1. SECURITIZATION
SHARI’AH PERSPECTIVE

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

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

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. 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. 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. 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. Difference Between Musharakah Certificates and a Conventional Bond
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. 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. 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. 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. 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. 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. 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. 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. MODE VEHICLE Sale and Lease back
Sale and Lease-to-Purchase (Diminishing Musharakah)
VEHICLE
Central Bank
Primary Dealers
Secondary market

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

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