Insurance Credit Funding for India

It is extremely difficult to comprehend and appreciate that those who matter in determining prudent financing policies in national interest in India are showing total ignorance and obliviousness about the crumbling world economic structures and the apparent changes which could be seen by every intellectually honest economist in India. In 1998 India issued the Resurgent India Bonds (RIB) and in 2000 the India Millennium Deposits (IMD) for a tenure of five years to target channelizing NRI savings into India, which would have even otherwise reached India in due course of time. PIOs have moved out of India for over 1000 years now, but have never lost their roots.

In 2011 India created an Infrastructure Debt Fund (IDF) for about INR 10,000 Crores and now the State owned India Infrastructure Finance Corporation Ltd.(IIFCL) are finalizing broad contours for a multi-billion-dollar 30-year proxy sovereign bond that (as projected) will allow the Indian Government to raise funds from Foreign Institutional Investors (FII). It is expected that these Bonds would be floated with a guaranteed return of about 9 % in the expectation that, with the Europe shrinking the bonds will fully subscribed, in spite of the credit rating loaded against India (by global statistic holders), for dismal and slowed growth rate of 5.3 % in the last quarter of 2011 – 12, the slowest since 2003 – 04.

80 % of the money so sought to be raised is expected to provide some solace to the parched infrastructure, which India has continued to build since independence and the balance would go to Public Sector Banks to enable them to lend more money and obviously take it back by making book entries against unpaid debts (creating more NPA’s). It is also expected that the inflow will help prop up INR which in June 2012 hit a record low of 57.32 against US$. All this is expected against the widening of current account deficit gap export earnings and import payments and rising inflation in double digits and oil prices above 110 US $ a barrel, rising FDI repatriation and large external commercial borrowing redemptions.

Interestingly and amazingly nobody is asking the questions as to why India needs to pay hard earned tax payers money to repay 9 % interest to the Foreign Institutional Investors when money is said to be available at LIBOR + 2 % or the money lying with the FII’s does not belong to them but belongs to High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) who get only 3 % interest from FII’s and would be more than willing to fund any project in India @ 6.5 % interest and continue to roll it over. The other question which nobody wish to ask is what will happen after a period of 30 years when a new generation of Indians will be hit by the tsunami of repayment.

These bonds will certainly be prescribed by those who control Global Financial Institutions and economy, directly or indirectly and would never lead to achieving a reasonable GDP. These commitments would logically and certainly take the economics down further, as the objectives are on plain logic are not achievable and will not increase production but will only increase inflation. Companies will reduce employee’s salaries budget (they can’t reduce travel, entertainment, marketing and taxes), leading to employees unrest (Maruti in Gurgaon) and will not invest anything into R & D, for the Company has to meet the direct and indirect tax demands (validated by Courts) of the Government, for the Government has to pay high rate of interest for the debt funding structured and rigorously pursued by it.

For providing long-term debt to infrastructure projects Mr. Edward Fortin, President & CEO Global Operations of Fortin Financial Group (FFG) a BVI Company, has devised a proprietary funding mechanism primarily keeping in view the global melt down of existing banking structure and currency wars which will certainly change the balance in global economics in the new age. It is not only difficult but impossible for anyone to negate that the PIO’s are making their mark all over the globe not only in the field of IT, Astronomy, finances but also politics. It is not difficult to decipher the reason for all this and that is the deep rooted ancient heritage, profound culture, traditionally oriented family structures with simple and positive values, natural entrepreneurship skills, integrity, honesty and finally adherence to relationship above mere economics.

