Securitization of partnership (مشاركة)

1. Why Securitize a partnership (مشاركة)?

Large projects may require more capital than a few investors can provide.
• The partnership (مشاركة) can be divided into ownership units.
• Each subscriber receives a certificate representing proportionate ownership in project assets.
• This allows many investors to participate.
• Trading rules depend on what the certificate actually represents at that time.

2. partnership (مشاركة) Certificate vs Bond

• A bond represents a debt owed to its holder.
• A partnership (مشاركة) certificate represents direct ownership in a proportion of project assets.
• Its holder is therefore an owner to that extent, not merely a creditor.
• This ownership difference determines how the certificate may be traded.

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

3. When the Certificate Represents Only Cash

Suppose 100 certificates are issued at Rs. 1,000,000 each and the money has not yet been used to buy assets.
• Each certificate represents Rs. 1,000,000 cash.
• Selling it for more or less would amount to unequal exchange of the same currency.
• Therefore it cannot be traded like a tangible asset share while it represents money only.

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

4. When Real Assets Have Been Purchased

Once subscribed money is used to buy substantial non-liquid assets, the position changes.
• Examples: land, buildings, machinery, raw material and furniture.
• The certificate then represents proportionate ownership in those assets.
• It may be sold in the secondary market at a mutually agreed price.
• The price may be above or below face value because the subject of sale is an asset share, not money alone.

5. Mixed Portfolios

A running project often contains both liquid and non-liquid assets.
• Some value may remain as cash.
• Some may be receivables owed by customers.
• Some may be machinery, inventory or other tangible assets.
• Receivables are treated as liquid monetary claims in this discussion.
The issue is how a certificate representing this mixture may be traded.

6. Traditional Shafi‘i Position

• A mixed unit containing liquid and non-liquid assets is not sold as one combined unit under the traditional Shafi‘i view discussed here.
• The non-liquid part should be separated.
• That tangible portion may then be sold independently.

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

7. Hanafi Rule for a Mixed Portfolio

Example: a certificate represents Rs. 60 liquid assets and Rs. 40 non-liquid assets.
• Under the Hanafi rule discussed here, it may be sold for a price greater than Rs. 60.
• If sold for Rs. 110, Rs. 60 is matched against the liquid part.
• The remaining Rs. 50 is treated as the price of the non-liquid asset share.
• It cannot be sold for Rs. 60 or less under this formula.

8. Is 50% Non-Liquid Always Required?

• Under the Hanafi view, no fixed 50% threshold is required.
• Non-liquid assets may be below 50%, provided they are not negligible and the pricing rule is observed.
• Many contemporary scholars, including Shafi‘i scholars, allow trading the whole mixed unit when non-liquid assets exceed 50%.
• More than 50% non-liquid assets therefore provides broader cross-school acceptability.

Do not treat 50% as the Hanafi minimum; it belongs to the broader contemporary cross-school approach described here.

9. Level Summary

• partnership (مشاركة) certificates represent ownership, not merely debt.
• If a certificate represents only cash, it cannot be traded like a tangible asset share.
• Once substantial tangible assets exist, it represents ownership in those assets.
• Mixed portfolios contain both liquid and non-liquid components.
• Traditional Shafi‘i treatment separates the non-liquid part before sale.
• Hanafi treatment allows mixed-unit trading when price exceeds the liquid component.
• Hanafi law does not impose a fixed 50% threshold; many contemporary scholars use more than 50% for broader acceptability.

Trading follows the real substance behind the certificate: money, tangible assets, or a mixture of both.