company’s part. Factors against CadMex Time and money would work against CadMex in the sublicensing agreements. In the simunlation, Candore is under an epidemic and needs the medicine ViroBlax at a subsidized price. There would not be enough time, due to the epidemic, to work out a contract that both parties will agree upon. Each separate pharmaceutical company in Candore would have to be sought out and a new contract would have to be drawn up for each different company. This is not only costing CadMex time but countless dollars on man hours. CadMex would have to invest a lot of money into properly training the employees and building the proper facilities. CadMex would also have to insure that the generic products were to the proper standards and up to regulation. Even if CadMex was to invest the time and the money into sublicensing the drug, CadMex would lose money because the drug is being sold at a subsidized price. The royalties that would be paid out with sublicensing still would not gap the margin of loss that CadMe x has. When Customs and Laws Conflict When the local customs and the local laws conflict with the customs and laws of an organization operating abroad; the organization should look at the customs and laws in which it is operating under and those should prevail, as long as the company is following the laws in which it is to operate by. When operating abroad, it is important to be aware and sensitive to the customs of that country. Allowing employees to observe religious and cultural holidays will not only keep moral high but also will keep the company within the laws that country has. Knowing the cultural normalities and integrating those into the business model will allow for the employees and members of the community to feel that the business has their interests mind. Being able to comply with the laws of the country in which the business is in while also complying with the laws set by the country, in which the mother company resides, can be a hard line to walk. Complying with the laws of the country in which was agreed upon in the contract at the onset of the partnership would prevail. Making sure to follow the rules of the country that the business is in is important because that is where the business will produce its goods. â€Å"Employees who engage in international business are responsible for knowing and complying with both the laws and regulations of the countries in which the businesses operate and the U.S. law and regulations that apply outside U.S. borders. If U.S. law conflicts with the local customs, or if the local law is more restrictive than U.S. laws or company policies, one must follow the more restrictive law, custom or policy† (Olin, 2012). Resolving Domestic and International Issues Resolving domestic issues can be done through arbitration or through the court system. It can be as simple as suing a party and showing up to court. When trying to resolve an issue domestically, the laws are well known for both parties and the venue in which the issue will be settled is easily accessible to both parties. Resolving an issue internationally is more work involved. The issue has to be resolved through which venue both parties agreed upon when signing the contract. Both companies need to know the laws of that country and travel might be needed. If arbitration was selected, both parties would need to submit all paperwork to a panel of arbitrators and adhere to the judgment in which the panel decides. If one party does not comply with the ruling, then legal action must be taken. Conclusion When doing business internationally, a company needs to be aware of many factors. Conforming to the culture and abiding by the laws that are set in that country are essential to that business and its success. A company needs to know how to resolve issues that will come up in the daily running of the business. Being sensitive to religious and cultural norms will not only help with the moral of employees but the community as well. Adhering to the contract in which the company agreed upon will help avoid any legal action being taken against them. By following the laws and cultures of the country the business resides in will ensure success of the company and future dealings in that country. References Companies Export. (6/4/2008). Retrieved from http://export.gov/regulation/eg_main_018226.asp Olin. (2012). International Business. Retrieved from http://www.b2i.us/profiles/investor/fullpage.asp?BzID=1548&to=cp&Nav=0&LangID

