New CIBC Unlimited Business Operating Account

The adverstisement for this account made it very interesting. However, once you decide to contact the bank, there is another story.

The main call center which number is announced on the ad will respond to you quickly. However, once you ask them about this account, they will say. Ohhh what? then Ohh no you have to contact the business division of the branch directly.
Ask them for the number??? then she will be: Oh I lost it. Wait. Then you have to wait for two other minutes until she can fetch up the number for the biggest branch in Montreal. Of course she is in a hurry so she would not even ask if you need anything else and close the phone.

Call the branch, they would not give you any information on the phone as if you are asking them about the bank secrets. So unless you want to book an appointment and go wait for someone to meet you at the branch, you can not get any single bit of information.

It might be time for some Canadian banks to open up and learn how to do business for the century.

iAWN (iAWN (International Assistance and Welfare Network)

iAWN

Seeding … Building … Empowering

iAWN (International Assistance and Welfare Network)

Microfinance

Microfinance is not new and neitherisneither is micro-lending. However, this project aims at introducing online micro finance for the International micro-entrepreneurship community. iAWN would be a replication of kiva.org in a different context. On the one hand, it would not be interest based. On the other hand, it would target some dark areas of the developed world where micro financing has not yet reached .

iAWN Specialty

iAWN aims to be the first Islamic micro-lending network to empower donors in assisting and financing micro entrepreneurs in developing countries. iAWN would be an online charitable organization dealing mainly with collecting online donations to fund posted projects. It focuses on the following fundamentals:

• Interest free lending 
• Accessibility 
• Security 
• Privacy
• Fairness
• Creating value for both the donor and the entrepreneur

iAWN offers a free, simple, and accessible web portal to link micro-entrepreneurs in sub-developed or developing countries with donors and investors in developed countries for the sake of raising funds for new or proven initiatives in the education, health, youth, woman, and other social sectors. At one end, the iAWN portal would allow people to donate online securely and with full privacy and contribute directly to any posted project. At the other end, project managers with the help of a local field partner would post a project that needs funding. 

Service Model

iAWN appeals to two types of clients: 

Beneficiary: Project initiators, charities, or entrepreneurs.

Sponsors: Investors, donors, consultants, investors, and social change agents. 

Beneficiary

Agile entrepreneurs, qualified project initiators, or charities from developing countries post their profile on the iAWN portal with their project and financial requirements. With the help of local partners, iAWN evaluates the potential, opportunities, profitability, and social contribution of the project in order to decide whether or not to approve it for financing. The local partner would comment on the authenticity of the request, and the capabilities of the micro-entrepreneur or the project manager. 

The evaluation and assessment procedure would follow very strict conditions and standards in collaboration with experienced local partners in order to identify pioneers and entrepreneurs in unfortunate areas across the world. Local partners play an extremely important unbiased role to make sure that the application is authentic and all supporting evidences, facts, and documents are verified. In return, they are allowed to charge a predetermined agency fee for their service. Hence, they can do their job faster with the channeled fund and they can do their job better as they would be paid for the service offered to the clientele.

At the launch time, the maximum amount that can be given to any project would be $500 USD or its equivalent and should be repaid over a period of 20-30 months after a grace period of (3-6) months depending on the situation, country, and the project itself. The micro-entrepreneurs or project managers (if funded through a loan) have to repay the total amount by equal installments to the local partner which will repay it back to iAWN after deducting an agreed upon fee or portion. 

The project manager or the entrepreneur has another task to fulfill monthly as well. TheywillThey will be required to write a one page monthly or bi-monthly  memomonthly memo to update their project journal and to inform investors of the steps that were realized during that period. Volunteer consultants can help with the memo presentation and to decide on the type and frequency of the report as well. Yearly financial reports would be prepared, with the help of volunteer experts also, and added to the project section on the portal in order to ensure a high level of professionalism and transparency in managing the grant or the loan.

Although project default is always possible, previous experience has shown that with due diligence and an assisted process, more than 95% of micro-entrepreneurs were able to repay their loans.

