Modern Banking
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ž Freeing up (complex) controls on interest rates: for example, rates on loans over Rs 200 000 were deregulated, as were deposit rates on term deposits if maturity exceeded two years. Deposit rates were further deregulated over time.
žA reduction in the cash reserve ratio and statutory liquidity ratios.
žA plan to reduce government ownership of banks.
žRemoval of the requirement that large loans had to be approved by the Reserve Bank of India.
žGranting new bank licenses, and easing restrictions on the operations of foreign banks. Foreign banks could accept deposits and make loans subject to the same regulations as domestic banks. A committee made up of members from several government departments approves all applications for entry. Roughly 25 foreign banks have been licensed to operate, with about 150 branches. In 2004, the limit on foreign direct investment in the banking sector was raised from 49% in 2002 to 74%. According to Mohan (2004), by 2003 the new private sector banks accounted for 11% of the assets and 10% of net profits of commercial banks;57 the figures for foreign banks were, respectively, 7% and 11%.
žFree entry of private firms into the mutual fund business.
žA commitment to reduce government shareholdings of the state owned banks from a minimum of 51% to one of 33%.
However, there has been general dissatisfaction with the slow pace of these reforms – most experts think changes in the banking sector have been insignificant. The current structure of the Indian banking system is as follows:
žScheduled commercial banks: 92.
žRegional rural commercial banks: 200 – operating in rural areas not covered by the commercial banks.
žDevelopment financial institutions (DFIs): includes development institutions such as the Industrial Development Bank of India, specialised institutions such as the Export Import Bank, investment institutions such as the Unit Trust of India (UTI), the Life Insurance Corporation of India (LIC), and refinance firms such as the National Housing Bank. The government owns 100% of UTI and LIC and has shares in three others. As part of the reform programme, DFIs no longer have access to low cost funds and must compete with banks for long-term lending. The DFIs responded to the increased competitive pressure by diversifying into merchant banking and investment advisory services.
žRural banks and credit cooperatives: these banks are nationalised and focus on rural related activities such as development and agriculture. They do not base loans on the prime lending rate, and tax concessions help to keep costs down which means they can offer slightly higher deposit rates.
žCooperative banks: there were 1951 urban credit coops in 2002, which differ from their 29 rural counterparts. Most are urban or regional based – some cater to high net worth clients, others specialise in areas such as auto finance and home finance. There are also
57 Excluding the regional rural banks.
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group focused coops, such as the Air Corporation Employees Coop Bank, the Zoroastrian Cooperative Bank and the Bassein Catholic Coop Bank.
ž Non-bank financial institutions (NBFIs).
Banks were nationalised in 1969 and 1980 to enable the government to channel funds into certain priority sectors and minimise the cost of state borrowing. About 85% of commercial banks are state owned, but 27 dominate the banking sector. In the 1990s, concern about these banks’ lack of profitability, their high percentage of non-performing loans and lack of capital prompted some of the reforms listed above. They have been successful in some respects. For example, by 2001, all but two of the state banks met the minimum capital ratio of 9%, set by the RBI.
Since 1996, 13 state banks have been partially privatised but the government owns between 60% and 80% of them. Fourteen remain wholly owned by the state. Two new acts were submitted to Parliament in 2000, which, once they become law, will reduce the state’s minimum shareholding in state banks to 33%. To date, these new laws have not been passed, and the newly elected Prime Minister Manmohan Singh has said strategically important enterprises, including banks and oil companies, would remain state owned.58 Even if the laws are introduced, it has been made clear that the state will maintain management control by ensuring widespread ownership of newly issued shares, and/or through state owned enterprises that own shares. Evidence of this commitment was illustrated when the government intervened to save a troubled financial institution even though it owns just 44% of this bank. Furthermore, Bhattacharya and Patel (2002) infer that the partial privatisation allowed to date has little to do with a genuine commitment to privatise the banking system. Faced with the need for more capital to raise capital ratios to international standards, the state opted for partial privatisation to avoid having to use government funds for costly capital injections.
As part of their liberalisation policy, the government allowed the entry of nine new private banks, in addition to the 25 that existed before. The Reserve Bank has permitted the new entrants to concentrate up to 70% of their business in the more profitable urban areas. Superior technology and greater productivity have, apparently, allowed them to capture a 4% share of the deposit market.