Criminal Justice - Trayvon Martin Poll Finds Stark Racial Divide Case Study

Criminal Justice - Trayvon Martin Poll Finds Stark Racial Divide - Case Study Example In the recent polls, not less than 55 per cent of all Americans are in the view that minorities, as well as blacks, receive unequal treatment in the criminal justice system. In as much as whites remain undecided on the issue, it is vivid that the whites are of the same view that blacks do not get fair treatment. This is from the statistics that half of white Americans believe in the fact that African Americans do not get fair treatment. Gorge Zimmerman who was not jailed for the murder bases all the above arguments on the fatal shooting of Trayvon (Thompson & Cohen, 2012). The criminal justice system of America, therefore, causes grapple among people causing the looming racial divide experienced in the region. In the count of ten blacks, eight out of the total, claim Trayvon murder unjustified, in addition, not dealt with appropriately. This is statistics, which is compared, with the 38 per cent support from the white people population reveal that each race purports its own. From the data collection on the common, stand your ground law, it is clear that not all is well. This is because as the blacks oppose the law, which discriminates against them, the whites continue to encourage it. This shows the enmity and hatred developing between the two races a factor, which if not solved can cause diverse effects on the general outlook of the American criminal system. In as much as current events try to shape the criminal justice system as proposed by Dennis Parker, more emphasis is still needed in order to create reforms in the sector which gets worsened by racial discrimination (Thompson & Cohen, 2012). According to Parker, publication of racial discrimination occurrences, instigate the widening gap. He, therefore, proposed limited use of the media in covering such cases a factor that can help in revitalizing the whole justice system. In my view, blaming the media is like an escape goat to the non-human activity where a teen gets killed, and no conclusive investigation can be done to punish the people responsible.

The Determinants of Health from a Historical Perspective Essay

The Determinants of Health from a Historical Perspective - Essay Example But this favorable outcome.... had to be devised with the aid of medical science and fought for politically. It could only be achieved if the serious health challenges brought on by economic change, industrial wage labor, and urban living were met with the appropriate political resolution to implement far-reaching preventive health measures, requiring the deployment of substantial social and economic resources...."( Szreter ,1997) In order to understand the health improvement and its causes it is necessary to look at the dismal situation in terms of disease, infant mortality, quality of food, filth in the surroundings and the work environment in 19th century Britain through a snapshot created from documented history: The most life-threatening hazard facing city-dwelling Victorians is cholera, closely followed by typhoid fever and typhus. Four epidemics of cholera - in 1831/32, 1848/49, 1853/54 and 1866 - kill about 140,000 people, with more than 60,000 perishing in the second epidemic alone. ....In London, there are still open cesspools, and the sewers run straight into the Thames..... Urban workers are stunted in growth and afflicted by debilitating diseases such as rickets, tuberculosis and bronchitis. Long hours of toil and poor diet weakens their resistance. .....much of the food consumed by the working classes is adulterated by foreign substances, contaminated by chemicals or fouled by animal and human excrement. The infant mortality rates in the.... inner city rates were dramatically higher, 300 deaths per thousand on average .... Puerperal fever...was the main cause of death in childbirth during the 19th century....patients under a doctor's care have only a 50% chance of being better off than if they and their diseases had been left alone. ( McVeigh,2000) This then, is the situation in which most of industrial Britain found itself in the beginning of the 19th century, and we first examine how developments in medicine and hygienic concepts facilitated improvements in health standards. To our 21st century perceptions, the answers must seem pretty simple: remove the filth and improve the sanitary and health services. But to the 19th century mindset, ideas on infection and sanitation and their relevance to health was yet to be established, and this is where the role of medicine came in. The role of sanitation in a disease like cholera was first commented on by a surgeon called John Snow.John Snow......published in 1849 his opinion that cholera was spread by the pollution of drinking water by sewage......Snow's original publication received little official attention, the miasmatists being bent on campaigning vigorously against filth in general as a cause of 'poisoned air'. Two of the three persons most celebrated for their interest in hea lth in Victorian times, Edwin Chadwick and Florence Nightingale, remained miasmatists all their lives. ..... Nevertheless, the realization of the miasmatists that cholera was at its worst in insanitary places led to widespread national protests against the evils of the open sewers, the defective drains, the foul ditches and the refuse-littered streets of the towns of the 1840s.(Seaman,1995)

