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

Is our Generation More Stressed than the Previous Ones?

Nowadays, stress is becoming a common problem. Our younger generation thinks that modern life is generally much more stressful than in the past. However, others say that the amount of stress people have today is overstated as older generations coped with more pressure, but they never thought about such a phenomenon as â€Å"stress†. This contradiction makes many people compare the negative aspects of stress to society today and in the past.On the one hand, the previous generations experienced great stress because of poor living conditions, food shortage and numerous wars, which were taking away millions of people’s lives. Moreover, they did not have such helpful technologies, which make the life of a modern person easier. Besides, without an advanced medical system many people died of simple illnesses and diseases because there were no necessary medicines and vaccines. That is why life expectancy in the past was much lower than it is now.On the other hand, because of th e increasing pace of life nowadays people are always in a chronic rush, which causes various mental and physical health problems, such as backache, depression, fatigue, headaches, high blood pressure, and insomnia. What is more, almost everybody in our modern society is trying to achieve high standard of living, therefore, people have to spend long hour at work. As a result, they feel overworked and burn out, and hardly have time to relax and escape from everyday routine, which leads them to losing their balance between work and personal life.Furthermore, there is no doubt that several decades ago, the environment was much better than today with fresh water, air and food, whereas today we face air, water and noise pollution, which of course contribute to the symptoms of stress. In addition, nowadays, the majority of people lives in big and overcrowded cities and suffer from such common city problems as standstill traffic congestions, unemployment, high crime rate and high cost of li ving.The unemployment rate is constantly increasing; hence, the number of job-seeker is growing, which leads to the increasing competitiveness in job opportunities. In my opinion, each generation suffers from stress; the difference is in the attitude to it. To my mind, today time is more compressed than ever and because of the speedy pace of life and everyday overload, people feel exhausted as human beings are not designed for a prolonged, high-speed activity.However, we have to admit that in a certain sense our ancestors had their own reasons of stress, which should not be underestimated. To sum up, stress has been felt by all generations in their lives. It is really hard to compare either modern generation, or the previous one is under more stress that the other one, because each generation has its own problems. People would better concentrate on reducing the number of stress and try to make future living conditions more favorable.