There are concerns about the performance of Indian banks and financial institutions, and state ownership. The major problems with the Indian banking sector include the following.
žPoor Asset Quality: There are a number of related problems that have contributed to relatively high non-performing loans. Like Russia and China, much of the bad debt can be traced back to traditional heavy industries: agriculture, cars and steel. In 2001, as a percentage of total loans, NPLs are estimated to range between 14% (based on reports from the RBI) and 17% – estimates from independent agencies. Though the NPL percentages are low compared to China and Russia, they are high by international standards – in a healthy bank they would be between 1% and 3%. There are a number of reasons for thinking they are even higher. Under pressure to meet capital adequacy standards, banks have rolled over the interest due (and principal) on doubtful loans,
58 P. Watson, ‘‘Reforms with a Human Face for India’’, Los Angeles Times, 21 May 2004.
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so they need not be classified as bad debt – known as evergreening.59 Also, the loan classification system used is below international standards.
Despite introducing risk management systems and committees in some banks, many have been unwilling to force corporate borrowers to repay their loans. This is because of an ineffective legal system with opaque bankruptcy laws, especially in the area of foreclosure. However, a securitisation bill60 was passed in 2002 and allows secured creditors to recover the security more easily without judicial interference, making it easier for financial institutions to act on overdue loans. A set of clear guidelines on recovery of assets has been issued, resulting in several banks establishing asset reconstruction companies and debt recovery tribunals.
žPriority Sector Lending: For years, the government has identified certain sectors that must receive 40% of total loans made by commercial banks. The state banks actually exceed the requirement and allocate more than 40% of their loans to these groups. They include agriculture, textiles, steel, SMEs, transport operators, export firms and, more recently, parts of the information technology sector. It has reduced incentives for due diligence and monitoring, thereby increasing the likelihood that these loans will, in time, become problem assets. The figures bear this out. The percentage of NPLs among the priority sector loans is about 23%. Private and foreign banks have tried to avoid them, for example, by opting to invest in government bonds. A knock-on effect is the crowding out of loans to creditworthy firms in other sectors.
žWeak Financial Institutions and ‘‘Destructive Unambiguity : Not only is the percentage of non-performing loans high, but, according to Mohan (2004), productivity is lower and operating costs high (due to high wage costs) compared to other developing countries. A working party looked into the financial health of the state banks, reviewing indicators in three areas: performance (e.g. efficiency, as measured by the ratio of cost to income, operating profit as a percentage of working capital), earning capacity (e.g. return on assets, net interest income) and solvency (capital adequacy and other ratios). Of the 27 major state banks, three failed to meet any of the criteria, two met all the criteria and the rest met some criteria, an indication of weaknesses among state owned banks.61 The authorities have an ostrich-like attitude to the problem, hoping it will go away or at least be contained through capital injections. However, banks will have to change their modus operandi by cutting costs and increasing earnings. State banks will be unable to attract new equity capital if they remain weak, and even if they could raise private capital, they will always be constrained by the law requiring that the state own (at the moment) at least 51% of the concern. Bhattacharya and Patel (2002, 2003) describe the government attitude as one of ‘‘destructive unambiguity’’; while they continue to be major shareholders, the public impression (as in China) will be that these banks will never be allowed to fail. Bhattacharya and Patel (2002) document cases of government bailouts (by the Reserve Bank of India
59Bhattacharya and Patel (2002), p. 19.
60The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), April 2002.
61Bhattacharya and Patel (2002), p. 24.
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or the Ministry of Finance), ranging from large banks to small cooperatives. With such a wide safety net, there is little incentive for depositors to monitor or pressure the banks by voting with their feet. These attitudes encourage borrowers to use these loans for their more risky projects, knowing a reprieve is likely if they prove unable to service the debt. Likewise, managers have no reason to work to improve bank performance.
There is a system of deposit insurance, run by the Deposit Insurance and Credit Guarantee Corporation.62 As its name suggests, it offers credit guarantees on loans to the priority sectors and to small enterprises. Just under 75% of commercial bank deposits are insured. All banks pay the same annual premium of 0.5% of total deposits. Depositors are paid a maximum of Rs 100 000 (about $200063). Though a working party recommended (1999) the use of risk based premia (as in the USA), no action has been taken. However, given the high percentage of state ownership with what appears to be an implicit guarantee, it is unclear why an insurance scheme is necessary.