How did Mao Zedong and the top CCP leaders modernize the political Essay

How did Mao Zedong and the top CCP leaders modernize the political state systems of China according to the interpretation of Melanie Manion (2009) - Essay Example His dependence on the lower class (a significant takeoff from predominating Soviet convention) and reliance on guerrilla warfare in the insurgency were vital to the Communist triumph in China. Taking after the foundation of the PRC (Peoples Republic of China) in 1949, Mao was answerable for a large number of the political activities that changed the substance of China. These included area change, the collectivization of farming, and the spread of restorative administrations. Specifically, this pioneer of the transformation remained caution to what he saw to be new manifestations of mistreatment and touchy to the investment of the oppressed. In 1958 he supported a confident" "Incredible Leap Forward" fights in country improvement. The disappointment of the Leap headed Mao to turn numerous obligations over to different pioneers (Liu Shaoqi, Deng Xiaoping, and so on.) and to withdraw from animated choice making. Manion interpretation is not logical because throughout the early 1960s, Mao preceded his fretful test of what he discerned as new manifestations of mastery (in his words, "revisionism," or "investor reclamation"). In remote strategy he headed Chinas separation from the Soviet Union. Conclusion, locally, he got to be progressively careful about his subordinates methodology to advancement, expecting that it was cultivating profound social and political favoritisms. At the point when Liu, Deng, and others appeared to be disregarding his call to "always remember class battle," Mao in 1966 started the "Incredible Proletarian Cultural Revolution," abusing discontent around a few people (the "Red Army") and

Goldman Sachs Financial Data Analysis Assignment

Goldman Sachs Financial Data Analysis - Assignment Example The company was founded in the year 1869 and has its headquarter in New York, but maintains subsidiary offices in the major financial centers globally. Over time, the firm has been largely recognized as among the best premier investment banks globally. The corporation linked itself to the New York Stock Exchange in the year 1896 from which it has been able to trade successfully its shares. As a result of this, its capital in 1898 stood at $1.6 milion and has since grown rapidly. Furthermore, the firm started issuing the IPOs in the year 1906 upon taking over Sears, Roebuck and Company. This is a deal mainly attributed to the personal friendship between Henry Goldman and Julius Rosenwald, who was the owner of the frim. Largely, the company reports its business in four main business segments namely, investment banking, investing and lending, institutional services, and investment management. In investment banking, the range of services that are offered targets a diverse group including financial institutions, governments, corporations, and investment funds. In this, it mainly provides services related to the strategic advisory that entails forms of acquisitions, mergers, divestitures, and risk management. With regard to institutional services, the firm facilitates the transactions done by clients in relation to making the markets in equity, fixed income, commodity products and currency attainable for the clients. This is supported by the act of making markets clear for the clients, as well as clearing transactions on major stocks, futures and options for clients through the provision of prime brokerage, financial and securities lending services. In investing and lending, the company invests and originates loans for the provision of financing to its clients that are long term in nature. Subsequently, the firm makes

