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Habib AhmedDurham University
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AgendaIntroductionWaqf
Historical Evidence &Contemporary Status
Waqf and Financial Sector Demand Side Supply Side
Conclusion
Introduction (1)Historically, awqaf played a significant role
to bring about economic growth and socio-economic justice in Muslim societies
Awqaf is stagnant during contemporary times, both as a concept and in practice
The role of third sector in promoting growth and welfare is increasingly becoming important
Waqf is not contributing in the growth of economies in general and third sector in particular
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Introduction (2)Islamic finance was conceived to provide
a just, stable and equitable alternativeIslamic finance appears to have failed to
realize the social objectivesOne way to introduce social goals in
Islamic finance is to introduce waqf based organizations and concpets
This presentation discusses how waqf can be integrated in the financial sector to enhance growth and welfare
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AgendaIntroductionWaqf
Historical Evidence &Contemporary Status
Waqf and Financial Sector Demand Side Supply Side
Conclusion
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Waqf-Introduction Waqf—”Stand still, hold still, not to let go”
(Maliki- habs) Waqf established by founder (waqif) by
dedicating an asset for benefit of a defined group
Waqf deed determines: Objectives for which waqf is created Way(s) its revenues/fruits/services can be used Management process and procedures of
succession of managers (mutawalli)
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Waqf—Important features
Good objective or birr – good intention “…as if ownership belongs to God” Waqf is usually perpetual—but can be
temporary and partial Can be created for various objectives
Philanthropic or public (khayri or aam) Family or private (ahli or khass) Mixed (mushtarak) Religious and charitable/social
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Waqf—Historical Experience (1)
The first waqf created by the Prophet (PBUH) was Masjid in Medinah
Other than these, the first known awqaf were established for social purposes Umar bin Khattab—land of Khaybar Uthman bin Affan—well in Madinah
Thereafter many different kinds of waqf were created Public utilities, education and research, health care, etc. Property, cash, grains for seeds, etc.
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Waqf—Historical Experience (2)
At the dissolution of Ottoman empire—¾ of the land and buildings in some Turkish towns were awqaf
In some Muslim countries awqaf reached 1/3rd or more of cultivable land
At the beginning of 20th century In Palestine, 233 waqf deeds recorded (owning
890 properties) compared to 92 private ownership deeds (with 108 properties)
al Quds had 64 operating schools supported by awqaf (more than the no. of mosques)
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Awqaf during Contemporary Times—Status (1) Due to different reasons, awqaf have
degenerated now—both as a concept and in practice
The concept of waqf is corrupted: Waqf is only for religious purposes Waqf can be established in real estate only Lack of awareness that waqf can be productive
asset/organization used for social/philanthropic purposes
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Awqaf during Contemporary Times—Status (2)
In practice—many awqaf have become unproductive assets Waqf not created for socio-economic
purposes Lack of institutional/organizational
development Lack of supporting institutions Many waqf assets lost
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Contemporary Fiqh of Waqf Zarqa—other than the concept of birr, everything
in waqf is under the realm of ijtihad Some flexibility in fiqh related to waqf
Waqf of movable properties (books, cash, etc. ) In certain cases waqf can be exchanged/ substituted
(istibdal) IFA Resolution (April 2009)
• Types of assets that be made waqf—moveable item, benefit, money, sukuk, shares, services.
• Waqf can be permanent and temporary• Waqf can be limited to time specified by founder
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AgendaIntroductionWaqf
Historical Evidence &Contemporary Status
Waqf and Financial Sector Demand Side Supply Side
Conclusion
Integrating Waqf with the Financial Sector While there are different issues related to
development of waqf, here we examine how it can benefit by integrating with the financial sector
Waqf and the financial sector1. Demand side (input to waqf)2. Supply side (output from waqf)
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Waqf and Demand for Services from the Financial SectorInputs for development of waqf institutions
Financing Financing from financial institutions (FIs) Financing from raising funds from the market
Management ServicesIssues in financing
The benefit from waqf asset should continueCannot use waqf asset as collateralCannot sell waqf asset
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Financing from FIs Like any other enterprise, waqf assets can be
developed by investmentsExample: Awqaf Properties Investment Fund
An entity financing the development of awqaf properties worldwide
Came up with innovative financing mechanism (Built-Operate-Transfer)
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Waqf Financing Through SukukCannot sell waqf asset—cannot issue ijarah
sukukSukuk al Intifa’a—Zamzam Towers in Makkah
Waqf land leased land to Binladin Group for 28 years on BOT to build complex (4 towers, mall & hotel)
Binladen leased the project to Munshaat Real Estate Projects for 28 years
Manshaat raised $390 million issuing sukuk al intifaa (time-share bond) for 24 years by selling usufruct rights
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Waqf Financing Through Sukuk (2)Singapore—Musharakah sukuk used to raise
$60 million to develop 2 projectsWaqf provided the land, the investors (sukuk
holders) provided the funds for investment, and Warees managed the project.