After long and deep search in existing economic structures managing the affair of the world for over 220 years (since 1791) it is necessary to shift from Banks Debt Funding to Insurance Credit Funding (ICF). ICF is a perfect solution to provide long-term funds without a baggage more particularly because the source of money is not a fund created on debt against Government Bonds. ICF will be an extremely efficient method of providing loans, on very reasonable terms as to interest and repayment to Public Sector Undertakings and Private Entrepreneurs by fully collateralizing the project only and without seeking any personal guarantees as is prevalent with Banking Sector. ICF is not faced with the inherent risks involved with the project development investment and that is that the investment made may not be returned back with interest. ICF based on the expanded vision and faith and trust in the entrepreneur executing the project. The tacit understanding is that every project is able to achieve its object and purpose, if the money is spent on the project. If the project fund is not siphoned off for other purposes, the real objective of every project of job creation and sustainment of personal wellbeing, is always achieved and that in fact and in real terms adds to the Gross Domestic Product (GDP) or Gross Personal Happiness (GPH)

The confidence that this system of funding permeates because of the inherent strength of the financial structure of Credit Fund created against actually existing insurance funds, as contradistinguished from the Debt Fund created against Government Bonds. The stake holders in this creation of these funds are:

The stake holders in this creation of money are:

1. Life Insurance Company – In USA

2. Senior Citizens – in USA

3. Otkritie - Broker, Asset Manager, Financial Consultant and Investment Banker – Russia / UK (http://www.otkritie.com/)

4. Fortin Financial Group (FFG)  – British Virgin Island

5. J.P. Morgan – in U.K.

6. Insurance Company – AXA, ING and Allianz - in Europe

7. High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) – All over the globe especially Europe

8. Greenberg Traurig – US Law Firm (http://www.gtlaw.com )

9. Law Consults – India Law Firm (http://www.law-consults.com )

10.State Government, PSUs and Private Entrepreneurs – in India

11.RITES (Rail India Technical and Economic Services) – For Engineering Consultancy and Project Management Services and BNP Paribas for Real Estate Projects – in India

12.IDBI (Capital) (Industrial Development Bank of India) – Financial Structuring and Techno Commercial Appraisal and Security of Documents in India

13.Projects – in India

The Process -

Senior Citizens in US, who are holder of LIPs and are in need of immediate funds, look forward to surrender the LIPs to the Insurance companies. However, in view of their assignable nature, the senior citizens can assign the same on a higher premium. Fortin Financial Group (‘FFG’) has got in its fold policies of senior citizens preferably above the age of 72 years (life expectancy in USA is 75 to 78 yrs.) and have paid surrender value of the LIPs along with a premium amount to the senior citizen, who is more than satisfied as having received more value, than the surrender value they would have got from the Insurance Company. FFG shall continue to pay the premium, from year to year to the Insurance Company, for the rest of the life of the person, whose policy they have assigned to themselves. FFG will be entitled to receive the insured value of the LIP at the time of death of the policy holder. A simple calculation of the surrender value paid to the policy holder with premium and the payment of annual premium to the Insurance companies vis a vis the insured value to which FFG would be entitled, reveal that FFG is conveniently left with a substantial surplus amount as their profit. 

Having purchased the policies of senior citizens for a premium, FFG has assigned the task to J.P. Morgan U.K. a Investment Banker to keep the policies in their trust and continue to pay the premium to insurance companies and to collect the insured value as and when it becomes due and payable by the insurance companies. The surplus amount left after payment of surrender value and  premium amount along with 5 % for 10 years comes to about 50 % of the total value of the insurance amount to which FFG would be entitled from the insurance companies. Any investment through FFG system with secured 5 % annual simple interest is totally secured by the J.P. Morgan U.K. A totally secured annual return of 5 % for 10 years is a perfect, lucrative and flawless investment for High Net-worth Individuals (HNI), Qualified Institutional buyers (QIBs) and Fixed Income Buyers (FIBs) all over USA and Europe, when LIBOR (London Inter-Bank Offered Rate) is about 1.35 % for 12 months and continues to vary at 11.45 am (London Time) every day at the behest of BBA (Britain Bankers Association). The maximum amount that the HNI, QIBs and FIBs are receiving against long term investment is LIBOR + 1 % i.e. 2.35 %. 

