View source for Securitiazation shariah Prospects

SECURITIZATION

  SHARI’AH

PERSPECTIVE


     What is Securitization?

• Issuing certificates of

  ownership against an

  investment pool or business

  enterprise.

                              2


     Types of Securitization

• Securitization of Musharakah

• Securitization of Murabahah

• Securitization of Ijarah

                               3


         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.

                                          4


           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.

                                            5


           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.

                                        6


           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.

                                              7


  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.

                                                    8


          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.

                                              9


       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.

                                         10


           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'.

                                        11


            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.

                                          13


          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.”

                                       14


          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

                                             16


INSTRUMENTS

     Treasury Bills

     Government Sukuk

USES

      Liquidity Management of Islamic and non-

       Islamic Banks.

      Money Market Operation

                                                17


 Non-Tax Resource general for all levels of

  Government

    Federal

    Provincial

    District and Municipal

    Semi Government

    Zakat Fund

                                             18