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A Hypothecation Agreement lets you use your assets as loan collateral while keeping possession of them - a common practice in Saudi banking and finance. Under this agreement, you pledge property, securities, or other valuable assets to secure financing, but continue using them for your business or personal needs.

In the Kingdom's financial system, these agreements follow Shariah-compliant principles and are governed by Saudi Arabian Monetary Authority (SAMA) regulations. Banks often use hypothecation when lending to businesses, especially in trade finance and manufacturing, where companies need to keep using their equipment or inventory while securing loans.

Consider using a Hypothecation Agreement when seeking business financing while needing to keep your assets operational. This arrangement works particularly well for Saudi manufacturers who need working capital but can't spare their production equipment as traditional collateral, or traders who must maintain access to their inventory.

The agreement becomes essential when expanding operations through Shariah-compliant financing, especially for projects requiring SAMA approval. It's also valuable for securing better financing terms from Saudi banks, as the ability to continue using pledged assets helps maintain business cash flow while providing lenders with the security they need.

• Pledge of Movable Assets: Most common in Saudi manufacturing, allowing businesses to secure loans using equipment while continuing operations
• Securities Hypothecation: Used primarily in financial markets for pledging stocks and bonds under SAMA regulations
• Trade Finance Hypothecation: Popular among importers and exporters, covering inventory and receivables
• Real Estate-Linked: Enables Shariah-compliant financing using property rights while maintaining occupancy or usage
• Project Asset Hypothecation: Specifically structured for large infrastructure or development projects, covering multiple asset categories

• Saudi Banks and Financial Institutions: Act as lenders and create the core agreement structure following SAMA guidelines
• Business Owners: Sign as borrowers, pledging their assets while maintaining operational control
• Legal Counsel: Draft and review agreements to ensure Shariah compliance and protect all parties' interests
• Corporate Finance Officers: Manage the hypothecation process and maintain compliance with agreement terms
• SAMA Representatives: Oversee regulatory compliance and approve certain high-value hypothecation arrangements

• Asset Documentation: Gather detailed descriptions, valuations, and ownership proof of all assets to be hypothecated
• Financial Records: Compile business financials and cash flow projections to support the loan structure
• Shariah Compliance: Verify all terms align with Islamic finance principles and SAMA regulations
• Signatory Authority: Confirm proper authorization levels for both borrower and lender representatives
• Usage Rights: Clearly define how the pledged assets can be used during the agreement period
• Default Provisions: Specify enforcement procedures that comply with Saudi commercial law

• Parties' Details: Full legal names, addresses, and registration numbers of lender and borrower
• Asset Description: Precise identification and valuation of hypothecated assets under Saudi law
• Loan Terms: Financing amount, duration, and Shariah-compliant profit rates
• Usage Rights: Clear terms for continued asset possession and operational limitations
• Default Provisions: SAMA-compliant enforcement procedures and remedies
• Governing Law: Express reference to Saudi commercial law and Shariah principles
• Termination Clauses: Conditions for agreement discharge and asset release

A Hypothecation Agreement differs significantly from an Asset Purchase Agreement in Saudi Arabia's financial landscape. While both involve assets, their core purposes and legal effects are distinct.

• Ownership Transfer: Hypothecation keeps asset ownership with the borrower while only pledging it as security; an Asset Purchase Agreement transfers full ownership rights
• Usage Rights: Under hypothecation, the borrower continues using the assets; in a purchase agreement, the buyer takes complete control
• Duration: Hypothecation agreements last until loan repayment; purchase agreements create permanent transfers
• Shariah Compliance: Hypothecation follows specific Islamic finance rules about pledges; asset purchases must meet different Shariah requirements for sales
• Legal Framework: Hypothecation falls under SAMA's secured lending regulations; asset purchases follow Saudi commercial law for sales