Waqf, Some Notes for its Revitalisation

By Ebi Junaidi and Khaled Abulfateh

A waqf is an inalienable charitable endowment under Islamic law, which typically involves donating a building, plot of land or other assets for Muslim religious or charitable purposes with no intention of reclaiming the assets. Many predicted that waqf is the next best thing in Islamic finance, bringing the Islamic social finance into mainstream role in development. The big question is how to actually revitalise the waqf system into the contemporary world?

 

A vivid description of how the role of waqf under Ottoman Empire by a Turkish historian, Bahaeddin Yediyildiz, has been highly quoted lately in many publications within the topic of Islamic Economics and Finance. The description was: 

“Thanks to the prodigious development of the waqf institution, a person could be born in a house belonging to a waqf, sleep in a cradle of that waqf and fill up on its food, receive instruction through waqf-owned books, become a teacher in a waqf school, draw a waqf-financed salary, and, at his death, be placed in a waqf provided coffin for burial in a waqf cemetery, in short, it was possible to meet all one’s needs through goods and services immobilised as waqf.” 

Indeed, the description strongly convey the ability of waqf to “guarantee” the citizen’s life from the first day he/she was born until his/her death; something that many Islamic countries and Muslim-majority countries lack. Many predicted that waqf is the next best thing in Islamic finance, bringing the Islamic social finance into mainstream role in development. The big question is how to actually revitalise the waqf system into the contemporary world? This article tries to address this question because the role of waqf system in the contemporary world has diminished in most Islamic countries, whereas waqf has never been as vital in some Muslim-majority countries.

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Historically, awqaf institutions ceased to be crucial in the development of societies in the present world because of several factors. First, managers of awqaf did not have the flexibility to “change the stipulations of the founder, thus awqaf were locked into services demanded” centuries ago when the economic system underwent rapid changes, which “turned these institutions into unproductive organisations” (Asutay, 2018). 

Second, colonialism by Western power and corruption of awqaf managers caused the centralisation of awqaf institutions, implying that the government started controlling these properties. The process of centralisation had significant consequences such as the “embezzlement of waqf funds” (cited in Asutay, 2018). Therefore, waqf in modern times has lost its momentum as it does not show good performance in alleviating poverty and enhancing socio-economic development. One of the challenges facing the waqf sector is its inability to be financially sufficient and socially effective. Several Muslim countries, however, are endeavouring to revitalise the waqf sector. For example, Kuwait demonstrated exceptional performance in utilising waqf institutions to finance welfare services through major governance and administrative reforms (Asutay, 2018).  

The need for revitalising the waqf system is therefore essential because it can tackle poverty from a micro and macro perspective. According to Ahmed (2004), awqaf institutions should develop effective programs for productive and unproductive labour to alleviate poverty from a micro-perspective. He suggests that productive labour should be supplied with financial, human and physical capital because they experience financial difficulties as their resources are under-utilised. For instance, financial capital assists them in setting up their own business; provision of human capital can improve their skills in utilising their physical capital (e.g. computers), which enables them to earn higher income. As for the unproductive ones, awqaf institutions should provide them with stipends to satisfy their needs. From a macro perspective, awqaf institutions can enhance social welfare services delivered to the poor, initiate education programmes, and supply public goods.  

Waqf is created by donating an asset that has the feature of perpetuity with no intention of recovering it back. The literal meaning of waqf is “[causing] a thing to stop and stand still” (Cizakca, 2004). According to Abu Hanifah, waqf is a “dedication of specific property in the ownership of the waqif and appropriation of its profits or usufructs in the charity for the poor or other good deeds” (cited in Asutay, 2018). From an economic perspective, it is a philanthropic foundation that strives for providing income and welfare services for future generations by forgoing current consumption for the purpose of alleviating poverty and improving the socio-economic system (Kahf, 1998:7, cited in Asutay, 2018). 

There are two types of awqaf in terms of its nature: the first is income generating properties where its revenues are spent on charitable activities; the second is properties utilised directly to produce benevolent services such as hospitals (Asutay, 2018). Waqf can also be categorised into public and private endowments. The former serves the society as a whole, such as endowing schools. The latter only benefits the founder’s family members and relatives (Asutay, 2018).

It is quite shocking to know that the past success and vital role of waqf are not widely known within the Muslim community itself. Some might have heard about waqf, but most commonly known it in a much-reduced form.

Unfortunately, the above definition of waqf and all the categories it has are not common knowledge among Muslims. It is quite shocking to know that the past success and vital role of waqf are not widely known within the Muslim community itself. Some might have heard about waqf, but most commonly known it in a much-reduced form. Raditya Sukmana, a researcher from Center of Islamic Social Finance, indicated that people in Indonesia “equalised” waqf to the provision of land for cemetery and Masjid only. By this definition, the economic role of waqf is totally underestimated, if not unrecognised. 

Waqf literacy, indeed, is the first and major challenge of the efforts to revitalise waqf and put it to the vital role within the contemporary context. Unfortunately, socialisation effort made towards public is still insufficient to give a harmonised understanding. Cash waqf, for instance, as a non-fixed asset based waqf, was introduced under different names to public in Indonesia (Siswantoro, Rosdiana and Fathurahman, 2016). It is recorded that there are at least eighty-two waqf institutions that try to mobilise this waqf type, and yet terminologies used for this waqf type are varied from productive waqf, common waqf, and money waqf (p.4348). The organisational form of this institution is also considerably different, ranging from cooperatives, zakat institution, mass organisations, foundations, until Baitul Maal wat Tamwil (BMT). These factors, to some extent, have been the source of confusion for the people. 

