بسم الله الرحمن الرحيم In the Name of Allah, Most Gracious, Most Merciful Waqf: A Key Islamic Social Finance Instrument Waqf is a key tool of Islamic social finance that has been practised since Islam’s inception as part of Muslims’ religious obligations and benevolence to assist the needy and gain the pleasure of Allah (SWT). In the early years, Islamic social finance was not formally institutionalised within the Islamic economic system, except to a limited extent in a few Muslim-majority countries, which for instance, managed some Islamic social finance tools such as zakat and waqf at the state level. In the early 2000s, there were increasing discussions about the social responsibility of Islamic finance, questioning whether profit should be the sole business objective of Islamic financial institutions or whether they should also be attributed social roles in view of the Islamic philosophical foundations that underpin their establishments. As businesses’ corporate social responsibility (CSR) grew in importance in mainstream discussions, many Islamic financial institutions engaged in CSR-based activities on an ad-hoc basis, as a philanthropic exercise, as they became more profitable, viable and sustainable. This started the trend of mixing the practice of Islamic commercial finance with Islamic social finance. As Islamic finance evolved further, there was an increased realisation that the effectiveness and applications of Islam’s social and philanthropic instruments could be further strengthened by integrating Islamic social finance within mainstream Islamic commercial finance. Thus, there were unified efforts to establish cooperation between charitable instruments and the different sectors of the Islamic finance industry. The commercialisation objective of Islamic social finance instruments has been particularly visible in the waqf sector. Waqf has historically been limited to pursuing only the social interests of the donor, who sought reward in both this world and the afterlife by helping the poor and the needy. In the modern practice of waqf, the social objective is integrated with the profit motive so that the initial waqf capital generates more returns for the beneficiaries. Prominent developments in the modern practice of waqf include the following: · The modern concept of waqf is not limited to immovable assets (e.g., land, orchards, wells) and movable assets (e.g., jewellery, Qur’an, books, equipment) which are donated for charitable purposes. Innovative strategies are adopted today to develop waqf as an alternative asset class by using contemporary forms of wealth such as cash and financial securities. Latest waqf instruments include cash waqf, temporary cash waqf, waqf-banks, waqf-shares, waqf-unit trusts, waqf-venture capital funds, waqf-ṣukūk, and waqf-Islamic real estate investment trusts. Modern structures of waqf introduced professional management of waqf funds that ensures the sustainability of waqf assets and generates better returns to beneficiaries. Innovative and effective channels of investments through Islamic banks, the Islamic capital market and the takāful sector have been used to develop dynamic and progressive waqf projects. An example is the case of myWakaf in Malaysia which leverages on the synergy between the State Islamic Religious Councils (SIRCs) and a consortium of Malaysian Islamic banks to manage waqf investments and channel the investment returns into waqf projects. Utilisation of waqf proceeds are extended beyond the traditional sectors (e.g., mosques, cemeteries, Islamic schools) to provide a wider range of welfare services relevant to current societal needs (e.g., waqf qurban, waqf for funding impactful SMEs, reviving dormant or abandoned waqf assets into productive properties). Modern waqf management introduces good governance that increases transparency and accountability of waqf institutions. Application of technology in the management of waqf has widened the base of waqf donors/investors, thus expanding public participation and increasing the supply of waqf funding.
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May 13, 2024
Ankita Damani + 2