European Union as an international organization Essay

The European Union cannot be an international organization and it is not a domestic political system. It is a new and unique trend in governance, which transcends the nation – state structure. In the EU the nation – state governments are drifting away from both sub national and supranational systems. This in turn raises questions about the EU’s capacity to govern and its democratic legitimacy. The European Union is composed of democratic nations that aim to achieve peace and prosperity. It is not a nation – state but an international organization with unique features (Europeans united in diversity). However, the events that took place in the period from 1960 to 1970 changed the thinking of federalism by the people. The then French president, Charles de Gaulle was very much interested in nation – state structure in the Europe. However, he rejected the federalist system. Subsequently, the European Council was created in order to take up the matters of the Union with administrative powers. Thus there is no centralized power in the European Union and it was distributed between the primary entities, which do not fall within parliamentary control (Europeans united in diversity). The significant characteristic of the EU is that the decisions taken at the European level are ratified by its Member States in order to establish EU level common institutions, by surrendering their sovereignty on certain specific issues. There is unity in diversity in Europe where there persists a multitude of different traditions and languages. Respecting these shared values, the EU promotes cooperation among the people of Europe and it protects the interests of the individual citizens of Europe. While respecting the sentiments of European citizens, the EU promotes cooperation with external nations without comprising its solidarity and in a spirit of tolerance (Europeans united in diversity). The European Union is a distinct entity. It is not a federation like the United States. Moreover, it is not a simple form of structure as it entails inter – governmental coordination and cooperation. The European Union is composed of a number of Member States. These Member States have combined their individual sovereignty and adopted a system of shared governance, in order to achieve unity and international importance. Nevertheless, as it is noteworthy to mention, these Member States did not relinquish their national sovereignty (McCormick). Further, there is a delegation of powers by the agencies of the European Union, in areas of joint interests, upon which the EU can impose its democratic authority for the benefit of Member States. Thus the European Union is to some extent an intergovernmental organization and to some extent it is a supranational organization. The supranational aspects of the EU include economic policy, social policy, immigration policy and education. The intergovernmental aspects comprises of mutual cooperation between the member states in order to formulate a common foreign policy and security policy (McCormick). The intergovernmental organizations like the United Nations are in general constituted by several states in order to promote voluntary cooperation and coordination amongst them (McCormick). The Member States of such an organization retain their independence and the decisions and agreements taken are not enforceable. The Member States of the European Union do not surrender their sovereignty to it. However, in the supranational organization, Member States are required to surrender their sovereignty in certain key areas to the governing body of the supranational organization (McCormick). Moreover, the Member States are also required to comply with the decisions taken at the supranational level. The Courts would initiate penal actions for violations by the member states. The European Union has both the characteristics of an intergovernmental organization and supranational government. An international organization is an entity which develops voluntary cooperation and coordination among its members (McCormick). Hence the European Union cannot be a truly typical international organization. The normal features and definition of an international organization is narrow in its scope. Therefore, the European Union cannot be compared to an ordinary international organization. The European Union is founded by an international treaty like any other international organization. However, it cannot be construed to be a proper international organization and a very close description is that it is not a state, nor a nation – state; but a characterization of sui generis (Vuorinen). The fundamental characteristic that differentiates the European Union from other international organizations is that it attempts to change the Member States. Integration is the process that brings about the coalescing of state structures. The European Union has several structures combined together some of these structures represent the characteristics of a federal state while other structures resemble an international organization. In the process of evolution, the EU had gone beyond an association of states and became an economic and political union. However, the EU is not a federal state (Vuorinen). The emergence of the European Community was the result of federalist views. Its drafters were of the opinion that federalism would be the solution to the persistent problem of war in Europe. Thus their main objective was to establish a federal state. These efforts resulted in the formulation of the European Coal and Steel Community in the year 1951, which created a common market for the coal and steel industries of that period. The objective of this institution was to combine the important and strategic resources of Europe. Subsequently in 1957 The Treaty of Rome established the European Economic Community or EEC and the European Atomic Energy Commission or Euratom (Vuorinen). The federalist creation of the Union was based upon the three important pillars of the EU, namely, the European Commission, the European Parliament and the European Court of Justice. These branches of the EU, which do not pertain to any single member state of the Union, aim to promote the common European policy. The federal structure could have operated with a sufficient degree of democracy (Vuorinen). The European Union has been described as an international organization and with the adoption of a constitution it can become a supranational organization in addition to an intergovernmental organization. The Maastricht Treaty of the year 1993 established two types of institutionalized cooperation in the European Community, the Common Foreign and Security Policy or CFSP and cooperation on justice and international issues. Since, the extant system in respect of functioning of the EU involves the surrender of sovereignty by states to the EU in certain areas and the dependence of the member states on intergovernmental cooperation in other areas, it can be describes as a hybrid system (European Union). Issues of international interests of the EU are regulated by the Integration Ministry; some of these issues encompass the cooperation of EU, Nordic legislation and cooperation with the United Nation’s agencies. Extension of such cooperation is frequent to the United Nations Refugee Agency or the UNHCR, the Council of Europe, Intergovernmental Consultations or IGC and the International Organization for Migration or the IOM (The Ministry of Refugee, Immigration and Integration Affairs). Furthermore, the Ministry negotiates with many foreign nations on issues relating to repatriation agreements, other forms of practical