Sukuk - Issues and way Forward

Top 20 FREQUENT WORDS

assets 21 sukuk 18 securitization 16 microfinance 14 islamic 12 investment 11 asset 10 finance 10 financing 9 pool 9 investors 8 mfi 8 price 8 risk 8 mfis 7 micro 7 funding 6 liquidity 5 loan 5 loans 5 local 5 rent 5

DOCUMENT KEY POINTS

• a c big investment and earning projects in the muslim world a not accessible for investment by small investors due to large tick size or due to restrictions on cross broader movement of funds

• a c mfi s are twice as profitable as leading commercial banks a c solution to excess liquidity problem for islamic banks a good investment opportunities a shorter term cgap funding side of microfinance is problematic a c funding side of microfinance is not secure and noncommercial a c mostly donor based funding and ad hoc arrangements a c seed money and sometimes the running capital grant donation from mdfis a c in countries with state owned banks directed funding through state owned banking system provides the subsidy a c most mfis are small and unable to raise money on commercial terms
• microfinance a profitable and liquid investment proposition a c world microfinance is growing at rate of p

• microfinance as an asset class a c high yield assets a typical yields between to p

• requirements for an attractive asset class cont scale large enough for investment a individual mfis are small a mfis collectively are large but nonstandardization of financing and procedures are the issues for aggregation a c liquidity easy entry and exit a no market at present but small tick size can be helpful for its liquidity risk factors servicer risk a c microfinance assets are much sensitive to risk of non performance by the servicer
• a c reasons a wide dispersion and high number of clients a high frequency of collections a cash transactions impediments in serivcer s ability to perform can impair performance of the asset pool

• a c securitization securitization generally relates to the converting of loans of various sorts into marketable securities by packaging the loans into pools and then selling shares of ownership in the pool itself
• securitization a c basic structure issuer sale of assets consideration special purpose vehicle certificates proceeds investors securitization vs a sukukization despite the closeness of overall concept sukuk is not equal to securitization as it is known in its conventional sense

• two key issues in sukuk a c finding suitable financing devices compliant to shariah and amiable to securitization a c finding a way to make it useful or advantageous for securitization eligibility of assets for sukuk issuance a c the most important step for issuing a sukuk is to determine the underlying pool of assets ie the issuer must posses a pool of assets on its balance sheet that are transferable to the investors
• a c flexibility in the assets pool to have a blend of ijara and musharaka equity assets and other shari ah compatible assets e

• a c list of assets most commonly eligible for the issuance of sukuk are a ijara or leasing islamic mfis are mostly using murabaha a c snadeeq in jabl al hoss syria a musharaka a c hodeidah programme in yemen a murabaha a c some mfis are also in micro leasing a istisna a for securitization with resalable sukuk they need to move towards greater use of other a salam modes of finance possible cases
• eligibility of assets for sukuk issuance cont

• microfinance to vegetable vendors a c for daily working capital options a interest free loan a mudarabah on daily or weekly basis possibility of securitization a yes a securitization can be used to fund the initial phase and mudarabah payments can be passed through risks a liquidity and price risk are taken care of due to short term of the contract a lack of proper accounting
• mittigation through local market information a fraud mitigation through oath software copyright example

• exchange of asset at an exercise price ifis need to assets use more spv non debt originator price sukuk creating issuer modes to make asset rent price pool securitizable with tradable rent investors securities assets leased fig structure of ijarah sukuk single mfi micro finance assets micro enterprises a b c put option with investors
• fig structure of ijarah sukuk pooling of multiple mfis assets micro finance institutions put option with investors

• examples of recent securitization of microfinance loans conventional finance blue orchard finance and compartamos mexico developing world market a c million microfinance a c million bond bond a c year maturity a c year maturity a c rated aa for local market a c million credit guarantee a c loan guarantee by ifc by opic a c senior notes bps above a c target to raise funds from tbills junior tranches b w institutional investors bps above tbills pension and mutual funds a c serve microa c first local market issue in entrepreneurs in four
• billion us mm equivalent a c six year program of bdt billion issuance every six months each of year maturity a c rating aaa local market securitization a c underlying asset pool

• islamic securitization needs more thought it can serve better a c other structures are also possible such as participation sukuk a c sukuk for smes can also be worked out a c mfi and mfe financing ties directly with the real economic activity associated with provision of basic goods and services a c islamic finance helps in two way development from grassroots to top and from the top to grassroots level a c islamic finance is not only a religious agenda but also vital for national development thank you comments and suggestions are welcome salman syed ali email ssyedali isdb
• org phone islamic research and training institute islamic development bank

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\sukuk islamic

KeyWords

asset invest risk ici rate investor origin credit financi structur securitisation NA iif required exposure fund estate servic NA legal

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DOCUMENT REFERENCES

Number of Pages

14

Published Date

2007-01-31 14:34:33

Full Document

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