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Sokouk Al-Intifa’a

Islamic Money Market Instrument

Sokouk AlSokouk Al--IntifaIntifa’’a a

Islamic Money Market Islamic Money Market Instrument Instrument

By: Fuad Hamed Al-Homoud

Munshaat Real Estate Projects Company

By: Fuad By: Fuad HamedHamed AlAl--HomoudHomoud

Munshaat Real Estate Projects CompanyMunshaat Real Estate Projects Company

The International Islamic Financial Markets ConferenceThe International Islamic Financial Markets ConferenceMay 16May 16thth, 2005, 2005

Kingdom of BahrainKingdom of Bahrain

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TableTable of Contentsof Contents

1.1. Presentation Approach Presentation Approach 2.2. Introduction Introduction -- What is Sokouk What is Sokouk 3.3. Sokouk Vs. Bond Sokouk Vs. Bond 4.4. Types of Sokouk Types of Sokouk

a.a. Non Tradable SokoukNon Tradable Sokoukb.b. Tradable SokoukTradable Sokouk

5.5. Sokouk AlSokouk Al--IjaraIjaraa.a. Definition Definition b.b. Characteristics Characteristics c.c. Types of Sokouk AlTypes of Sokouk Al--IjaraIjara

6.6. Sokouk AlSokouk Al--IntifaIntifa’’aaa.a. Definition Definition b.b. Features Features c.c. Economic ValueEconomic Valued.d. Sokouk AlSokouk Al--IntifaIntifa’’aa as a Tradable Instrument as a Tradable Instrument

7.7. ApplicationApplication8.8. ConclusionConclusion

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SokoukSokoukSokouk SokoukAl-IjaraSokoukSokoukAlAl--IjaraIjara

SokoukAl-Intifa’a

SokoukSokoukAlAl--IntifaIntifa’’aa

Presentation ApproachPresentation Approach

Tradable InstrumentTradable Tradable

InstrumentInstrument

ApplicationApplicationApplication

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Single Category – Multiple Structures

Single Category Single Category –– Multiple Multiple StructuresStructures

IntroductionIntroduction

IslamicFinancial Market

IslamicIslamicFinancial MarketFinancial Market

ConventionalFinancial Market

ConventionalConventionalFinancial MarketFinancial Market

SokoukSokoukSokoukBONDBONDBONDFocus of the

Global financial Market

Focus of the Focus of the Global financial Global financial

MarketMarket

Multi-Billon Dollars Market

MultiMulti--Billon Billon Dollars MarketDollars Market

Diversified categoriesDiversified Diversified categoriescategories

Asset Based Instrument

(Asset – Right of Use)

Asset Based Asset Based Instrument Instrument

(Asset (Asset –– Right of Right of Use)Use)

Debt Based InstrumentDebt Based Debt Based InstrumentInstrument

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Investment Certificates representing a proInvestment Certificates representing a pro--rata share in rata share in

a Portfolio of Investment.a Portfolio of Investment.

The Performance of Sokouk is a reflection of the The Performance of Sokouk is a reflection of the

performance of the portfolio. performance of the portfolio.

Issuance of Sokouk represents a purchase of a share Issuance of Sokouk represents a purchase of a share in an in an

income producing investment. income producing investment.

Investment Certificates representing Investment Certificates representing aa propro--ratarata share in share in

a Portfolio of Investment.a Portfolio of Investment.

The Performance of Sokouk is a The Performance of Sokouk is a reflectionreflection of the of the

performance of the portfolio. performance of the portfolio.

Issuance of Sokouk represents a Issuance of Sokouk represents a purchase of a sharepurchase of a share in an in an

income producing investment. income producing investment.

Sokouk Sokouk The Islamic BondThe Islamic Bond

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Ownership instrument Vs Debt instrument Ownership instrument Vs Debt instrument

Investment instrument Vs Financial instrument Investment instrument Vs Financial instrument

Profit & Loss instrument Profit & Loss instrument

No Money Back Guarantee No Money Back Guarantee

Duration is not necessarily Limited Duration is not necessarily Limited

Ownership Consequences Ownership Consequences

Business Activities in compliance with Islamic ShariaBusiness Activities in compliance with Islamic Sharia’’aa

Sokouk Vs BondSokouk Vs Bond

Ownership instrument Vs Debt instrument Ownership instrument Vs Debt instrument

Investment instrument Vs Financing instrument Investment instrument Vs Financing instrument

