A Takaful Wrapper for Sukuk Issues International Takaful Summit

Document Sample
A Takaful Wrapper for Sukuk Issues International Takaful Summit Powered By Docstoc
					         A Takaful Wrapper for Sukuk Issues

         International Takaful Summit - 2007




Rabel Akhund
Islamic Finance Group
                                               5905558
2 November 2007
Takaful: Background and some
opportunities

• Conventional insurance problematic under Shariah.


•Problems with Gharar, riba and gambling.


•Takaful based on pooling of risks and concepts of mutuality.




                                                                2
Historical Background - Sukuks
   Need for liquidity and good liquidity management
   Different periods between maturities of assets and deposits – resulting in
    either surplus of non performing cash or a shortage of cash to fund
    investments
   Lack of:
    – active interbank and secondary market (mostly primary market trading)
    – acceptable Shariah compliant instruments
    – acceptable regulatory conditions
    – limited available agency credit ratings
    – unsophisticated market
    – limited information flow
    Coming together of the various Islamic Finance products into a more
      sophisticated capital, financial and insurance market.
                                                                              3
Sukuks – Legal Meaning


    All this changed with the development of the Sukuks.
    Definitions:

 a) “Participation Securities, coupons, investment certificates”

 b) “Certificates of equal value, representing after closing subscription,
     receipt of the value of the certificates and the putting to use as
     planned, common titles to shares and rights in tangible assets,
     usufructs and services, or equity of a given project or equity of a
     special investment activity”

                                                                           4
Types of Sukuks

      MUDARABA SUKUK
      SALAM SUKUK
      IJARA SUKUK
      DEVELOPMENT SUKUK (ISTISNA)
      MUSHRAKA SUKUK




                                     5
Types of Sukuks



   Other Derivations/hybrids
     Pure Ijara
     Pooled/hybrid SUKUK (underlying assets use a variety of
      structures)
     Variable rate SUKUK
     Zero-coupon SUKUK



                                                        6
Ijara (Leasing) Sukuk
  –   can be used for long term infrastructure projects by the
      mobilisation of short term deposits i.e. securitisation of
      Government tangible assets
  –   possible use in project financings.




                                                             7
Typical Project Financing Structure
                                   CONTRACTING AUTHORITY



                                                                              SPONSOR
                                                                                         Services
                    Security                                                            (and other)
    FINANCING                                                                 SPONSOR      Direct
                                       PROJECT COMPANY
      BANKS       Debt Finance                                                          Agreements
                   Agreement                                                  SPONSOR


Contractor
  Direct
Agreement
             Sub Contractor      Sub Contractor    Sub Contractor   Sub Contractor




                       Hard FM                Soft FM


                                                                                           8
Ijara (Leasing) Sukuk
  –   Works as follows:-
         sale of tangible assets to a special purpose restricted Mudaraba (SPV)
         assets are then leased to the interested parties through a Ijara lease
         the MUDARABA participation SUKUK will be issued and sold to
          public/investors with a guarantee of payments (usually from Government or
          international bank)
         required security will be given to SUKUK holders
         MUDARABA managed (on behalf of SUKUK holders) by MUDARIB
         MUDARIB signs and executes all relevant contracts
          – ensures Shariah compliance
          – transparency and efficient operation



                                                                            9
 Leasing Sukuk
                                    SUKUK Holders

                                             Periodic rentals and capital
                                             amount payments
                   Sukuk proceeds

                                                          Periodic rentals and capital
                                                          amount payments

                               MUDARIB                                           Lessee
          Assets
Seller     Sold              MUDARABA (SPV)                                 (Project Operator)
                                                           Project Assets


         Sukuk proceeds                                          IJARA Lease
                                                For a fixed period of time and service agency




                                                                                            10
   Experience
       Developing Capital Markets
       Government/Public Sector Issues
       Financial Institution Issues
       Corporate Issues
       Transaction Based Issues
           Property development (equity input)
           Project & “Co” financings

                                                  11
Conventional Monoline Wraps
 Coventional Monoline Insurers
 Credit Enhancement
 MBIA, FSA and FGIC
 Guaranteed timely payments of Interest and Principle
Similar problems faced by conventional insurance under Shariah.
 Security


 A Matter for Discussion: Pushing the Takaful industry into new
areas including trading surpluses.


                                                               12
Takaful Wraps

    The Need to Challenge the Market
    Go beyond the traditional usage of Takaful
    Structures that could work are as follows:
a)   Wakala (Agency)
b)   Mudaraba (more effective)




                                                  13
Mudaraba

  Options available
a) Mudaraba with Sukuk Holders on the basis of a portion
   of the subscription monies designated as donations.
b) Mudaraba with Issuer of Sukuks on the basis of a
   donation paid by the Issuer from the subscription
   proceeds of the Sukuks (more effective).
Grant of security from Issuer more appropriate.



                                                    14
                                             SUKUK Holders
                      Donations
                                                      Periodic rentals and capital
Takaful Operator                                      amount payments
                                  Sukuk proceeds


                                                                   Periodic rentals and capital
                    Donations                                      amount payments

                                          MUDARIB                                         Lessee
                   Assets
Seller              Sold                MUDARABA (SPV)                               (Project Operator)
                                                                    Project Assets


              Sukuk proceeds                                             IJARA Lease
                                                         For a fixed period of time and service agency




                                                                                                     15
Takaful and Sukuks

 One helps the other.
 Concept of a surplus float.
 Sukuks have created increased liquidity in the traditional
Islamic capital markets.
 That means that Takaful companies can invest the
surplus float in Sukuks, giving them more Shariah
compliant avenues for investment of the float.



                                                       16
         RABEL AKHUND
           Taylor Wessing
               Carmelite
       50 Victoria Embankment
              Blackfriars
                London
              EC4Y 0DX

          Tel: 0207 300 7000
          Fax: 0207 300 7100
     Direct Dial: 0207 300 7096
E-mail: r.akhund@taylorwessing.com
   Web: www.taylorwessing.com        17
18

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:11
posted:12/3/2011
language:Malay
pages:18