Securitiazation shariah Prospects

SECURITIZATION

 SHARI’AH

PERSPECTIVE

    What is Securitization?

• Issuing certificates of

 ownership against an

 investment pool or business

 enterprise.

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    Types of Securitization

• Securitization of Musharakah

• Securitization of Murabahah

• Securitization of Ijarah

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        Securitization of

           Musharakah

• Musharakah is a mode of financing

 which can be securitized easily.

• Especially in case of big projects where

 huge amounts are required.

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          Securitization of Musharakah

        Musharakah certificate

• Every subscriber can be given a

 Musharakah certificate, which represents

 his proportionate ownership in the assets

 of the Musharakah.

• After the project is started, these

 Musharakah certificates can be treated as

 negotiable instruments.

• Can be bought and sold in the secondary

 market.

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          Securitization of Musharakah

    Some Essential Conditions

• All the assets of the Musharakah

 should not be in liquid form.

• Portfolio of Musharakah should

 consist of non-liquid assets valuing

 more than 50% of its total worth.

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          Securitization of Musharakah

• However, if Hanafi view is adopted, trading

 will be allowed even if the non-liquid

 assets are less than 50% but the size of

 the non-liquid assets should not be

 negligible.

• Whenever there is a combination of liquid

 and non-liquid assets, it can be sold and

 purchased for an amount greater than the

 amount of liquid assets in combination.

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 Difference Between Musharakah Certificates

             and a Conventional Bond

Musharakah Certificates Conventional Bond

• Represents the direct • Has nothing to do with

 pro rata ownership of      the actual business

 the holder in the          undertaken with the

 assets of the project.

                            borrowed money.

• If all the assets of the

 joint project are in     • The bond stands for a

 liquid form, the           loan repayable to the

 certificate will           holder in any case,

 represent a certain        and mostly with

 proportion of money        interest.

 owned by the project.

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         Securitization of

             Murabahah

• Murabahah is a transaction, which cannot

 be securitized for creating a negotiable

 instrument to be sold and purchased in

 secondary market.

• However, if the Murabahah paper is

 transferred, it must be at par value; not

 more, not less.

• A mixed portfolio consisting of a number of

 transactions including Murabahah, may

 issue negotiable certificates subject to

 certain conditions.

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      Securitization of Ijarah

• It is possible to create a secondary

 market instrument for the financiers on

 the basis of Ijarah.

• The lessor (owner) can sell the leased

 asset wholly or partly either to one

 party or to a number of individuals to

 recover his cost of purchase of the

 asset with a profit thereon.

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          Securitization of Ijarah

• This purchase of a proportion of the

 asset by each individual may be

 evidenced by a certificate, which may

 be called 'Ijarah certificate'.

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           Securitization of Ijarah

          Ijarah certificate

• Represents the holder's

 proportionate ownership in the

 leased asset.

• The holder will assume the rights

 and obligations of the owner/lessor

 to that extent.

• The holder will have the right to

 enjoy a part of the rent according to

 his proportion of ownership in the

 asset.                                12

          Securitization of Ijarah

• In the case of total destruction of the

 asset, he will suffer the loss to the

 extent of his ownership.

• These certificates can be negotiated

 and traded freely in the market and

 can serve as an instrument easily

 convertible into cash.

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         Securitization of Ijarah

      Essential Condition

“It is essential that the Ijarah

certificates are designed to represent

real ownership of the leased assets,

and not only a right to receive rent.”

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         SECURITIZATION OF

      GOVERNMENT ASSETS

Ports

Airports

Railways

Roads and Bridges

Hospitals

Schools

Buildings

Dams

Land – mainly owned by the Provincial Government

State owned Enterprises 15

MODE

   Sale and Lease back

   Sale and Lease-to-Purchase (Diminishing

    Musharakah)

VEHICLE

    Central Bank

    Primary Dealers

    Secondary market

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INSTRUMENTS

    Treasury Bills

    Government Sukuk

USES

     Liquidity Management of Islamic and non-

      Islamic Banks.

     Money Market Operation

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 Non-Tax Resource general for all levels of

 Government

   Federal

   Provincial

   District and Municipal

   Semi Government

   Zakat Fund

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