Strategic Marketing Plan Starbucks in Asia Case Study

Strategic Marketing Plan Starbucks in Asia - Case Study Example whilst walking from his hotel to the conference centre, Schultz spotted an espresso bar and went in to have a look . a few blocks away he entered another espresso coffee bar. In the after that a few blocks away , he saw two other espresso bars. Schultz was on the whole struck by the reality that there were one thousand and five hundred espresso coffee bars in Milan, a city approximately the size of Philadelphia, and a totality of one fifth of one million in the entire of Italy. His mind started churning. Schultz left Starbucks two decade before. The first Il Giornale store opened two decade before in April. It had a mere seven hundred square feet and was located near the entrance of Seattle's tallest building. The first Starbucks locality outside of North America is in Tokyo, and Starbucks is in thirty other countries as well. Industry analysts saw Starbucks as being well on its way to turning into a well known company. Every next year company improves its financial position. Current ratio and Acid test ratio show company strong liquidity position, company has more than double assets to pay his current liabilities. Company long term debt to equity ratio decreased that show company pay off his long term debt. Gross profit margin increase and return on total assets also increase that show proper use of assets. Total assets turnover and shareholder's equity turnover also increase that show company better performance and attract investors to invest their capital in that company, because their funds used properly and firm maximize their wealth every year. Star Bucks posted nearly 18% jump in fiscal 2007 first-quarter profit, helped by record store openings and strength internationally, and backed its targets for the year. The Seattle-based coffee shop operator also said it activated 30% more gift cards and sales of food drove U.S. retail results. Net income for the first quarter 2007 rose to $205 million, or 26 cents a share, from $174.2 million, or 22 cents a share, in the year-ago period. Quarterly revenue rose 21.8% to $2.36 billion. (http://www.marketwatch.com/news/story/starbucks-profit-jumps-nearly-18/story.aspxguid=%7BBF2BD3DC-6862-4B81-96A1-A19B5A8A10E0%7D) Star Bucks Asia 2. Corporate Strategy 2.1. Objective and Aims Starbucks' foremost objective is to ascertain itself as the most recognized and esteemed brand in the world. The company plans to continue to expand its outlets all over the world, grow its retail sales, introduce new products and develop new distribution channels in order to achieve its objective. The company's aim is to become the leading coffee brand in every target market by selling high quality products, providing good services and building relationships among customers, employees and the company (Brown 1997). Also, the company aims to build its outlets as customers' "third place", which means it is the place where customers can relax from work or home. 2.2. Internal Operations Starbucks' internal operations can be divided into two parts: Retail and Specialty. The Retail division is governed directly by

The quality of education Essay Example | Topics and Well Written Essays - 500 words - 1

The quality of education - Essay Example ation as it started to take steps at commercializing accomplishments with affordable mass accessibility, which led to disproportionate number of academic resources to serve each learner and poor ratio between scarce number of teachers to the growing student population. This according to W. Brown was the consequence of mismanagement of both the financial and political systems in their failure to balance priorities with state budgeting and marketing education with impertinent models that had mostly been strategically business-oriented. With the facts briefly yet sufficiently presented, W. Brown devoted the second half of her address to enhance her claims from an informative level to a more persuasive and dynamic rate of appeal she occurred to bring her audience to not only listen but empathize on acting with urgency as she encouraged the listeners to advocate the thoughtful conviction that the consequence of education with poor quality is dangerous ignorance in the sense that an improperly educated mass could possible run the risk of yielding to certain self-governing incapacities toward personal development as well as impaired discernment of democracy in the future. Based on the author’s knowledge of the prevailing situation both of the cause and experienced reality of the effects thereafter considering how effectively she delivered concrete examples by comparing the past and current conditions of public education in California, Wendy Brown did acquire unquestionable grounds for summoning authorities as well as concerned parties to take this matter seriously. Her arguments are clear enough that it sensibly establishes a good critique of the problematic systems and factors that essentially determine the measure of quality in public education so that this is channeled across to every individual understanding with a sense of direction and commitment towards proper resolution. It is quite significant and interesting to be involved with the aforementioned issue,

The Bad Little Boy by Mark Twain Essay Example | Topics and Well Written Essays - 750 words

