Chapter 4

Financing by nature its involve risk. The nature of investment includes risk which comes with profit or
loss as the end result. The greater the risk sharing, the more it reflects equity based financing. The figure
show debt type of financing only required low risk while equity required high risk. The potential return of
the former is relatively lower than equity. In equity type of financing the investor and venture will go
through thick and thin in order to gain high returns.

In between equity and debt is hybrid where equity taken in form of ordinary share, hybrid is combination
of both equity and debt. Usually it is called as redeemable preference share, convertible bond.

This graph is regarding the process of participant involve in risk sharing based financing where the left
side includes investors – in the context of ia is the financial institution where they will find retail, high
network individuals- . the pool of funds collected from the investors will be injected to ventures. In this
graph there are three examples of ventures.

The nature of business of the ventures need to be digested by investors. They will be intermediary that
involved in the fund structure such as custodian bank, auditor, tax adviser, lawyers and banks in order to
smooth the operation of fund manager. The shariah advisor also involve in order to maintain the shariah-
compliancy of the product.the fund management is very crucial.

This is a figure of stages of economic cycle. One would argue that anytime is the good time to invest
subject to right investment target. There is empirical evidence to invet is when there is cris. Credit crunch
occurred such as 2009 financial crisis is the perfect time to find investment target which gives handsome
profit over period of time.

The first section when there is upward trajectory in stages of economic cycle, this is when ventures
would require capital. As economy expand, like Myanmar, where it expand it economic outout whilst
being the military regimes for years with lacking financial ecosystem. They eagerly seek foreign investor
to inject money. During this phase, fund manager would support the idea of buy-outin a view that it will
catch the company at lower valuation. This is the phase we called as steady market with balanced
dealflow. The valuation of this economic cycle is typically moderate and the capital is available.

The next phase is the peak, typically when the economic cycle at the peak we see the exuberance at the
market. Due to human sentiment and short temism in human perspecetive we only see what before us
immediately- greed plays major factor towards investor, because of the believe that the market will
flourish there will be excessive capital flowing around the market.

The forth phase is when the market at the truft, the market is panic and every investor is at distress. This
is when everyone who hold the debt or the hybrid instrument- due to inability of counterparty to pay
most likelihood whatever remaining left convert to equity. the attention of ipo or public market revert to
private.the desire to go public is very low at this particular phase.