žReserve Requirements and Lending Restrictions: Though controls on interest rates
have been liberalised, the government has a high statutory liquidity ratio (SLR, 25%) and cash reserve ratio (4.5%64), though they have been reduced from the 1991 pre-reform requirements which, combined, were 63.5%.65 The average SLR for banks was 45% in late 2003, because they are choosing to use the high level of savings (deposits) to purchase government securities. This means the traditional intermediary function of banks, making loans, has been largely curtailed. There are number of reasons for this:
žInterest rates have declined. At the same time, a floor on deposit rates may have discouraged lending.
žIncreased prudential standards have made government securities attractive because they carry a lower risk weight than most loans. A related distortion is the tendency for state owned banks and financial institutions to buy each other’s paper, in an attempt to raise tier 2 capital to required levels.
žEmployees of state banks are considered to be civil servants, which means they can be prosecuted under the anti-corruption law. There is a tendency by institutions such as the Central Vigilance Commissioner to prosecute managers responsible for loans that are not repaid instead of looking at the question of whether the loan was a good calculated risk and/or for evidence of corruption. This discourages them from taking reasonable risks – fewer loans reduce the risk of being prosecuted. It also encourages managers to lend to government institutions or those backed by government because this group of firms is likely to be protected by the state.
žBank Supervision: Just as too many cooks spoil the broth, ‘‘too many supervisors make for regulatory sloth!’’. India suffers from excessive numbers of supervisors. Bhattacharya and Patel (2003) note that the problems of multiple regulators and jurisdiction overlap. Following fraud on the stock market, a recent official report criticised the Reserve Bank of India for ineffective bank supervision and noted that the RBI and the supervisors of
62Created in 1978 by the merger of the Deposit Insurance and Credit Guarantee Corporations.
63Calculation based on the exchange rate in 2004.
64As of 2004 – applies to scheduled commercial banks except rural banks.
65Source: Mohan (2004), p. 122.
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cooperative societies often issued counter directives. This raises another problem with the central bank – the large number of hats it wears. It is responsible for:
žSupervision of banks.
žMonetary policy and price stability, the issue of notes and coins and the supervision of the financial system (not just banks).
žThe implementation of the 1999 Foreign Exchange Management Act that means it must monitor the balance of payments and undertake any measures to keep the currency stable.
ž‘‘Banker’’ to the state and federal government, including the placement of government debt on the most favourable terms possible.
žAssisting with the promotion of national objectives.
Chapter 1 discussed the potential for conflict of interest if a central bank assumed three of these functions; adding two more merely aggravates the problem.
The equity markets have grown rapidly in the 1990s, with 23 stock exchanges and 9413 listed companies in 2003, up from 6229 in 1991. Market capitalisation as a percentage of GDP rose from 12.2% in 1991 to 43% in 2001. Compared to the banking sector, some attempt is being made to instil a greater sense of responsibility among investors in equity markets. The state owned Unit Trust of India is the largest mutual fund, with 54% share of the total assets invested in mutual funds, down from 80% in the mid-1990s. Since private mutual funds have been allowed, UTI has twice been bailed out by the state, in 1998 and 2001. The fund has never been given an official government guarantee and it has been made clear that it will not be bailed out again. Investors are expected to bear the full risk of their investment. However, it is doubtful whether any government would allow its own mutual fund to fail, resulting in losses for so many small investors.
To conclude, India’s economic ‘‘miracle’’, with its impressive growth rates, was largely the result of reforms which made key sectors of the economy more market based. Currency convertibility and capital controls were reformed at the early stages, and have been in the process of relaxation over a long period of time. External finance in the form of foreign direct and/or portfolio investment is being encouraged. The currency has moved gradually over the years from a sterling peg, through a basket peg, to its current regime of a managed float, which is consistent with moves away from financial repression. However, the banking reforms, while notable in some respects (e.g. liberalising many rate controls and allowing foreign bank entry), have some way to go. There are several ongoing features of financial repression, the most serious being the continuation of state ownership and control in the banking sector and other parts of the economy, too many rules on lending, and the absence of laws in bankruptcy. Given these restrictions, it is surprising that the percentage of non-performing loans is not higher, though this probably reflects a more serious problem: not enough loans are being made in an economy still largely dependent on its banking sector for finance.