The Bad Little Boy by Mark Twain - Essay Example It is evidently clear from the discussion that Twain’s purpose in the story is to present that not all the bad boys in stories have a change of heart in its conclusion and have a happy ending because they changed from being bad to good but that in real life, bad characters also succeed. Twain’s mention of Sunday school books a number of times to compare their bad boy James to his bad boy Jim emphasizes the difference between the two characters although they have a similar name. Sunday school stories, known for the moral lessons derived from the stories indicate that the character of James is round, developing from being a nuisance to the charming boy everyone wants while Twain aims to present his Jim as a challenge to face realities that there indeed are flat characters like Jim who are static, bad from the beginning to the end of the story. The frequent contradictions of James and Jim in the story establish a strong foundation for this theory. For instance, when Jim sn eaked into the pantry for some jam, it was mentioned that he did not do as the other bad boys do in other stories, feeling sorry for their bad actions, kneeling and praying then telling their mothers what bad things they did and asking for forgiveness. Instead, it mentions that the opposite happened to Jim which now puts him in a different category, that instead of becoming better, he became worst, even feeling happy for what he did and prepared for what spanking and discipline that would come from his mother. The story also presents the fact that bad things do not happen to bad people only and likewise, good things do not happen to good people only but that good and bad happen to everyone, contrary to what is usually taught in Sunday schools. This is exemplified by the mention of the main character stealing apples from a farmer’s apple tree and yet did not fall and break his limb, nor fallen in bed for weeks, grieved for what he did but that he successfully came down from the tree with lots of stolen fruits, overpowering the dog and escaping whatever danger there might have been. Drowning on a Sunday did not also happen to Jim while he was out boating when he was supposed to be in church or at home doing what was expected of a good little boy. That he did not blow his fingers off when he run with his father’s gun to go hunting on the Sabbath nor was he caught when he stole the teacher’s pen-knife instead, he broke his moral classmate’s reputation when the pen- knife fell from his cap where Jim placed the stolen item. All throughout the story, Twain presented the argument that there is more to what is written in Sunday stories which should be taught to the children and that would be the realities of life. The author also presents sarcasm in the few times he mentioned amazement about the luck of the main chara