cooperation as well as mutual exchange of information. The International Division of the Integration Ministry governs international cooperation and participates in meeting and makes the necessary preparations for meetings and discussions that involve other nations. This Division also prepares meetings in Denmark with regard to issues relating to asylum and immigration. It also makes the necessary preparations for EU casework in national procedure (The Ministry of Refugee, Immigration and Integration Affairs). The destruction and loss of a large number of human lives in the Second World War resulted in European integration, which was expected to put a stop to such killing and destruction. In the year 1950, Robert Schuman, the French Foreign Minister proposed the idea of European integration. The present European Union consists of five institutions with specific goals. These are the European Parliament, which is elected by the citizens of the Member States; the Council of the European Union, which represents the governments of the Member States; the European Commission, which is the executive branch of the EU; the European Court of Justice, which ensures compliance with the EU law by the Member States and the Court of Auditors, which controls and ensures efficient and legal management of the EU budget (The European Union). There are other important agencies, which support these five driving forces of the European Union. They are, the European Economic and Social Committee, which reflects the opinions of the civil society on issues pertaining to economic and social interests; the Committee of the Regions, which is responsible for monetary policies and regulates the euro; the European Ombudsman, which deals with the complaints of individuals in case of breach of law or failure of proper administration by any EU institution or agency and the European Investment Bank, which promotes the objectives of the EU by providing financial support to investment projects. In addition, there are several other institutions to facilitate the smooth functioning of the EU (The European Union). The functionality of the EU is based on the Treaties, which were ratified by the Member States. In the beginning there were only six nations in the EU and these were Belgium, Germany, France, Italy, Luxembourg and the Netherlands. In 1973 Denmark, Ireland and the United Kingdom became members of the European Union and subsequently, in 1981 Greece became a member. In the year 1986 Spain and Portugal and in the year 1995 Austria, Finland and Sweden joined the European Union. In the year 2004 the largest expansion of the European Union took place with ten new countries being permitted to become members of the European Union (The European Union). In the beginning, much attention was bestowed on providing cooperation in the areas of trade and economy. Subsequently, the EU became the guardian of the Member States and commenced to deal with a wide range of issues pertaining to all aspects of society and humans. The EU protects the rights of individuals, ensures freedom, security and justice, employment, regional development and environmental protection. For more than fifty years the EU has been catering to the needs of its member states in respect of stability, peace and prosperity. It strived hard to enhance the standard of living of its citizens. It created a single European market, launched the euro or the single European currency and fortified the European Union’s stance on the international platform (The European Union). The European Union plays an important role in the field of international trade. It provides advantageous norms for trade to a large number of developing countries. The EU withdraws the preferential business terms from a country that violates these norms, while dealing with any member state of the EU. Moreover, the EU is the largest single donor of humanitarian and development aid in the world. The financial aid supplied by the EU and its member states comprises sixty percent of the total aid to the world. The EU also provides assistance for reconstructing nations ravaged by war and its aid projects are significant in promoting peace among warring nations and in settling disputes. The foreign assistance programs of the EU are remarkable in respect of the benefits offered to refugees of war and famine. Economic integration in the EU has become a role model for many upcoming trade blocs, which have consequently, sought the support of the EU in their financial reforms. Thus, the EU is an economic giant and a superpower. As a matter of fact, the EU influences the economic activities and policies of most nations of the world and plays a key role in the global economy and occupies the first rank in this area (The Rationale for Studying the Outcomes of European Foreign Policy Activity). In the international arena the EU had evolved as a superpower from its very inception. It underwent considerable modifications and later on it expanded itself by establishing common institutions and foreign policy requirements. In 1958, the Rome Treaty founded the European Community and established a legal pedestal on which the EU forged ahead to influence international trade activities, foreign aid programs and diplomatic terms with countries that were not its members. In 1970, the European Political Cooperation was established to facilitate governments to initiate dialogue and promote mutual cooperation with respect to foreign policy matters. In 1987, the Single European Act was developed. In 1993, the EU was institutionalized by the Treaty. The EU is supported by three pillars, the first is the European Community, the second is the New Common Foreign and Security Policy and the third pillar is comprised of by the policies with regard to anticrime and police cooperation (The Rationale for Studying the Outcomes of European Foreign Policy Activity). In 1998, the Treaty of Amsterdam had modified the Treaty of European Union. It brought about High Representation for the Common Foreign and Security Policy. The European Security and Defense Identity was supplanted by the European Security and Defense Policy in 1999. This change facilitated the EU to establish a rapid deployment force to maintain peace in the region. The Common Foreign and Security Policy is a set of objectives, procedures and devices formulated to encourage sophisticated joint actions and positions in foreign policy. The CFSP also formed the link between joint actions and civilian foreign policy of the EC. These developments transformed the EU into an international organization in the areas of commerce, trade, aid and diplomatic relations. Moreover, the European Foreign Policy addresses civilian actions, policies, relations, commitments and choices of the EU in international politics (The Rationale for Studying the Outcomes of European Foreign Policy Activity). The nature of the EFP controls the competence of the organs of the EU, so as to influence matters pertaining to international politics. As an international actor the EU enjoys a special status in international politics. However, there is still some doubt regarding the nature of the EU because it has no polity and because it is not a state or a territory with fixed borders. There are an array of tests that measure the end results of the foreign policy and decision – making power of the EU. However the scope of the CFSP was not utilized to the fullest extent by the EU. The end results achieved through this instrument clearly establish the prominence and effective role of the EU as an international actor in international politics (The Rationale for Studying the Outcomes of European Foreign Policy Activity).

