Alhuda CIBE - Securitiazation shariah prospects

1. SECURITIZATION
SHARI’AH
PERSPECTIVE

2. 2
What is Securitization?
• Issuing certificates of
ownership against an
investment pool or business
enterprise.

3. 3
Types of Securitization
• Securitization of Musharakah
• Securitization of Murabahah
• Securitization of Ijarah

4. 4
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.

5. 5
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.

6. 6
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.

7. 7
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.

8. 8
Difference Between Musharakah Certificates
and a Conventional Bond
Musharakah Certificates
• Represents the direct
pro rata ownership of
the holder in the
assets of the project.
• If all the assets of the
joint project are in
liquid form, the
certificate will
represent a certain
proportion of money
owned by the project.
Conventional Bond
• Has nothing to do
with the actual
business undertaken
with the borrowed
money.
• The bond stands for a
loan repayable to the
holder in any case,
and mostly with
interest.

9. 9
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.

10. 10
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.

11. 11
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'.

12. 12
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.

13. 13
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.

14. 14
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.”

15. 15
SECURITIZATION OF
GOVERNMENT ASSETS
Ports
Airports
Railways
Roads and Bridges
Hospitals
Schools
Buildings
Dams
Land – mainly owned by the Provincial Government
State owned Enterprises

16. 16
MODE
 Sale and Lease back
 Sale and Lease-to-Purchase (Diminishing
Musharakah)
VEHICLE
 Central Bank
 Primary Dealers
 Secondary market

17. 17
INSTRUMENTS
 Treasury Bills
 Government Sukuk
USES
 Liquidity Management of Islamic and non-
Islamic Banks.
 Money Market Operation

18. 18
 Federal
 Provincial
 District and Municipal
 Semi Government
 Zakat Fund
 Non-Tax Resource general for all levels of
Government