6.4. Islamic Banking
6.4.1. The Basic Principles and Key Products
The countries where Islamic banking plays a central role are classified as emerging economies, though they vary considerably in terms of living standards, income and level of
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development. It is estimated that there are roughly 250 Islamic financial institutions (IFIs) operating in more than 48 countries, with combined assets of somewhere between $200 and $250 billion, though some estimates are as high as $400 billion.66 To put this in perspective, the top 10 banks (measured by tier 1 capital) in 2003 had assets ranging from just over $1 trillion for Citibank to about $745 billion for BNP Paribas.67 Clearly Islamic banking is a fringe activity in global terms. However, it has been growing at a rate of 10% per annum and is thought to have a market potential of close to 10% of annual global GDP.68
Islamic banking provides some interesting contrasts to the standard modern bank which is the subject of most of this book, and raises fundamental questions about the role of interest and how a bank functions if the payment or receipt of interest is banned. If, as predicted, it attracts 40 – 50% of Muslim savings in the coming years, it could be an important source of profit for the established banks, provided they create divisions able to cater to Muslim needs. Furthermore, having devoted a good deal of space to the role of the state controlling interest rates, a cornerstone of financial repression, this section looks at several nations which have, for religious reasons, banned banks from paying or charging interest on their deposits and loans. How banks operate if they cannot use the interest rate to intermediate between borrowers and lenders is a question this section attempts to answer. Do these countries, which have developed Islamic products and systems, have something to teach the west? Some of the major western banks, including Citibank, HSBC, Goldman Sachs and UBS, certainly think so. All have opened Islamic banking divisions relatively recently.
Iran, Pakistan and the Sudan run banking systems solely based on Islamic principles, and interest based banking is prohibited by law. Others, including Turkey, Saudi Arabia, Indonesia, the UAE, Yemen and Malaysia, operate mixed systems. Malaysia is particularly proud of its dual system.
The Holy Quran forbids the charging of riba, defined as any interest:
‘‘Allah has permitted trade and forbidden interest’’ (Qu’ran, 2:275)
The above quote shows that for Muslims, earning a return for bearing risk is acceptable (to promote trade) but charging interest is not.
The roots of recent Islamic banking are usually traced back to the Mitghmar Egypt Savings Association, established in 1963. A village bank, it attracted rural people, most of whom did not use financial institutions, due to lack of trust and the absence of facilities in their community. The Association offered savings and investment accounts in keeping with Islamic principles. Deposits were on-lent on a profit/loss basis (see below), thereby mobilising what had been ‘‘mattress’’ savings to finance small businesses and trade. It was later nationalised and merged with the Nasser Savings Bank.
The Mitghmar Savings Association illustrates the point that Islam accepts the need for financial intermediation, but rejects the idea that interest is the core means by which it
66The estimate of $200–$250 billion is from Institute of Islamic Banking and Insurance, www.islamic.banking.com. However, Karim (2004) suggests it could be as high as $400 billion because the assets of the Islamic banking divisions of conventional banks such as HSBC or BNP Paribas are usually excluded from the calculations. To quote Karim (2004, p. 48): ‘‘These are all guesses’’.
67Source: The Banker, July 2003, p. 187.
68Source: El-Hawary et al. (2004), p. 39.
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should be facilitated. Money is not a commodity, and must be used for productive pursuits: the risk of any investment should be shared not traded. The main distinguishing characteristic of Islamic banking is the absence of fixed interest rates on deposits and loans. Returns from lending are usually earned through mark-up pricing or profit/loss sharing. Islamic financial principles extend beyond banking applications to broader areas of finance. For example, Islamic equity funds are offered which exclude investment in companies producing alcohol, tobacco and other goods or services prohibited by the Holy Qu’ran, but this section focuses on banking.
Organisationally, the President Director of an Islamic bank is responsible to a Board of Commissioners, which has responsibilities and duties similar to that of a Board of Directors. In addition there is a Board of Auditors, which is responsible for the financial monitoring of the bank, and reports to the Commissioners. However, the key difference from a conventional bank is that the Shariah Supervisory Board, which is governed by Islamic law, must approve decisions made by these boards. The Board of Commissioners appoints religious scholars to the Shariah Board. Once they become board members these scholars have complete autonomy and can reject anything deemed to be contrary to Islamic law.
