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2016-09-17T13:48:02Z

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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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Securitiazation shariah Prospects - Revision history

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