waqf financial sector-2

7/31/2019 Waqf Financial Sector-2

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Habib AhmedDurham University


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AgendaIntroductionWaqf

Historical Evidence &Contemporary Status

Waqf and Financial SectorDemand SideSupply Side

Conclusion


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Introduction (1)Historically, awqaf played a significant role tobring about economic growth and socio-economic justice in Muslim societies

Awqaf is stagnant during contemporary times,both as a concept and in practiceThe role of third sector in promoting growth and welfare is increasingly becoming importantWaqf 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 Islamicfinance is to introduce waqf based organizationsand concpetsThis presentation discusses how waqf can beintegrated in the financial sector to enhancegrowth and welfare

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Conclusion


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Waqf- IntroductionWaqf Stand still, hold still, not to let go(Maliki- habs )Waqf established by founder ( waqif ) by

dedicating an asset for benefit of a definedgroupWaqf deed determines:

Objectives for which waqf is createdWay(s) its revenues/fruits/services can be usedManagement process and procedures ofsuccession of managers ( mutawalli )


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Waqf Important features

Good objective or birr good intentionas if ownership belongs to God Waqf is usually perpetual but can betemporary 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) wasMasjid in MedinahOther than these, the first known a wqaf wereestablished for social purposes

Umar bin Khattab land of KhaybarUthman bin Affan well in Madinah

Thereafter many different kinds of waqf werecreated

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 ofthe land and buildings in some Turkish townswere awqaf

In some Muslim countries awqaf reached1/3 rd or more of cultivable landAt the beginning of 20 th century

In Palestine, 233 waqf deeds recorded (owning890 properties) compared to 92 private ownershipdeeds (with 108 properties)al Quds had 64 operating schools supported byawqaf (more than the no. of mosques)


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Awqaf during ContemporaryTimes Status (1)

Due to different reasons, awqaf havedegenerated now both as a concept and in practice

The concept of waqf is corrupted:Waqf is only for religious purposesWaqf can be established in real estate only

Lack of awareness that waqf can be productiveasset/organization used for social/philanthropicpurposes


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Awqaf during ContemporaryTimes Status (2)

In practice many awqaf have becomeunproductive assets

Waqf not created for socio-economicpurposesLack of institutional/organizationaldevelopment

Lack of supporting institutionsMany waqf assets lost


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Contemporary Fiqh of Waqf Zarqa other than the concept of birr , everythingin 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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Conclusion


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Integrating Waqf with the Financial

Sector While there are different issues related todevelopment of waqf, here we examine how it canbenefit by integrating with the financial sectorWaqf and the financial sector

1. 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

FinancingFinancing 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 FIsLike any other enterprise, waqf assets can bedeveloped by investments

Example: Awqaf Properties Investment Fund An entity financing the development of awqaf properties worldwideCame up with innovative financing mechanism (Built-

Operate-Transfer)

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Waqf Financing Through Sukuk Cannot sell waqf assetcannot issue ijarah sukuk Sukuk al Intifaa 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 EstateProjects for 28 yearsManshaat raised $390 million issuing sukuk al intifaa

(time-share bond) for 24 years by selling usufruct rights

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Waqf ManagementOnly one dishonest mutawalli needed toloose assets

To tackle this problem governments have got

involved (Ottomans in 1826)Not a solution in most cases, governmentinvolvement has made the problems worse

Inefficient/Passive ManagementGovernment Officials and bureaucratsPrivate individual mutawalli


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Corporate Trust Management

Organizations Provide various trust management related

services for fees/compensation

Reasons of using corporate entitiesPermanence Ensures continuity and permanence(in case of death or disability of originator/settlor)

Expertise Ensure professional and expertmanagement of the assets

Objectivity administration without any bias


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Corporate Trust ManagementOrganizations-Types Two major types:

Banks and financial institutionsDepartment some banks offer trust services

Subsidiary many major banks have trust servicessubsidiaries

Example: Waqf Trust Services Ltd (UAE) owned by Dubai

Islamic Bank & DIFC Investments LLC (July 07)Independent Trustee Companies

Example: Amanah Raya Malaysia provide bothconventional and Islamic trust services


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Services Provided by Waqf Management

Organization1. 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 termsDevelop and implement investment strategies for waqf assets

Collect, distribute, reinvest income from waqf assetsMaintain all accounting records and provide regularinformation to beneficiaries

Fulfill financial obligations related to assets (e.g., payingbills, taxes, etc)

Seek legal counsel when needed


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Agenda

IntroductionWaqf



Conclusion


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Waqf and Supply of Financial

ServicesSocial Role of Islamic financial sector

Islamic firms are not only about fulfilling Islamic

contractssocial justice and benevolence Socio-economic aspects can be fulfilled by introducing waqf-based organizations

Microfinance financial services for the disadvantagedTakaful Guarantee

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Waqf-based MFIs

Historically, waqf based institutions did provideloans 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 featuresCash waqf can be used in W-MFI in different ways:

Corpus of waqf invested and returns used for social

purposesCorpus of waqf given for financing as interest-freeloansCorpus of waqf can be used as capital to create

microfinance institutions (W-MFI)


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W-MFI: Special features of BalanceSheet (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 ofBalance Sheet (2)

Assets Allocation into fixed income assets andmicrofinancing activities

Fixed-income assetsProvides a cushion against expected losses

FinancingQard (loan at service charges)Sale based and hiring modes ( murabahah,

salam, ijarah )Profit-sharing modes ( Musharakah andmudarabah )


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Risk-reducing ReservesTakaful reserves

Contributed by beneficiariesUsed in case of default due to unexpected reasons

Profit-equalizing reserves

Contributed by depositorsUsed to maintain competitive returns

Economic capital reservesContributed from the surplus of MFI (no dividend

distribution)Used in case of negative shock


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Waqf- based Takaful Different Models of Takaful

Mudarabah, Wakalah, and Waqf Waqf 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

ManagementExpenses

ReservesRetakafulPolicy Benefits

Profit


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GuaranteesGuarantees are important for small and mediumenterprises (SMEs) to get financingShariah issueguarantees are gratuitous contracts

Some Shariah scholars have allowed fees for providingguarantees under certain conditions

Waqf 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 otherNeed to come up with new ideas & concepts whereby waqf can be integrated into the financial sector

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QUESTIONS?

waqf financial sector-2

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