IFAB Presentation - Islamic Finance Stru

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Islamic Finance Structures : 

Islamic Finance Structures Islamic Finance Advisory Board Junaid Mirza – [email protected] May 1, 2008

Introduction : 

Introduction Just another structure, with different limitations Making financial arrangement in accordance with Islamic principles For our discussion, Islamic finance is only applicable to debt structures due to the prohibition of Interest and undue uncertainty in Islam Islamic finance encourages risk sharing through equity based arrangements. Most commonly used equity-based structures are described in the following slides and are listed below: Musharakah Murabaha Mudarabah Ijarah

Introduction : 

Introduction Two main points to take-away from this presentation Islamic finance structures can be economically similar to the conventional structures An alternate structure exists or can be created for almost every type of conventional finance structure Opportunities exist for North American businesses to benefit from the liquidity problem in the Middle East

Middle Eastern Liquidity Problem : 

Middle Eastern Liquidity Problem By some estimates Middle East has US$1.4 trillion of parked capital Canada is considered a favourable investment destination—but with unfavourable tax rates Though Islamic finance structures are not a necessity to access capital in the Middle East, it multiplies the number of opportunities

Simple Musharakah Structure : 

Simple Musharakah Structure

Simple Murabaha Structure : 

Simple Murabaha Structure

Simple Mudarabah Structure : 

Simple Mudarabah Structure

Islamic Bonds: Sukuk : 

Islamic Bonds: Sukuk Though each of the structures described so far can be used to issue Sukuk—Islamic bonds--there are two most common types of Sukuk structures: Sukuk al-Mudarabah Sukuk al-Ijarah

Sukuk al-Mudarabah : 

Sukuk al-Mudarabah

Sukuk al-Ijarah Structure : 

Sukuk al-Ijarah Structure Sukuk holders (Investors) Obligor as Seller Obligor leases Back assets As lessee (Issuer/Lessor) Special purpose company to hold the assets in Trust for the Sukok holders Title to assets Sukuk proceeds Sukuk proceeds Periodic rentals And capital amount distributions Periodic rentals And Capital Amount payments Lease agreement For a fixed period Of time

Sukuk al-Ijarah Structure – Cont’d : 

Sukuk al-Ijarah Structure – Cont’d

Raising Capital in the Middle East : 

Raising Capital in the Middle East Relationships and contacts Minimization of foreign taxation

Example of a Tax Efficient Structure : 

Investors Offshoreco Canco Real Estate Fund Head lease interests Sub-lease interests Tenants Various countries Shares Shares Advamces Offshore Country Canada Sub-lease Head lease & Call /put options On Sub. LP interest Example of a Tax Efficient Structure

Slide 14: 

Junaid Mirza Director, Islamic Finance Advisory Board [email protected] (647) 221-4233

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