In theory the Islamic financial system is based on contracts, of which there are two types, intermediation and transactional.
Intermediation contracts
The main intermediation contracts are as follows.69
žMudaraba or a trustee finance contract. This is an example of the well-known profit and loss approach which, in theory, is at the heart of Islamic banking. The profits and losses (PLS) are shared among all the concerned parties. The bank or owner of the capital provides all the capital to finance a project; and in return a prearranged percentage of the profits are returned to it. However, the bank incurs all the risk of financial loss. The liability of the firm is the time, labour and expertise put into the project. If it makes losses, the firm has lost these valuable inputs and for this reason does not have to meet any of the financial losses. The drawbacks are problems with monitoring and control, especially when the lending is to small businesses. Double bookkeeping for tax evasion can occur, making it difficult for the bank to discover the actual profit made.
žKifala: when the debtor assumes full liability for the debt, pledging to repay it to the creditor without interest. A third party acts as guarantor and repays the debt should the debtor, for whatever reason, be unable to pay.
žAmana: these are demand deposits, held at the bank for security. The bank guarantees the repayment of capital on demand but pays no interest. The Amana account is to facilitate transactions. Though depositors share no profit, the bank can invest the funds. Often,
69 Excluded from the list are Ju’ala, a service charge paid by one party for specific services, such as fund management or acting as a trustee and Wikala, which is an agency contract – this is covered in the discussion of the Iranian system, see p. 58.
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prizes are offered to attract custom. Depositors may approach the bank for short-term interest-free loans. The bank can levy a charge to cover administration costs.
žTakaful: mutual insurance, based on collective protection. Members paying into the scheme are its owners, and benefit from the fund should the event they have insured against occur.
Transactions contracts
El-Hawary et al. (2004) identify three categories of transactions based contract.
(a) Equity Participation
Musharaka: this is an equity agreement between the bank and one or more partners to share the risks of an investment project. The returns/losses are determined by the percentage contribution each party makes. For example, if a bank puts up 60% of the capital and two investors provide 20% each, the bank will get 60% of the profits or bear 60% of the losses, and each of the other two parties will gain/lose 20% of the profits/losses.
(b) Asset Backed Transactions
žSecurities for Trade Finance: the most common one is Murabaha, a form of mark-up financing. The bank purchases the good/service and sells it to the client at cost, plus an agreed mark-up charge. The mark-up covers the risk the bank incurs between buying the good and selling it to the firm. Other factors affecting the mark-up are the size of the transaction, the reputation of the buyer, and the type of good or service. Normally the repayments are made in instalments, or payment is deferred (Bay mu’ajal70), and there is no charge for the deferment. The price is agreed upon at the time the product is sold.
žCollateralised Securities: of which the main product is Ijara, a lease or lease/hire purchase – the bank (or another party) leases out the good or service and demands a user fee, which is a fixed regular charge over a period of time. Ownership (title of the goods) passes to the lessee once the final payment is made. This category also includes Istisna, where delivery and payment are deferred. One party agrees to deliver the good (e.g. a house) at a future date for a price agreed now. Payment may be made at the time of delivery of the final product or in instalments, depending on the nature of the contract.
žOne form of loan permitted is the Qard Hassana, whereby a lender provides a loan to a needy borrower at no charge, repayable when the borrower is able. The lender can impose a service charge to cover the cost of administering the loan, but it cannot be linked to the size or length of the loan. The loan is repaid when the borrower is able to do so. Personal, health and education loans fall into this category.
70 Or payment is made at the time of the sale, but delivery takes place at a later date, known as Bay Salam.
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Many of these products resemble asset backed securities in the sense they are all claims on an asset. The difference between the ‘‘western’’ ABS and the Islamic one is that in the west, the claim is against a pool of assets; for the Islamic product described above, it is against an individual.71 Note that the bank can bring two parties together, or the bank is the investing party. In this sense, it acts as both an investment bank and a commercial bank, but unlike a conventional universal bank, there are no firewalls between the two groups of activity.