Local Partners

Although sponsors are the life-line of the model, local partners are the eyes, hands, and ears of the model. Success is impossible without their proactive help. iAWN would rely on close connections to select local partners and test their abilities to understand the model and apply it to their day to day business. They will be the first contact and front line in their respective regions. They pre-select the projects to be presented, and help comment on the authenticity of the request, and the capabilities of the project manager. iAWN management might request a list of all presented projects if needed. 

During the life of the project, they follow up with the entrepreneurs, channel funds from iAWN to the entrepreneurs and vice versa. In that, it is their job to collect loan repayments and send it back to iAWN after deducting said agency fee. They are also required to report monthly to iAWN to update on the list of all projects they assist with. 

Sponsors

Sponsors, on the other hand, supply capital, expertise or time. They go on the site, browse projects profiles, and choose someone to help by either making a donation, or a loan. In various cases, the entrepreneur needs  advice or a consultation as much as they need the cash, so experts have the chance to contribute their know-how or their time through the portal as well (volunteering e-consultants).

Supplying money or expertise through iAWN would provide much needed assistance for a needy person,allowperson, allow her or him to step forward in life and build a better future for themselves and the ones they rely on. Starting a micro-project or a mini-business is a major step in the path towards improving economical conditions, enhancing financial independence, and making tomorrow a better day for the project managers, their families, and their communities at large.  

Investors can review the project demand and supporting documents on the site before committing any amount to help. They can also follow up with the projects regularly through projects journal or business reports. When beneficiaries repay the whole loan, investors can recycle this capital into another project (loan or grant), or they can withdraw it as well. It should be noted that all transactions shall not contradict with taxation laws in the donors’ countries or entrepreneurs’ countries.

Fund Transfer

When a project is approved for financing, iAWN approves the posting that was submitted by the entrepreneur or the local partner. Once it appears on the site, investors or donors can commence  withcommence with contributing to the project and the maximum amount for a donation is $50 per project while the maximum amount of investment is $25 for every project in order to minimize the risk of losses for the individual investors. The fund would be channeled from the investor to the iAWN online account using a secure online payment processor.  It might happen that one investor is willing to offer the full amount or a major portion of the loan. In this case, s/he would sign a consent form that iAWN is not liable for any potential losses or major inconveniences. 

In order to minimize the transfer fees, the amount ($500/project/demand) would be transferred to the local partner. Several transfers might be syndicated to the same partner within a short period in order to minimize the losses. iAWN does not deduct any fees from the project donations or financing. Administrative costs of iAWN can be covered by separate sponsorships or volunteer efforts. As a result, iAWN services would be free, both for the entrepreneurs and for the donors.

iAWN Management Platform

iAWN plays an intermediate and supervision role only. It would not finance projects but only facilitate the authentication of demands with local partners, presentation of the project on the web, and manage the transfer of funds from individual micro-investors to the local partner that would assist the entrepreneurs on the ground. 

Everything is transparent and respects strict quality management standards. iAWN uses the power of the internet to link interested investors and needy entrepreneurs and bridge the gap between needs and resources (capital, expertise, or ideas). 

Milestones

The project is still in its infancy. An executive committee is being formed. The role of the committee would be to setup the organization and register it in Canada. At the same time, the project founders are working to:

• Register as  a not-for-profit entity and work on obtaining charitable status
• Set up a board of directors to oversee the project
• Raise capital to cover setup costs and build the website
• Prepare the business plan and grant proposals
• Select some countries to start the work in and contact local partners in these countries 
• Assess the ability of local partners to handle the tasks 
• Test the model on a small scale.

Impact of Financial Policies on Marginal Value of Cash

Based on textbook finance, corporate financial policies are split into three major areas: financing decisions, budgeting decisions, and financial decisions. The financing and budgeting decisions had been exhausted in the financial literature. The third area, financial decisions was not as well highlighted. Though this issue is of extreme important for both corporate management and shareholders. Graham and Harvey (2001) mentioned a survey of American and European CFOs asserting that financial flexibility is the most important driver behind corporate capital structure decisions. On the other hand, shareholders are highly concerned about the cash that firms holds. Hanson (1992), Smith and Kim (1994) warn of excess cash holdings. They think this may be interpreted as a value destruction symptom. Other researchers confirmed Hanson and Kim for the cost associated with cash accumulation (such as Kim et al (1998), Faulkender (2004), Hartzell, Titman and Twite (2005)).