Advertising Appeals to Our Imperfect Lives & to Our desire to satisfy Essay

Advertising Appeals to Our Imperfect Lives & to Our desire to satisfy ourselves - Essay Example The belief that people hold, that their decisions cannot be affected by the media and the advertisements, makes media very strong because when a person purchases a product they are convinced that they really need it. However, in most instances, this is not true. The average individual in the American society sees very many adverts per day. These adverts are available in almost all corners of life ranging from home where most part of the television is advertisements to the office where an individual doing research on the Internet is exposed to many more adverts in this media that has become more pronounced in the contemporary world. The ads that are directed towards the female population range from beauty, fashion, and diets. The companies undertaking the advertising usually do enough market research to know which side of the society can be exploited to the advantage of increased sales volume and market share for these businesses. The adverts are projected towards ensuring that the cu stomers would be pleased to the point of thinking that their lives would become perfect if they purchased certain goods. If the media does not find a need to exploit, they can create some to make people think that they need the product being advocated for. Creation of an area to exploit makes people think that they have a problem or even make them doubt themselves. This would definitely prompt people to try the product to see whether the perceived problem would be eliminated. This is during the quest to make lives perfect, which according to people, can be achieved through elimination of the problems that cause the imperfection. The need to create doubts in people is usually the result of intense competition that has been taking place in the modern world between the main players in the business sector. However, during most instances, the ads are designed to exploit the existing needs that people cannot live without. For instance, most magazines intended for the male population have

Ford Motors as the Best Company to Work with Essay

Ford Motors as the Best Company to Work with - Essay Example This research is being carried out to evaluate and present reasons why Ford Motors is the best. The company pays competitive salaries without delay. This is because the company always makes profits which it uses it to remunerate its employees. The minimum wage for the ordinary worker ranges from $1700 to $450k for the managers. Many people are seeking to be employed in an organization that makes profits and has increased sales. This is because their jobs are secured. The company makes profits through increased sales. Employees are motivated by the on the job training. This means that there is always an opportunity for the employees to have more knowledge. Employees are given incentives such as a provision of laptops for the jobs. They are also given some of the vehicles to use to cruise to their places of work.Houses are given free of charge once an employee. Extra hours are paid accordingly so as to encourage them to work extra hard. The promotion is given to hard work and performan ce. This encourages them to put more effort so as to perform so as to get the promotion. The company is also concerned of the employee through having health Insurance , pension plan, maternity and paternity leave and vacation & time off (sick days)

