The need for an effective legal and regulatory framework for cash waqf 1

Abstract

The past few years have witnessed high-level rebranding of some key Islamic charitable institutions in the form of what is now called “Islamic social finance”. One key institution in this new wave is waqf, or Islamic charitable endowment, with an increasing focus on cash waqf due to its significance in not only solving social problems but also being a tool for financial intermediation. Against this backdrop, this chapter examines the need for an effective legal and regulatory framework for cash waqf considering the different understanding of the concept and the increasingly blurred lines between original cash waqf and funds deployed for financing waqf properties, which have led to the abuse of the term in financial engineering in the product development process. To this end, this study briefly highlights different cash waqf products being offered by Islamic financial institutions across the world and identifies some potential regulatory issues. Even though such cash waqf have been certified and approved by the Sharī‘ah supervisory boards of the Islamic financial institutions, the legal treatment of such structured products in light of Sharī‘ah and under the laws in the particular legal system leaves much to be desired. Though the study finds that there seems to be a general acceptance of cash waqf in the Muslim world based on the views of the major schools of thoughts in Islamic jurisprudence, the categorization of such funds, particularly when properly structured in the product development stage, requires further scrutiny to ensure the original nature of waqf is not tainted with some other extraneous practices and concepts that may affect it. Therefore, this chapter focuses on legal requirements in the definition of cash waqf, product structuring, marketing, types of financing, and beneficiaries of cash waqf. Rather than focusing on a particular jurisdiction, this chapter proposes a better understanding of the term “cash waqf” and suggests an outline of a model legal and regulatory framework that may be considered for further development in any jurisdiction. One key aspect of the proposed legal framework is the requirement to ensure that cash waqf financing is solely meant for projects that fulfil the environmental, social and governance (ESG) criteria to be established and approved by Sharī‘ah supervisory boards, which will be based on maslahah (public interest). The law may also comprise institutions, instruments, market infrastructure and regulatory authorities, including an efficient Sharī‘ah governance framework. It may also include licensing, regulatory authority and its powers, tax reliefs and incentives, Sharī‘ah governance, impact measurement and reporting obligations, business conduct and dispute resolution.