Furthermore, little academic attention has been put into studying the marginal cost of cash holdings. Brealey and Myers (1996) assert that liquidity valuation is still one of the 10 unsolved problems in finance. Let alone the marginal value of liquidity or accumulated cash in corporate reserves. Kim, Mauer, and Sherman (1998) look at the correlation between financing decisions and optimal liquidity at the firms based on the costs and benefits of holding liquid reserves. The optimal investment liquidity is an increasing function of cost of external financing in addition to return and variance of future cash flows. Sapriza and Zhang (2004) analyze the effects of financial constraints on the value of the firm and found out that financial constraints reduce the firm value. 

Billett and Garfinkell (2004) observe that firms, with low access cost to external financing, do not face a compelling demand for internal liquidity. This is echoed in the work of Faulkender and Wang (2006) that suggests that the marginal value of cash holding depends highly on the usage of this cash whether it would be distributed to equity holders, service debt, or just sits idle in the corporate coffers until it is needed. As a result, the marginal value of cash is an inverse function of holdings size, leverage, but has a direct relation with cost of access to capital markets. By choosing stock repurchase over dividends, firms would increase the marginal value of its cash holdings. 

 Hennessy and Whited (2005) consider an optimal dynamic capital structure and they suggest that the marginal value of debt is higher if it is used to avoid costly equity issuance instead of distributing it to equity holders. Acharya, Almeida, and Campello (2007) study the marginal value of cash as well and examine its value when investment opportunities are coined with low cash flow states or high cash flow states. 

Similar to Billett et Garfinkell (2004), Gamba and Triantis (2008) uses a simulated dynamic model to analyze the optimal liquidity policies of a company and the associated effects on the firm value. For the latter, they think that the marginal value of liquidity depends on the current investment and financing decisions for a company and on the inter-temporal link between current decisions and forward looking estimations of needs for cash. 

Faulkender and Wang (2006) [FW06] and Gamba and Triantis (2008) [GT08] are similar in their research objective as both concentrates on the effects of financial policies on the value of firms. In addition, they both have consistent findings as they assert that the marginal value of corporate liquidity is: 

1. higher for companies with less cash holdings 
2. higher for companies with more investment opportunities 
3. higher for companies with tougher external financing constraints 

From a methodological point of view, FW06 derive and test their intuitive hypotheses empirically while GT08 simulates a dataset (10000 firms for 60 years) based on base care parameters implied from Hennessy and Whited (2005). GT08 dynamic model is able to capture frictions effects such as the impact of income taxes and distress costs. They mention also that the model is flexible enough to include other friction elements such as the effect of fixed cost of debt issuance. 

FW06 examine the marginal value of cash based on three cash regimes found in Hennessy and Whited (2005) in order to facilitate qualitative predictions for the cross section variations of cash marginal value. They argue that their methodology for firm valuation considering its characteristics is better than FF 98 because FW06 incorporates time varying risk factor instead of cross sectional variation only with FF 98. Another reason for the methodological superiority is the choice of the dependent variable. FW06 uses equity returns instead of market to book ratio as the former is easier to observe and measure. They do not regress the excess equity return on the yearly change in cash holdings only, but also on the incremental profitability, financing policy and investment policy. To test their hypotheses empirically, FW06 use a dataset of 82187 firm-years observations over three decades (1971 – 2001). 

Although, the dynamic model of GT08 is able to incorporate friction costs, I would like to note that FW06 follows a more rigorous methodology as they have used empirical tests and robustness tests. 

As a potential literature contribution: 

1. It is possible to extend FW06 model to incorporates more friction elements and see how much this would affect the marginal valuation. GT08 argue that distress costs highly affect the marginal value of cash. 
2. The FW06 model can be tested with Canadian data a well to see whether the country specific factors would affect the marginal liquidity valuation. 
3. Replicating GT08 model with empirical data (Either US or Canadian data) and robustness tests might also be a new contribution. 
4. Incorporating the agency cost into either model would be an asset as well because several studies in the literature mentioned the big impact of agency problems on financial policies within the firm and this would surely affect the marginal valuation of cash.