The Forest - Creative Writing Essay For English Essay Example for Free

The Forest Creative Writing Essay For English Essay There’s a forest bordering the town that I live in. The adults refuse to go near it or talk of what lies within. From the time we consciously understand our parents teach us not to step foot in there because the â€Å"Unmentionable Monsters† will get you. Of course as kids with wild imaginations we made our own predictions about what it could be. The Boogie Man, Dracula, werewolves, ghosts, and all sorts of other ghouls came to mind. These are just rumors made in a child’s mind. The fact in the situation is all those who enter The Forest, never return. They disappear without a trace. No trail, no clues, no nothing. This is where I had issues with The Forest. How can somebody just disappear? From the time of my first memory up until now I have been filled with curiosity. As I grew my instinct to investigate pulled me towards the mystery of The Forest like gravity pulls an object to earth. Then at 16, I found myself with the greatest opportunity hanging over my head. â€Å"So Chris, are you up for it?†Micah Questioned.I’m Chris and Micah was my best friend. To the outside world I was a completely average quiet teenage girl with a polar opposite best friend. Everybody who knew me personally knew I was crazy. â€Å"Are you kidding me? Did you even have to ask!?!† I practically screamed at him.This would be the trip of a lifetime for me. Micah asked me to go camping in the â€Å"forest† with him and some friends. There was no way I would turn him down. That Friday night, loaded up with food, clothes, tents, matches, safety gear, climbing ropes, and more, we set off into The Forest. Trekking farther and farther into the foliage and scanning with our flashlights for danger we finally came across a clearing big enough to set up camp for the night. As we set our tents in a circle Julian, Micah’s brother, finished first and was then sent out on firewood duty. â€Å"Hey Chris, have you seen my brother?† Micah asked and I poked the fire. â€Å"No, not sense you sent him out to get fire wood† â€Å"Then where did that fire wood come from?† he pointed towards the fire I was tending to. â€Å"It was here when I finished my tent. I suspected Julian left it then went to bed. There is a lot here and I figured he was tired after the haul.† I explained. â€Å"Julian is not in his tent.† It took me until after midnight to convince Micah that his brother would be ok and probably just went exploring. With him finally asleep I was able to get some shut eye. It didn’t last very long though. I could tell it was near dawn when the noise woke me due to the pink color that lit up my tent, but the time itself was the least of my worries. Something outside of my tent was splattering liquid on my tent and making a gurgling noise. Thinking it was one of the guys playing a prank I quietly unzipped my tent and crawled around to sneak up behind them. What I saw would be imprinted on my soul forever. Julian was hunched over Katherine tearing at her stomach with his teeth. The dark spots I saw on my tent were blood stains. Lukas body was lying in an unnatural position off to the side. His chest was torn open and his internal organs gone. Julian’s clothes were shredded and it was obvious some of the blood that encased most of his body was his. My mind started to race with questions. â€Å"What happened to Julian in the forest? How did I not hear the commotion until now? Where are Micah and Dustin? Is Julian infected with something? What if whatever got to Julian comes back? Where did the firewood really come from? Is somebody playing games with us?† As I was lost in my own thoughts I didn’t hear as somebody quietly snuck up behind me. It was too late when I did notice because they had their hand wrapped around my mouth dragging me back. I screamed but it was heard only by deaf ears due to the restraint. My capture dragged me all the way back into the forest before releasing me. As I turned around to fight I realized it was only Micah and Dustin. Thankfully, all their organs were intact and there was no blood. At their feet sat a pile of supplies they must have grabbed before getting me, it wasn’t much though. â€Å"We have to get out of here. What happened to my brother while he was out is a mystery, but it is evident he is no longer human.† Micah whispered â€Å"Yeah, but where do we go? Home? I have a feeling we won’t make it there!† Dustin argued â€Å"Will you quit being a pessimist?† I whisper yelled. â€Å"We have to start somewhere and home is the closest town so we head that way. Once to safety we can figure out what the hell is going on.† As I talked my voice became louder and I didn’t hear the audible crack coming from behind me. I did however see the look on Dustin’s face. Dustin was a big guy. There wasn’t much that could scare him. The look of pure terror on his face prompted me to turn around. There standing about five feet away from me was Luka. Lukas body that had been completely demolished now did not have a single blemish. Well, he was fine other than the red eyes. â€Å"Chris why do you look so scared?†Lukas voice was deeper. It was like it was his body but not him. Micah confirmed my suspicion with a single word. â€Å"Demon.†I can still remember the times when Micah and Julian’s grandma would tell stories of how if you died in The Forest a demon could stake its claim over your body. I suspected that was what is happening in this situation. â€Å"Why don’t you come over here Chris?†Whatever was in Lukas body was trying to get into my head. I could feel it poking around in my mind as if trying to take control. I didn’t trust this thing and I didn’t trust Dustin to be strong willed enough to fight it off in his mind. It was time to run. As me and Micah took off into the forest I noticed Dustin stayed behind. I was right he had fallen into the trap. Not long after taking off footsteps could be heard in pursuit. I did the stupid thing and turned my head towards Luka and Dustin. Running into a tree hurts. Then being pulled up buy your hair doesn’t help the cause. I was caught and Dustin was able to make quick work of catching Micah. Hours later I was tied up with MY climbing ropes, in MY tent. Luka had re-killed Julian; something about an unintelligent lower level scum. I had no idea what happened to Dustin and Micah, but I had a feeling their luck ran dry and they were now in the same situation as Luka. Katherine’s body was still on the ground when we were walked back into camp. Because we are pure, girl’s bodies are unable to be possessed. Unluckily for me that doesn’t mean were not entertaining while still alive. Those things outside laughed and enjoyed normal conversation as if they were human, but I knew better. I want this to be a warning to all those who live around The Forest. It is filled with an evil unlike any other. Luka, Micah, Dustin, and I are the only survivors of The Forest, but not all of us survived.