A comparison between the Japanese kimono and Chinese robe Research Paper

A comparison between the Japanese kimono and Chinese robe - Research Paper Example Dress materials and designs are the best indicators of the history of a particular region. It holds absolutely true when we say that by looking at the texture, designs, pattern and also the color of the dress material that was worn, one could easily decipher the culture of the people who wore it and also get to the know their way of life in general. Japanese kimono and Chinese robes have been brought into comparison as they resemble each other to a very great extent. There seems to be a cultural link between that of Japan and China which could be deciphered from their clothing. Japanese kimono and Chinese robes looks similar yet comes with their own uniqueness.The kimono came into being in the fifth century. A kimono robe is the typical sign of the Asian cultures. The garment has its long history entrenched in the hearts of the Japanese and Chinese culture. Later, the garment was made more contemporary to include kimono robes that are fundamentally all one size for both men and women . While silk kimonos are traditional garments in Japan, Chinese have Cheongsam as their traditional Chinese garment (Garrett, 1998). Both of these garments are very old and carry with it a long lost historical angle to it. Kimono, a piece of clothing, is not just a form of dressing among the Japanese but is also a clear-cut manifestation of how the Japanese history has evolved over time. The style of Kimono has been altered from one age to that of another and it has undergone changes throughout its history and has finally attained a form today. Goldstein-Gidoni (1997, p. 35) comments â€Å"The word kimono used in contemporary Japanese refers to the modern kimono, which â€Å"stems from the decorative festive clothing worn on special occasions† The inception time of the Kimono dates back to the time in Japan history pointed out as a specific period. That specific period is the Jomon period (Said, 1995). Kimono was in the form of a piece of clothing that was loosely draped ove r the body of the wearer. Those times, people did not pay much of attention to clothing as their major activity was to go for hunt and assembling. It was between the year 300 and 550 AD, Kimono dress patterns went for a change. Now the influence of the Chinese culture over the Japanese can be seen and the Kimono dress became a two-piece cloth. The arrival and the settlement of the Chinese in Japan brought about a huge change in their dressing patterns. Kimono was made in white color that was taken from the silk worm. Figure 2: Chinese White Women’

Internet research Essay Example | Topics and Well Written Essays - 1250 words

Internet research - Essay Example He has also treated many victims of abuse at the hands of the clergy. He tells us that it appears that 2 to 5% of priest have had sexual experience with minors which mounts up to about 1,000to 3,000 perpetrators(www.psywww.com). Other studies show that it is about the same number of priests that abuse minors as there are in the general population of males (Saradjian & Nobus, 2003.). We also know that 80% to 90% of priests abuse adolescent boys not young children. Therefore it can be assumed that the adolescent is at greatest risk of abuse not young children This means these individuals are not pedophiles. They are ephebophiles. That is not valuable information to the general public but it does change how these individuals would be treated professionally(www.psywww.com) Research also shows that these priests generally start abusing in the first year after they are ordained. This leaves us with 2 facts, a lot of children have been abused in all the years these men have been in the cler gy and it is likely that these individuals could be identified while in the seminary. Richardson (2000) stated that there are definite risk factors that should be looked at when evaluating applicants for the priesthood. They should be asked if they have been sexually abused. They should be observed for poor social skills and low impulse control. Any abuse of drugs and alcohol is a risk factor and any diagnoses of a personality disorder is also of great concern. Taking all this information Richardson (2000) came to two conclusions. Since the offenders were interested in adolescent males, allowing priests to marry would not fix the problem. He found the there was a high percentage of priests that claimed to be homosexual in orientation, however, sexual orientation does not predict illegal sexual abuse of children. There is no research connecting the two. The Catholic Church has been

New York v. Burger Research Paper Example | Topics and Well Written Essays - 1000 words

New York v. Burger - Research Paper Example The respondent in this case is the owner of a junkyard and his business includes dismantling of automobiles and selling the parts. The junk yard is an open lot without buildings and is surrounded by a metal fence. On the day the search was conducted police officers from the Auto Crimes division entered the respondents junk yard and conducted an inspection pursuant to Section 415-a5 of the New York vehicle and Traffic law. The officers from the division conduct similar searches on 5 to 10 vehicle dismantlers on a given day. When the officers entered the respondent’s yard, they asked to see his license and a police book he was required to keep. The respondent told the officers that he didn’t have either the license or the police book and the officers declared their intentions to conduct a search under section 415-a5. The respondent did not object and the officers took some Vehicle Identification Numbers from the parts in the yard and compared them against the police compu ter. Upon comparison of the VIN the officers determined that some of the parts were stolen and consequently arrested the respondent for being in possession of stolen items and operating a vehicle dismantling business without the required license (Bierman, 1995). The respondent sought to suppress the evidence obtained from the inspection on the ground that section 415-a5, which authorized the search was unconstitutional. The court in denying the motion to suppress the evidence observed that motor vehicle dismantling business is a pervasively regulated business and warrantless administrative inspection was appropriate. Additionally, the court observed that the statute was appropriately limited in time, place and scoop and that where the officers had a reasonable reason to believe that some of the parts in the yard were stolen, they could arrest the respondent and seize the property without the need of a warrant. The appellate Division also

