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Agenda
� Introduction
� Waqf� 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 alternative
� Islamic finance appears to have failed to realize the social objectives
� One 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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Agenda
� Introduction
� Waqf� 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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Agenda
� Introduction
� Waqf� 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 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 Sector� Inputs for development of waqf institutions
� Financing
� Financing from financial institutions (FIs)
� Financing from raising funds from the market
� Management Services
� Issues in financing
� The benefit from waqf asset should continue
� Cannot use waqf asset as collateral
� Cannot sell waqf asset
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Financing from FIs � Like any other enterprise, waqf assets can be
developed by investments
� Example: Awqaf Properties Investment Fund
� An entity financing the development of awqafproperties worldwide
� Came up with innovative financing mechanism (Built-Operate-Transfer)
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Waqf Financing Through Sukuk
� Cannot sell waqf asset—cannot issue ijarah sukuk
� Sukuk 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 projects
� Waqf 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 Mutawalli
2. Custody Services
3. Estate Management Services
4. Investment Management Services
5. 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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Agenda
� Introduction
� Waqf� 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 waqfintact—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 Takaful� Different Models of Takaful
� Mudarabah, Wakalah, and Waqf
� Waqf based model appears to have less controversies
� Can be used for:
� Takaful
� Re-takaful
� Mirco-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
ReservesRetakafulPolicy
Benefits
Profit
Guarantees� Guarantees are important for small and medium
enterprises (SMEs) to get financing
� Shari’ah issue—guarantees are gratuitous contracts
� Some Shari’ah scholars have allowed fees for providing guarantees under certain conditions
� Waqf based institutions can provide guarantees, mainly to the small and medium enterprises
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Conclusion� Current status of waqf in many countries—
unproductive assets
� There is great potential to revive the institution of waqf
� This presentation showed some areas in which waqfand 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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