Profit & Loss instrument Profit & Loss instrument

No Money Back Guarantee No Money Back Guarantee

Duration is not necessarily Limited Duration is not necessarily Limited

Ownership Consequences Ownership Consequences

Business Activities in compliance with Islamic ShariaBusiness Activities in compliance with Islamic Sharia’’aa

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Types of SokoukTypes of Sokouk

SokoukSokoukSokouk

TradableTradableTradableNon Tradable

Non Non TradableTradable

Debt PortfolioDebt Portfolio -- Asset BasedAsset Based-- Semi Asset BasedSemi Asset Based

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Types of SokoukTypes of Sokouk

SokoukSokoukSokouk

TradableTradableTradableNon Tradable

Non Non TradableTradable

MorabahaMorabahaMorabaha SalamSalamSalam

IstisnaIstisnaIstisna

MusharakaMusharakaMusharaka IjaraIjaraIjara

MudarabaMudarabaMudaraba

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A Financial Instrument structured to represent a Pro-rata share in

a pool of cash flow generating assets. Such share ( Sokouk ) can be

transferred to investors by means of ownership either with or

without the support of further collaterals.

A A Financial InstrumentFinancial Instrument structured to represent a structured to represent a ProPro--rata sharerata share in in

a pool of a pool of cash flow generating assetscash flow generating assets. Such share ( Sokouk ) can be . Such share ( Sokouk ) can be

transferred to investorstransferred to investors by means of ownership either by means of ownership either with or with or

withoutwithout the support of further the support of further collateralscollaterals..

Sokouk AlSokouk Al--IjaraIjaraDefinitionDefinition

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Sokouk AlSokouk Al--IjaraIjaraCharacteristics Characteristics

Securitization of Leases Securitization of Leases

Effective Fund Raising Effective Fund Raising

Secondary Market ToolSecondary Market Tool

TradableTradable

Short Term Liquidity Instrument Short Term Liquidity Instrument

Effective Asset / Liability Management ToolEffective Asset / Liability Management Tool

Securitization of Leases Securitization of Leases

Effective Fund Raising Effective Fund Raising

Secondary Market ToolSecondary Market Tool

TradableTradable

Short Term Liquidity Instrument Short Term Liquidity Instrument

Effective Asset / Liability Management ToolEffective Asset / Liability Management Tool

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Types of Sokouk AlTypes of Sokouk Al--IjaraIjara

Sokouk Al-Ijara

Sokouk Sokouk AlAl--IjaraIjara

Lease HoldLease HoldLease HoldAsset Backed

Asset Asset BackedBacked

Ownership EntitlementOwnership EntitlementOwnership Entitlement Usufruct Entitlement Usufruct Entitlement Usufruct Entitlement

Sokouk Al-Intifa’aSokouk AlSokouk Al--IntifaIntifa’’aa

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A Derivative of Lease / Forward Lease

B.O.T. Entitlement

Disintegration of Real Estate Elements ( Commoditization )

Hotel / Hospitality Industry

A Derivative of Lease / Forward Lease A Derivative of Lease / Forward Lease

B.O.T. Entitlement B.O.T. Entitlement

Disintegration of Real Estate Elements ( Commoditization )Disintegration of Real Estate Elements ( Commoditization )

Hotel / Hospitality IndustryHotel / Hospitality Industry

A Derivative of Lease / Forward Lease

B.O.T. Entitlement

Disintegration of Real Estate Elements ( Commoditization )

Hotel / Hospitality Industry

A Derivative of Lease / Forward Lease A Derivative of Lease / Forward Lease

B.O.T. Entitlement B.O.T. Entitlement

Disintegration of Real Estate Elements ( Commoditization )Disintegration of Real Estate Elements ( Commoditization )

Hotel / Hospitality Industry Hotel / Hospitality Industry

Sokouk AlSokouk Al--IntifaIntifa’’a a

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Sokouk AlSokouk Al--IntifaIntifa’’a a Definition Definition

Sokouk Al-Intifa’a is a Certificate or Deed that entitles its holder

the right to utilize a specific real estate property for a specific

duration of time per year over a determined number of years. This

right is wholly owned by the Sokouk holder who is entitled to either

sell, grant, inherit or invest the Sokouk.

Sokouk Al-Intifa’a is a Certificate or Deed that entitles its holder

the right to utilize a specific real estate property for a specific

duration of time per year over a determined number of years. This

right is wholly owned by the Sokouk holder who is entitled to either

sell, grant, inherit or invest the Sokouk.