Intranet Functionality PowerPoint Presentation Example | Topics and Well Written Essays - 1250 words

Intranet Functionality - PowerPoint Presentation Example In a hospital setting, the intranet is essential in facilitating communication, information publishing, interaction, collaboration, and online administration, directions to and within the hospital, digital forms, as well as web-based and intranet-enabled medical resources (Ong et al., n.p.). Specifically, these are functions that facilitate a smooth operation within the hospital; thus eliminating the prospect of medical errors. The intranet is an ideal platform to ensure effective and efficient communication within the firm. Precisely, the administration can use the web to post important memos or posters on various issues concerning the welfare of the workers or the patients. For example, it is important to pass email communication from the management to the workers (Ong et al., n.p.). In addition, it is appropriate for online administration where workers fill an activity for that record their daily duties including the time they arrived at the workstation and the time they left. However, for this to be effective, the intranet should be limited such that it is only accessible when an individual is within the hospital. The intranet is used for the other outlined activities to ensure proper communication; information sharing and interactions facilitate teamwork and improve the health care services within the firm (Ong et al., n.p.). Based on the functions of the intranet and its importance in a hospital setting, its maintenance and updating require qualified personnel on IT and management related competence. Specifically, the department and individuals mandated with the maintenance of the database should have vast experience of the working of the organization or have an assistant who has worked with the firm for some time (Ong et al., n.p.). Since the database requires occasional updating to provide information about the daily activities of the organization, the ideal decision is to establish an IT department that deals with the maintenance and

FIN Unit1 - Individual Project Research Paper Example | Topics and Well Written Essays - 1250 words

FIN Unit1 - Individual Project - Research Paper Example The proposal will consider each country’s trade policies, currencies and culture. Turkey and Italy: Review This part of the assignment will discuss about the currency, trade policy and culture of a turkey and Italy. Currency of two countries: Advantages and Disadvantages Italy is the member of European Union. Euro is the currency of Italy. This currency has both advantages and disadvantages. The advantages of this currency outweigh the disadvantages. Euro is the single currency between the members of European Union. It eradicates the need of currency exchanging between Economic and monetary members. Economic and Monetary members saved an average of 30 billion US dollar in a year by switching to this currency. Elimination of volatility of currency exchange rate between the members of European Union is another advantage of Euro. On the other hand, switching to a single currency forced the members of European Union to give up their rights to the change of monetary and economic po licies. It is the major disadvantage of Euro. Despite the disadvantage, the members of European Union made it easy to sell and purchase the goods cross borders. Moreover, the lending and borrowing become easy through the concept of this single currency. In addition, fixed exchange rate of 2.25% provides significant benefits to the members of European Nation. This benefit includes the promotion of international investment and trade. In developing countries this benefit can enhance economic growth. Recent financial crisis is the major concern for Italy. On the other hand, Turkey is not the member of European Union. The country uses Turkish Lira as their major currency. The currency of Turkey has several bilateral tax treaties and investment with US that can ensure the elimination of double taxation. Moreover, this currency gives guarantee repatriation of capital in the convertible currencies. The central bank of Turkey has tightened the monetary policy after the inflation rate increas ed to 10.5% in the year 2011. The central bank of the Republic of Turkey provides several flexible policies, such as foreign exchange auctions, interest rate corridor, and adjustments to the repo auctions and requirements. These policies will help to stabilize the Turkish Lira. The currency recently has depreciated by 25%. EU and Turkey: Trade Policies Europe is considered as the leading global trading block. It accounts for one-fifth of the global trade. Each and every trade policy is developed for the 27 member states among the European Union. These members generally share a single market and border. It helps to empower European Commission when it talks with all the partners of European Union. The commission effectively acts as the negotiator for a specific negotiation process. This commission represents the members of European Union in the World Trade Organization. The European Commission provides unity to mould a key open for global trading process that offers fair rule. However , the trade policy of Europe helps several European organizations to generate employment and significant investment opportunities. Several new markets for the European E\exports are effectively open through the trade policy of Europe. The European Commission works on daily basis to remove unwanted export barriers. Moreover, effective and potential opportunities in European investment are motivating several