FFG is simultaneously executing MoUs with Public Sector and Private Sectors undertaking for their infrastructure projects in India by creating an SPV or equity participation or granting loans. With the formal commitment made for projects in India, FFG will load the Mid Term Notes (‘MTN’) or Bonds from its SLS portfolio and instruct J.P. Morgan U.K, its Investment Banker to provide the HNI, QIBs and FIBs with information required to enable them to access the MTN or Bonds offered via the Bloomberg Terminal in order to perform due diligence of the projects to be executed in India. With the due diligence accomplished, the sale of MTN or Bonds can be completed with the MTN sold @ par to HNI, QIBs and FIBs all over USA and Europe assuring return of principal and a 50% fixed return (5 % per annum), both payable at the end of year ten (10). The Investor purchases these MTN, for such investment eliminates the inherent risk of any loss of principal and interest which is associated with project investment and also gives him a sense of contribution to actual genuine development and not contributing to blood money or corrupt funds.

The investor receives:

·        MTN ownership, backed with ‘A’ rated or better SLS with a non-lapse premium contingency.

·        Principal reimbursement at maturity

·        50 % fixed return, payable at maturity

·        SPV security

·        Equity stake

·        Additional windfall

Funding in India –

Having secured the principle and interest payable to the investors, FFG has to ensure use of the funds raised against these MTN or Bonds be financed for Public Sector Undertakings and Private Entrepreneurs in projects in India, that would be actually executed or lying dormant and can be executed forthwith. This funding could be provided on long term basis of 7 years at interest rate of 6.5 % for PSUs and 7.5 % for Private Sector or to be decided on case to case basis. This interest amount received by FFG would cover the expenditure that FFG has to make in maintaining the MTNs, marketing and selling the Bonds, fees and expenditures of the Investment Bankers, professionals associated with the entire project, travel and other organizational expenditure and some profit.

Experience has established that most of the projects in India have an immediate need of a bridging finance or a seed capital. In a typical Real Estate, Hotel or other Infrastructure project, persons have invested the available capital in the land and basic infrastructure and are looking for finances to complete the project to bring it to a take-off stage (in several cases the funding received from FIs has led them to courts) or have huge lands as securities and are looking for finances to develop and complete the project before they market it to the consumer. With most Indian Entrepreneur’s having burnt their fingers and lost total trust in their effort of raising finances through the Big Four (4) and in deep debt with Banks and other Financial Institutions all over the country, not only find it difficult but impossible to pay any advance or up front to bring in fresh funds.

Bridging Finance using a Credit Default Swap (CDS) –

Public Sector Undertakings are in dire needs of funds to give fillip to the infrastructure in the country.  All these PSU’s need bridging finance to initiate the process of the Project before the real project fund arrives, which would normally take 4 months. This need to bridge the gap between the submission, sanction and approval of the Project and receiving the funds through MTNs and Bonds, spreading over a period of 4 months can be met by raising finance by issuance of a CDS by a nationalized Indian Bank. The NBFC can submit the approved project and the valuable securities of the Public Sector or Private Entrepreneur to the Bank, which can issue a CDS of an amount equal to 30 % of the value of the securities. Against the CDS the NBFC can raise the bridging finances from its Credit Line existing overseas for its associate companies and provide it to the PSU or PE. As soon as the project fund is received, the CDS will be released and utilized according to the project cash flow analysis. The amount can be rolled over if the need so arise.

The entire fund which comes to India comes as Capital of BFIL, with no strings and shall continue to be rolled over in India alone with no movement of funds outside India again. Reorientation of the family structures, coming up of new entrepreneurs and modernization of technology shall continue to need fresh finances, which can continue to be provided as the total Insurance funds lying overseas are to the tune of 23 trillion US $ and 4.3 trillion US $ coming in yearly. India neither lacks entrepreneurship nor does it lack commitment to the cause, but needs correct thinking and execution with determination and will. India only needs the necessary momentum to break the existing inertia, which can be provided by FFG by resourcing funds through Insurance Credit Funds and work as a consortium with nationalized Banks.