Issuance of debt instruments is one of the most common modes of mid-term and long-term financing for economic enterprises. Among the primary goals of the Middle East Bank is a collaboration with companies and businesses on enjoying the debt market as well as the money market capacity. Regarding the high unused capacity of the debt market in funding companies and businesses, MEB, ready to underwrite debt instruments, is prepared to examine the needs of companies and provide them with proper consultation, to suggest the most appropriate debt instruments to be issued.A short list of features of some permissible debt instruments is as followings:
Ijara (leasing) instrument
Such papers are used to provide finance for working capital or expansion projects. An underlying fixed property, not held in divided shares, as the basis for issuance of such instrument is required. Such an asset must have a lifetime longer than the maturity date of the instrument and be lawfully salable.
This instrument is, in the majority of cases, issued to finance the purchase of new assets, provide working capital or fund buying raw material. The issuance of the instrument is backed by the assets, material and goods, which the company plans to purchase (underlying asset). In such mechanism, the funds raised are paid to the seller of goods.
This structure is used to finance profit-making economic projects. The projects financed by such instruments must be feasible in all technical, financial and economic aspects.
Istisna’ security (financing manufacturing order/ project finance)
This instrument is issued to finance contractors’ activities and manufacturing orders. In this mechanism, there should exist the capability for manufacturing and delivery of the asset, for which the security is issued, in anticipated dates. The assets which are frequently manufactured in mass scale, may not be the underlying asset for such debt issue.
Debt purchase instrument
Such papers are the tool for the purchase of long term debt of legal persons in Rial. The debt must arise from transactional contracts (with the exception of Salaf contracts)
Joaleh (service purchase) instrument
This contract is used to finance construction, completion, repair/overhaul, delivery and, as the case may be, the operation of a certain project. Joaleh papers represent undivided ownership of an asset, where ownership (of the asset or service) is transferred to security holders at the maturity date of the Joalah contract.
Manfa’ah instrument (usufruct)
This instrument can be used to provide ready cash for durable asset purchase , working capital or expanding economic activities of companies and service- provider enterprises. Through this mechanism, the asset holder transfers, in advance, a portion of the future profits of his durable assets and relying on such profits, issues Manfa’ah securities and sells them, for a set price, to the security holders. The service-provider companies, too, can issue Manfa’ah instrument against a portion of their future services.
Gharz-al-hasaneh (interest-free loan)
This instrument is used to finance public-interest projects or charity purposes. The instrument is based on an interest-free Gharz-al-hasaneh contract. The governments and reputable entities can use such structure to finance their non-profit activities.
This instrument helps to carry out commercial activities. Regarding the Muzarabah contract, the profit (coupon rate) of papers shall depend on the business activity. So it generates a variable profit and the definite amount becomes clear at the end of the financial period.
The issuer uses this instrument to purchase mortgage-backed and asset-backed securities. The securitized loans consist of legal persons’ term-contracts of transactional contracts such as instalment sale, hire-purchase contracts and Joaleh (excluding future/forward contracts (Salaf)), which are backed by a security.
These are registered instruments, indicating partnership of holder in the rights and liabilities originating from the reinsurance contracts and their partnership in providing the needed capital to cover the whole or a portion of insurance risks portfolio (the risks for which the insurance policy is issued or reinsurance contract is concluded) as well as partnership in the profits. To issue such instrument, the issuer is required to produce and present a feasibility report on the features and characteristics of the portfolio of transferable insurance risks, risk exposure limits, predicting loss ratio for the concerned field, hedging the exposure, conditions and exceptional cases, and anticipating profitability of the investment of funds. In addition, the (coupon) rate of these instruments, proportionate to the risk appetite of instruments’ holders may be set higher than the rate of corresponding instruments in the capital market.
Wakala instruments (contract of an agency)
These are registered instruments that represent ownership of assets held in undivided shares, including goods, services, specific project or interests, rights and profits arising from carrying out certain economic activities, issued based on Wakala contract agency agreement. The subject matter of wakala contract is conducting economic activities, in accordance with Islamic –compliant contracts and observing the country’s rules and regulations, financed by issued wakala instruments, for generating revenue through activities such as purchase, sale, lease, construction or provision of property, goods and service, for which related contracts are concluded. At the time of issuance of Wakala papers, the type of economic activities and details and features that are the subject of Wakala contract must be specified.