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Sokouk AlSokouk Al--IntifaIntifa’’a a Features Features

Representation of Strategic Projects / Assets

Representation of B.O.T. Projects

Long Term Leasehold Instrument

Mobilization of Funds / Assets

Effective Money Market Instrument

Representation of Strategic Projects / AssetsRepresentation of Strategic Projects / Assets

Representation of B.O.T. Projects Representation of B.O.T. Projects

Long Term Leasehold Instrument Long Term Leasehold Instrument

Mobilization of Funds / Assets Mobilization of Funds / Assets

Effective Money Market InstrumentEffective Money Market Instrument

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Sokouk AlSokouk Al--IntifaIntifa’’a a Economical Value Economical Value

(Hospitality Industry in Makkah)(Hospitality Industry in Makkah)

Increasing Rooms Demand

Increasing Increasing Rooms DemandRooms Demand

Shortage in Rooms Supply

Shortage in Shortage in Rooms SupplyRooms Supply

Market InflationMarket Market

InflationInflation

Sokouk Economical

Value

Sokouk Sokouk Economical Economical

ValueValue

SokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokouk

SokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokoukSokouk

Increase in Rooms RateIncrease in Increase in

Rooms RateRooms Rate

Value Improvement

Factors

Value Value Improvement Improvement

FactorsFactors

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SokoukAl-Intifa’a

SokoukSokoukAlAl--IntifaIntifa’’aa

ValueValueValue

TransferableTransferableTransferable

Sokouk Al-Intifa’ais a TradableInstrument

Sokouk AlSokouk Al--IntifaIntifa’’aais a Tradableis a TradableInstrumentInstrument

Disintegration of Leased AssetsDisintegration of Leased AssetsDisintegration of Leased Assets

Sokouk As Pro-Rata Share of Usufruct Sokouk As ProSokouk As Pro--Rata Share of Usufruct Rata Share of Usufruct

Produces a set of Cash FlowProduces a set of Cash FlowProduces a set of Cash Flow

Transfer to new InvestorsTransfer to new InvestorsTransfer to new Investors

Sokouk AlSokouk Al--IntifaIntifa’’a a A Tradable Instrument A Tradable Instrument

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Zamzam Tower

Zamzam Tower

SPCSPCSPC

Market MakerMarket Market MakerMaker

Liquidity Liquidity ProviderProvider

Liquidity Liquidity ReceiverReceiver

SubleaseSublease

SubleaseSublease

SubleaseSublease

Advance

Advance R

entalR

ental

Advance

Advance RentalRental

Deferred

Deferred

RentalRental

SubleaseSublease

Cash flowCash flow

1

3

45

2

6

SokoukSokoukSokoukSokoukSokoukSokouk

SokoukSokoukSokouk

Purchase of Purchase of Lease RightsLease Rights

Issuance of SokoukIssuance of Sokouk

ApplicationApplication

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Issuance of SokoukIssuance of Sokouk

Zamzam Tower

Zamzam Tower

SPCSPCSPC

Market MakerMarket Market MakerMaker

Liquidity Liquidity ProviderProvider

Liquidity Liquidity ReceiverReceiver

SubleaseSublease

SubleaseSublease

SubleaseSublease

Advance

Advance R

entalR

ental

Advance

Advance RentalRental

Deferred

Deferred

RentalRental

SubleaseSublease

Cash flowCash flow

1

3

45

2

6

SokoukSokoukSokoukSokoukSokoukSokouk

SokoukSokoukSokouk

Purchase of Purchase of Lease RightsLease Rights

ApplicationApplication

Company Income Profile

1- Income from Sokouk Operation

2- Income from Treasury Transaction

Company Income ProfileCompany Income Profile

11-- Income from Sokouk OperationIncome from Sokouk Operation

22-- Income from Treasury TransactionIncome from Treasury Transaction

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React to market trend.Take initiative.Expand product range.Build regional infrastructure.Capitalize on available resources.Establish centralized satellite center.

React to market trend.Take initiative.Expand product range.Build regional infrastructure.Capitalize on available resources.Establish centralized satellite center.

ConclusionConclusion

2020

Sokouk Al-Intifa’a

Islamic Money Market Instrument

Sokouk AlSokouk Al--IntifaIntifa’’a a

Islamic Money Market Islamic Money Market Instrument Instrument

Thank You Thank You Thank You

جائزة الشيخ محمد بن راشد

لالبتكار في األدوات المالية اإلسالمية

2005مارس

جائزة الشيخ محمد بن راشد جائزة الشيخ محمد بن راشد

لالبتكار في األدوات المالية اإلسالمية لالبتكار في األدوات المالية اإلسالمية

20052005مارس مارس