In one case, a new mosque was built with attached commercial property earning $200,000 annually
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Waqf Management Only one dishonest mutawalli needed to
loose assets To tackle this problem—governments have got
involved (Ottomans in 1826) Not a solution—in most cases, government
involvement has made the problems worse
Inefficient/Passive Management Government—Officials and bureaucrats Private—individual mutawalli
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Corporate Trust Management Organizations• Provide various trust management related
services for fees/compensation
• Reasons of using corporate entities Permanence— Ensures continuity and permanence
(in case of death or disability of originator/settlor)
Expertise— Ensure professional and expert
management of the assets
Objectivity—administration without any bias
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Corporate Trust Management Organizations-Types
Two major types:
Banks and financial institutions Department—some banks offer trust services
Subsidiary—many major banks have trust services subsidiaries Example: Waqf Trust Services Ltd (UAE)—owned by
Dubai Islamic Bank & DIFC Investments LLC (July 07)
Independent Trustee Companies Example: Amanah Raya Malaysia—provide both
conventional and Islamic trust services
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Services Provided by Waqf Management Organization
1. Services of Mutawalli2. Custody Services3. Estate Management Services4. Investment Management Services5. Advisory Services
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Services of Mutawally
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Review & implement waqf terms
Develop and implement investment strategies for waqf assets
Collect, distribute, reinvest income from waqf assets
Maintain all accounting records and provide regular information to beneficiaries
Fulfill financial obligations related to assets (e.g., paying bills, taxes, etc)
Seek legal counsel when needed
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Advisory Services Will writing Advise on waqf/trust accounts/funds Waqf formation Investment advice
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AgendaIntroductionWaqf
Historical Evidence &Contemporary Status
Waqf and Financial Sector Demand Side Supply Side
Conclusion
Waqf and Supply of Financial Services Social Role of Islamic financial sector
Islamic firms are not only about fulfilling Islamic contracts…social justice and benevolence
Socio-economic aspects can be fulfilled by introducing waqf-based organizations
Microfinance—financial services for the disadvantaged
Takaful Guarantee
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Waqf-based MFIs Historically, waqf based institutions did
provide loans to the disadvantaged (Turkey and Iran)
Waqf-based MFI (W-MFI) can be introduced
W-MFI will retain the basic operational format of MFIs, but will have some distinguishing features
Cash waqf can be used in W-MFI in different ways: Corpus of waqf invested and returns used for social
purposes Corpus of waqf given for financing as interest-
free loans Corpus of waqf can be used as capital to
create microfinance institutions (W-MFI)
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W-MFI: Special features of Balance Sheet (1)
Capital & Liability Waqf will form the capital for the MFI
Savings deposits — mudarabah contracts
Obtain additional funds from waqf and other sources
(waqf certificates, qard hasan deposits, etc.)
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W-MFI: Special features of Balance Sheet (2) Assets
Allocation into fixed income assets and microfinancing activities Fixed-income assets
Provides a cushion against expected losses
Financing Qard (loan at service charges) Sale based and hiring modes (murabahah,
salam, ijarah) Profit-sharing modes (Musharakah and
mudarabah)
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W-MFI: Special Features for Operations To keep the corpus/capital of the waqf
intact—steps needed to preserve and enhance the value of the waqf
Appropriate asset allocation strategies required Long term vs. short-term Low risk/return vs. high risk/return
Need to create a reserve for negative shocks
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Risk-reducing Reserves Takaful reserves
Contributed by beneficiaries Used in case of default due to unexpected reasons
Profit-equalizing reserves Contributed by depositors Used to maintain competitive returns
Economic capital reserves Contributed from the surplus of MFI (no dividend
distribution) Used in case of negative shock
Waqf-based TakafulDifferent Models of Takaful
Mudarabah, Wakalah, and WaqfWaqf based model appears to have less
controversiesCan be used for:
TakafulRe-takafulMirco-takaful
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Share of Surplus (100%)
Contribution
Profit Share Profit Share
Wakalah Fee
Initial Donation to Waqf
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Waqf-based Takaful Model
Waqf Fund
Participants
Shareholders’ Funds
Investments
Surplus
Profit/Loss of
Shareholders
Management
Expenses
Reserves
Retakaful
Policy Benefits
Profit
GuaranteesGuarantees are important for small and
medium enterprises (SMEs) to get financingShari’ah issue—guarantees are gratuitous
contractsSome Shari’ah scholars have allowed fees for
providing guarantees under certain conditionsWaqf based institutions can provide
guarantees, mainly to the small and medium enterprises
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ConclusionCurrent status of waqf in many countries—
unproductive assetsThere is great potential to revive the
institution of waqf This presentation showed some areas in
which waqf and Islamic finance can benefit from each other
Need to come up with new ideas & concepts whereby waqf can be integrated into the financial sector
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QUESTIONS?
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