Featured | Apr 30,2021
Nov 12 , 2022
By Asseged G. Medhin ( Asseged G.Medhin, deputy CEO of Global Insurance Company. )
Business professionals are familiar with "credit" and "liability." Those in finance, economics, and engineering are among the few who furnish their performance report using these terms. Even political analysts use the word "liability" often lately.
However, I would like to use these terms from business clients' perspectives, whose feedbacks urge organisations to claim credit from them without liability. Not long ago, to set a strategy that must persevere through the ever-growing chaos, envisioning an opportunity in the market, making an offer, and promoting the proposal to earn a profit was enough.
Unfortunately, life is not that simple. Things perpetually change through time, and the complexity is normalised. We ignored the fact of the craziness that shapes business reality, diminishes opportunity or excessively consumes resources. Being responsive to customers may not be fashionable, but it should not be wrongly perceived and practised for the order of the day. It is inevitable.
I believe that the 21st Century customers are the facilities of business. They are multi-business oriented and seek an interactive, full-service workable system precision with the flexibility to adapt to constant changes.
Today's financial system is more than just the institutions facilitating payments and extending credit. These requirements make business life complex. In this sense, the central nervous system of a market economy demands more advanced credit than ever.
The financial sector contains several separate, though interdependent, components that are essential to its effectiveness. One is the set of intermediaries, such as banks and insurance companies, which act as principals in assuming liabilities and acquiring claims.
The second is the markets in which shares are exchanged. These include equity, fixed-interest securities, exchanges or over-the-counter markets for foreign currencies, commodities and derivative contracts.
The third is the infrastructure necessary for the effective interaction of intermediaries and markets. Infrastructure includes securities, exchanges, payment and settlement systems. But it also consists of the mechanisms that provide contractual certainty and generate and verify the information on which efficient financial intermediation depends. This would include credit ratings, accounting, auditing, financial analysis, and the supervisory and regulatory framework.
The three components are inextricably intertwined.
Through these chains, businesses should ensure that the liability has to be manageable until its effect is negligible. The idea of liability credit without liability is all about the maximum financial engineering used to control exaggerated values of properties held as collateral; house value drops when a single factor is changed.
If intermediaries are supported by a high level of technology and infrastructure, they will bring meaningful change in controlling irregular markets, which is a win-win approach. Markets only function efficiently when strong institutions are available to support liquidity and information providers' efficient price discovery. High-quality information is the raw material for directing resources to business companies, which helps them grant more credit at a controlled liability impact.
In recent decades, as financial markets became more sophisticated and complete, market forces could provide sufficient incentives for financial intermediation to be conducted efficiently and prudently. It is worth examining the reasons.
When financial institutions accept risk on their balance sheets, which is an actual liability, stakeholders' interests, working through corporate governance mechanisms, ought to ensure that risks are undertaken consciously and managed prudently. Shareholders, as owners, should insist on high standards of loan underwriting, robust risk management and controls to maintain franchise values through all phases of the financial cycle.
Prudent risk management by managers of financial institutions would result and would prevent excessive leverage. In addition, power should be constrained by the self-interest of providers of funds. Lenders to financial institutions, whether depositors or debt holders, should penalise intermediaries that run excessive risks and hold too-thin capital cushions.
In securities markets, the mechanisms through which information on financial value is provided should provide incentives for quality maintenance. Behind this is the assumption that the long-term value of reputation exceeds any short-term advantage from exploiting information asymmetries. Similarly, securitisers of asset-backed securities derive value from a reputation for the quality and transparency of the structures they create. Rating agencies, accounting firms, securities analysts and others have a long-term interest in gaining a reputation on which others can rely while making financial judgments.
Any Business opening that understands the value of quality information maximises benefits by those who disregard and register huge disadvantages on their book of account. If not, they phase out eventually. In a value chain system, everyone wants to ensure their obligation is lower than the credit they grant or receive. That is why we say their value is "credit without liability."
In business, customers are the quality assets of a company. Their enquiry is an intangible asset for everyday business transactions.
PUBLISHED ON Nov 12,2022 [ VOL 23 , NO 1176]
Featured | Apr 30,2021
Life Matters | May 27,2023
Fortune News | Dec 04,2022
Fortune News | Jul 13,2019
View From Arada | Oct 01,2022
Commentaries | Mar 14,2020
Radar | Apr 25,2020
Commentaries | Apr 01,2023
Commentaries | Jul 31,2021
Commentaries | Mar 13,2021
Photo Gallery | 69189 Views | May 06,2019
Photo Gallery | 61058 Views | Apr 26,2019
Fortune News | 52960 Views | Jul 18,2020
Fortune News | 52738 Views | Sep 01,2021
Commentaries | May 27,2023
Life Matters | May 27,2023
My Opinion | May 27,2023
Sunday with Eden | May 27,2023
Agenda | May 27,2023
Editorial | May 27,2023
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But...
Jul 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
Nov 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
Nov 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
Recent headlines seem to augur a global debt crisis. The United States is teetering on the precipice of a self-inflicted default. Egypt,...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country's most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or two...
May 27 , 2023
Tauted as a somnolent giant, Ethiopia's financial scene now stirs, roused by favourab...
May 20 , 2023
The pungent irony wafting from Pretoria last week was hard to miss. Cyril Ramaphosa,...
May 13 , 2023
In March this year, Kamala Harris, the United States Vice President, visited Ghana, T...
May 6 , 2023
The history of the Ethiopian labour movement dates back to the 1940s, marked by perio...
Jun 3 , 2023 . By BEMNET TAFESSE
Officials hope to mitigate the impacts of drought on the wide livestock population of...
May 27 , 2023
In a triumph over the trials of the pandemic, a rising tide of construction costs and inflation, Zemen Bank has opened a stunning 32-storey...
May 27 , 2023 . By BERSABEH GEBRE
Meqelle is in an animated bid to reclaim control of the management of companies under the Endowment Fund...
May 29 , 2023
Officials at the Addis Abeba City Administration have recently changed the title transfer fees following...
Or see contact page