Background information Essay Example for Free

Background information Essay Technology is known to be the best tool for efficiency and reliability. A professional having adequate information on information management is responsible for technology implementation in organizations. They are responsible for facilitation of computer related activities in a firm. They plan the communication network in an organization. Before any decision making in a company or organization, there is need to communicate to the top management. These professionals aid during this communication pattern by establishing both technical goals and business goals. They have the responsibilities of directing other computer related workers like the programmers. They are assigned to plan and perform such duties as upgrading and installing hardware and software, Implementing the internet and intranet in an organization etc. They also ensure the upkeep and maintenance of information systems and internal networks of an organization. They should view the information needs of the organizations they work with from an operational and strategic point of view. They are to keep a close watch to the organization to ensure that it does not pull behind its competitors. It is necessary for a company to employ an information systems manager. He is a person with good leadership qualities since he extensively works in constant interaction with the staff. He has a wide range of duties to perform in an organization among them; installation of computer systems, purchasing hardware and software, ensuring that there is backup systems incase of power crises. He is supposed to ensure a good strategic plan for a company and a policy that is of high quality standards. He has a staff of several workers among them; technicians, database administrators etc who are eligible to reporting to him. Advantages of an information system Information systems facilitate planning by providing the relevant information for effective decision making. It is sometimes difficult for managers to get into contact with operation scenes because of the complexities of organizations. Sometimes managers receive a lot of detailed facts. Information system minimizes the information overload. This is achieved through summarization of the large amount of data to avoid confusion. It is possible to decentralize authority. Information systems are able to monitor operations at lower levels and measure respective performance of these operations. This is effective for managers to make the necessary plans, procedures and implement change in an organization. It will facilitate coordination by making departments aware of requirements and problems of other departments. It functions in coordinating all the decision centers within an organization. Since it acts as a link between control and managerial planning, it makes control easier. Computers have reduced costs, increased data processing and the increased storage capabilities. Information needs. An organization has different departments in which there are different users. Each user has a different information need. The needs depend on where the user works, why he is trying to access the information and when he is accessing information. For a professional to come up with a good system design, he should have a careful study of and identify information needs within an organization. And also for effective providence of information services. Information needs have to be identified and this calls for careful study on the factors that affect information needs and therefore determining an effective method for collecting the information needs. There is need to follow a procedure when collecting information needs of users. There may exist different types of needs, but the information system requires only actual needs. And so there should be careful analysis on the gathered data to distinguish the actual needs. This will be able to discover ideas, tools, techniques and methods that will satisfy the users so as they can be able to meet their needs. Information needs present vacuums in the current knowledge of the end-user. Some needs are unexpressed by the users of which they are aware but do not wish to express. Another set of information needs includes those that the service provider shades light on but are null to users. A need is usually time bound and specific. Some areas that information needs depend on include: †¢ Position of individuals within an organization. †¢ The various areas of interest and departments where they work †¢ Activities engaged in at work. †¢ Factors that are motivating †¢ Consequences of information †¢ Recovering priorities. †¢ Availability of future ideas. Sometimes the process of identifying information needs becomes technical in the sense that. Researchers may find it necessary to go through original information which maybe unavailable. Same information is perceived differently by users hence interpretation becomes difficult. Some of the processes that aid in identifying information needs include: †¢ A careful study of the various disciplines that are of interest to the users. †¢ A study of an organization together with the surrounding environment. †¢ A special study to the environment of users. †¢ Keen study on the user. †¢ Conducting an interview that is formal to the users. †¢ Keep a record of the gathered information, analyzing and refining them.