securitization

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