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