The Greek and Roman Civilisations

The Greek and Roman Civilisations Civilization: this word comes from the Latin word civilis meaning civil or a society in an advanced state of social, cultural and material development. It is also related to the Latin civis meaning citizen. civitas meaning city or city states. Among the Middle ages empires were the Byzantium empire which came about after the Roman empire fell to invading Barbarians and complex internal pressures It was the eastern part of the Roman empire which came about in 395 AD and had Constantinople as capital. The mighty empires disintegrated into many warring states mainly over borders and it was in a quest for restoring their lost glory. This brought about a lot of uncertainty and plunged Europe in what was labeled a dark age yet Byzantium remained (Hemingway and Hemingway par 7). It had a stable economy which was catered for the army, ample food supply advanced civil engineering and high standard of living. There was high literacy level dominant among the Greek and Latins. The penal system was so harsh as viewed by the Western crusaders and had no element of justice in it. The middle ages preserved an ancient knowledge upon which art, architecture, literature and technological achievements ( Spielvogel, 82) Civilization in the near This included the Babylonian Empire(Iraq) , Hitteastite Empire and Neo-Assyrian empire. Babylonian empire emerged in 1696-1654 BC created from an Akkadian empire. Neo-Hittite empires rose following the collapse of the Hittite empire about 1180BCand lasted to 700 BC. This empire collapsed due to the decline of eastern Mediterranean trade networks resulting to most cities of the Bronze. It was associated with the invasion of the sea peoples. Neo-Assyrian empire The capital was Assure and later Nineveh. In 934BC-608BC Assyria assumed a position of the most powerful country on earth. It was the first real empire in human history. It was later joined by Babylon, Medes and Scythnians in a coalition. Despite the empire being destroyed its culture influenced the succeeding empires. Both the Greek and the Romans had their ups and downs in their quest for civilization which did not prove as easy to attain as earlier thought. Both the civilizations had almost analogous routes of creation conquering and destruction and because of poor application methods that the said civilizations /empires formed. The Greek and Romans formed City-states the Greek one was based on tribes and ethnicity which saw the very first of the political association(penny 95). The Romans however brought together various different ethnic groups among them the Italians. They developed procedures of public politicking and legal states. The Romans began extending their citizenship by virtue of conquering. The Romans had military prowess and their organization in the political, legal and full conquer age of the empire. Their man intent was not on the creation of empires but self protection from their neighbors. The Roman empire lasted long and was based on the aspect of a sense of identity. The Romans had more of a civilized sense of democracy and all aspects associated to it such constitutions, citizenship, equity human rights adherence and protection and very high profiled intelligence. The Greek city-states were unified by force and the attack and ethnicity. And was ruled on the aspect of its wealth. The merge of the Romans and the Greeks led to republics each with imported skill in architecture and high aspect of good architecture, medicine and various traditions. The Greeks were not as advanced in the Romans in the engineering sector and so they borrowed a number of aspects such as food storage. Similarities of all the civilizations Began as a break away province or region from the main empires. e.g. Neo-Hittite from Hittite and Byzantium from the Roman empire. Did not have fixed boundaries as they always fought to expand and neighbors or invaders to encroach. They all registered serous internal conflicts which in most cases led to the collapse . They became strong through trade or tributes from the subjugated empires or provinces Had strong armies at the time of the rise e.g. .the Roman and the neo-Assyrian empires. They thrived on trade networks or a broad base of tribute collection e.g. roman ,neo- Hittite and the neo-Assyrian (Hodges, 62). Had high literacy levels e.g. Roman and the Greek empires. Had good supply of food either grown or paid in form of tributes. Were weakened by presence of weak leaders and strengthened by strong leaders and well organized systems e.g. Tiglath -Pileser III of neo-Assyrianwas quite strong and the empire rose tremendously. All had very harsh rules especially concerning foreigners Had fortresses due to frequent attacks. Had common religion in all provinces of an empire which helped unite the subjects Preserved their knowledge, culture and art and the same continued to influence the succeeding dynasties (MacMullen, 78) e.g. the Greek, Roman and the neo-Assyrian. Differences The Roman empire collapsed due to its vast size making administration difficult. On the other hand the neo-Hittite collapsed due to decline in trade networks of the Eastern Mediterranean. The Greek collapsed due to rebellion from the subjugated citizens .On the other hand the Romans upheld human rights. The Greeks had a unique way of uniting their subjects through sports which has remained to date as part of their legacy.