As an example, consider Islamic bank products offered in the UK. In 1997, the Allied United Bank of Kuwait brought in the Manzil Murabaha Plan, an Islamic mortgage. The buyer finds a house and agrees the price with the seller, the bank purchases the house, then resells it at a mark-up. The householder repays the bank in equal monthly instalments, for up to 15 years. During this time, the property is registered in the consumer’s name but the bank holds the legal title, which is passed to the client once the price is paid. This plan was phased out for all but a few clients because of property price risk incurred by the bank. It was replaced with an Ijara72 plan: once the householder has found the house, the bank purchases the property and agrees to resell73 it to the customer after 25 years. The customer makes a monthly payment to the bank, but the rent is reassessed once a year and changed to reflect any changes in the value of the property. Customers can purchase the property at any time.
There is also a conversion plan to allow clients with a conventional mortgage to switch to an Islamic one. The bank makes its profit from the rent, which changes to reflect the state of the property market and risk. However, it is more costly for several reasons. First, there is the large deposit the householder must make, between a fifth and a quarter of the purchase price, compared to 5% or even nothing in a conventional mortgage. Also, two sets of legal contracts must be drawn up. In the UK, stamp duty is payable each time a property changes ownership. For this type of mortgage, it was paid twice (when the bank purchased the property and after the owner paid the bank in full) until 2003, when the Chancellor of the Exchequer agreed to stop imposing this double stamp duty. Finally, the relatively small number (compared to conventional mortgages) means proportionately higher administrative costs for the bank. The only attraction compared to a conventional mortgage is the absence of a charge for repaying early.
The HSBC Islamic subsidiary, HSBC Amanah Finance, based in Dubai, operates in several countries, including the UK. In 2003, it announced the availability of Shariah compliant74 consumer finance products, available in 25 HSBC branches where the Muslim population is high. It offers an Ijara mortgage, similar in features to the one described above, where the rent is reviewed bi-annually and a 10% downpayment is required. The rent is determined using LIBOR as a benchmark plus a profit margin. HSBC argue the rent is not a substitute for interest payments but rather, a charge for use of the property. The Amanah bank account is a basic deposit account with no overdraft, credit/debit interest. The customer is issued with a cheque book and debit card. The deposits are not used for
71El-Hawary et al. (2004), p. 8.
72Most banks have shifted from Murabaha to Ijara, not only for mortgages but for other forms of lending too.
73Or payment is made at the time of the sale, but delivery takes place at a later date, known as Bay Salam.
74HSBC has a Shariah Supervisory Board, which approves and monitors all its Islamic banking and finance products.
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HSBC interest based activities such as lending. One drawback is that the minimum credit balance is £1000 – a conventional basic account usually does not require more than £1 in deposits. Also, it is unclear what bank charges, if any, the client will incur.
Given the range of products, a hypothetical balance sheet is shown in Table 6.5. Note the differences compared to a standard bank balance sheet. Though the investment accounts are listed as liabilities, they involve using deposits to finance some form of equity investment, either in the bank itself or some other project. Deposits in a conventional bank finance loans. On the asset side, there are no loans, apart from Qard Hassana, and these do not involve any interest payments. Fee based activities would be off-balance sheet in the western system.
In terms of risk, Islamic banks should face a reduced chance of getting into problems, because the risk is, in principle, shared among more agents. Banks bear the risk of project investment, and holders of investment accounts can lose out. In practice, however,
Table 6.5 Balance Sheet of an Islamic Bank
Assets |
Liabilities |
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Asset Backed Transactions/Trade Finance: |
Demand/Transactions/Current Account: |
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Murabaha |
Amana |
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Bay mua’jal |
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Bay salam |
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Collateral-Based Products: |
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Ijara |
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Istisna |
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Syndication: |
General Investment Accounts :1 |
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Mudaraba |
(special purpose) |
Mudaraba |
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Musharaka (venture capital/private |
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equity) |
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Specialized Investment Accounts: |
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Mudaraba |
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Musharaka |
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Fee-Based Services (e.g. letters of credit, |
Equity |
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safety deposit boxes, etc.): |
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Ju’ala |
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Qard Hassana |
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1 A general investment account would be like an investment or term deposit, whereby customers share in the profits (or losses) of the bank but do not have any management control. The formula for profit-sharing is usually regulated by the central bank and agreed by both parties at the time of the agreement: typically the investor gets 80%; the bank 20%.
Source: Grais and Iqbal (2003).
Specialised investment accounts involve a specific investment opportunity the bank offers clients – e.g. private equity, join ventures or a fund.
Source: El-Hawary et al. (2004).