4. securitization ijarah

4. securitization ijarah

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  SECURITIZATION SHARI’AH PERSPECTIVE
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  2 What is Securitization? Issuingcertificates of ownership against an investment pool or business enterprise.
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  3 Types of Securitization Securitizationof Musharakah Securitization of Murabahah Securitization of Ijarah
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  4 Securitization of Musharakah Musharakahis a mode of financing which can be securitized easily. Especially in case of big projects where huge amounts are required.
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  5 Securitization of Musharakah Musharakahcertificate 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.
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  6 Securitization of Musharakah SomeEssential 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.
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  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.
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  8 Difference Between MusharakahCertificates 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.
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  9 Securitization of Murabahah Murabahahis 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.
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  10 Securitization of Ijarah Itis 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.
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  11 Securitization of Ijarah Thispurchase of a proportion of the asset by each individual may be evidenced by a certificate, which may be called 'Ijarah certificate'.
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  12 Securitization of Ijarah Ijarahcertificate 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.
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  13 Securitization of Ijarah Inthe 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.
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  14 Securitization of Ijarah EssentialCondition “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.”
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  15 SECURITIZATION OF GOVERNMENTASSETS Ports Airports Railways Roads and Bridges Hospitals Schools Buildings Dams Land – mainly owned by the Provincial Government State owned Enterprises
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  16 MODE  Sale andLease back  Sale and Lease-to-Purchase (Diminishing Musharakah) VEHICLE  Central Bank  Primary Dealers  Secondary market
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  17 INSTRUMENTS  Treasury Bills Government Sukuk USES  Liquidity Management of Islamic and non- Islamic Banks.  Money Market Operation
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  18  Federal  Provincial District and Municipal  Semi Government  Zakat Fund  Non-Tax Resource general for all levels of Government