SECURITIZATION
SHARI’AH
PERSPECTIVE
What is Securitization?
• Issuing certificates of
ownership against an
investment pool or business
enterprise.
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Types of Securitization
• Securitization of Musharakah
• Securitization of Murabahah
• Securitization of Ijarah
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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.
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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.
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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.
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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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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.
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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.
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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.
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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'.
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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.
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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.
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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.”
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SECURITIZATION OF
GOVERNMENT ASSETS
Ports
Airports
Railways
Roads and Bridges
Hospitals
Schools
Buildings
Dams
Land – mainly owned by the Provincial Government
State owned Enterprises
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MODE

Sale and Lease back

Sale and Lease-to-Purchase (Diminishing
Musharakah)
VEHICLE

Central Bank

Primary Dealers

Secondary market
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INSTRUMENTS

Treasury Bills

Government Sukuk
USES

Liquidity Management of Islamic and nonIslamic Banks.

Money Market Operation
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
Non-Tax Resource general for all levels of
Government

Federal

Provincial

District and Municipal

Semi Government

Zakat Fund
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