The lack of waqf literacy as described above, together with the possible confusion due to unharmonised terminology, are contributing to the gap of potential waqf giving and its realisation. In Indonesia, for example, it was expected that total cash waqf giving might achieve 180 trillion Rupiah (equal to around 12.6 billion USD) in 2018, yet the realisation was as little as 400 billion Rupiah only (equal to 28 million USD) or slightly just above 0.2 percent. 

The second needed movement to revitalise waqf is creating credible and accountable waqf management. Asutay (2018), asserts that the revitalisation of waqf system can be achieved through managerial reforms. According to Kahf (2007), the waqf sector should only be managed by mutawallis (waqf managers) to be more effective in providing social welfare service, while awqaf institutions managed by the government are predominantly focused on providing religious services. It is also crucial for awqaf institutions to improve their current management techniques by adopting strategic human resource management to effectively achieve their operational objectives. 

It is important to note that as an institution that based its life on trust, waqf institutions’ governance needs to be reflected in their financial report.

A vital element to create an accountable management is creating a good monitoring system. For this, disclosure of financial report to public cannot be neglected. It is important to note that as an institution that based its life on trust, waqf institutions’ governance needs to be reflected in their financial report.

Revision of classical fiqh of waqf is considered as the third requirement towards waqf revitalisation. Waqf was once also being claimed to be the cause of the underdevelopment of the Muslim world due to its rigidity that creates dormant assets (Kahf, 2007). The rigidity, in this manner, is that of the use and the function of the donated assets that could not be changed from its enacted intention by the waqif (waqf giver) no matter how irrelevant it is in the current situation. 

In line with Kahf (2007), White (2006) also argues that the revision of classical fiqh of waqf is of paramount importance to revitalise the waqf sector. A reform proposed by White (2006) is to remove “the requirement that the family waqf be established for ultimately … charitable purposes” to achieve more flexibility because it was historically and contemporarily used to protect the inheritance of the founder, to safeguard it from oppressive rulers, and to avoid taxes. Thus, waqf should revert back to serve the poor. Another reform is that the requirement that the waqf endowment must be a tangible asset should be eliminated to be adapted to the modern world (White, 2006). Such reform would enable the privileged to make waqf on stocks and intellectual property, because they represent a large amount of wealth in the contemporary world.

Furthermore, it is essential to integrate innovative and modernistic methods into the waqf sector. Boudjellal (2008) suggests that awqaf institutions should provide financial and profitable channels through “utilising Shariah compliant financial instruments” such as sukuk to attract fundholders who want profit and institutions who want an adequate return for their waqf (cited in Asutay, 2018). In addition, Cizakca (2004) emphasises the importance of essentialising cash waqf in the philanthropic organisation as a way of providing microfinance through gratuitous loans. 

Waqf can also provide social welfare services by “establishing a Waqf whose revenues are to be used to finance the poor supportive programs” (Ali, 2014). Haneef et al. (2015) proposed an Integrated Waqf-Based Islamic Microfinance Model to enhance socio-economic development by alleviating the multidimensional facets of poverty. The model encompasses the following elements:  

The Waqf fund will be invested in income generating assets to fund future activities through its profits. 

Islamic microfinance provides Shariah-compliant microfinance to the poor.  

Human resource development is used to achieve sustainable outcomes in the long run through enhancing the human and social capital of poor clients and waqf employees by providing them with educational and training programmes.  

Project financing means that waqf funds are invested in Shariah-compliant projects.  

Takaful is used to absorb the risk that would have been borne by poor entrepreneurs when facing financial difficulties. Takaful fund comes from contributions and returns of investments.  

This model assists in overcoming certain issues such as “high cost of capital, low quality of human resources, vulnerability of poor borrowers arising from lack of sustainable income” (Haneef et al., 2015).  

Although the role of waqf in society declined in modern times, it still has a strong potential to develop capacity, alleviate poverty, and sustain the socio-economic development of Muslim societies. The reason is that the waqf system can eliminate poverty by tackling it from a micro and macro perspective. Nonetheless, to achieve the full potential of the waqf institution, there is a crucial need to revitalise it through the necessary reforms and through integrating innovative approaches that would modernise the waqf system.

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About the Author   

Ebi Junaidi is a School of Economics Lecturer at Universitas Indonesia. He is currently pursuing his PhD in Islamic Finance at Durham University Business School. His research areas are: Waqf, Trust, Venture Capital, Risk Attitude, and Financial Decision. He is now the Chairman for Indonesia Islamic Economics Society-United Kingdom Representative. 

Khaled Abulfateh is a graduate from the American University of Sharjah. He is currently pursuing his MSc in Islamic Finance at Durham University Business School. His research areas are: FinTech, Moral Economy, Waqf, Sukuk, and Islamic Social Finance. 

References
1. Ali, K. (2014). Integrating Zakah, Awqaf and Islamic Microfinance for Poverty Alleviation: Three Models of Islamic Microfinance. Working Paper. Jeddah, KSA: Islamic Research and Training Institute. 
2. Asutay, M. (2018) The structure of Islamic political economy: social welfare institutions. Working Paper. Durham Centre for Islamic Economics and Finance, Durham University Business School
3. Boudjellal, M. (2008). The Need for a New Approach to the Role in Socioeconomic Development of Waqf in the 21st Century. Review of Islamic Economics, 12(2), 125–136.  
4. Brahimi, A., Ahmad, K., Siddiqi, M. N., & Qaḥf, M. M. (2009). Encyclopaedia of Islamic economics. London: Encyclopaedia of Islamic Economics.
5. Dodik Siswantoro1, Haula Rosdiana2, and Heri Fathurahman2, Redefinition of Cash Waqf (Endowment) Terminology in the Indonesian Context: A Comparison with Malaysia and Singapore, Advanced Science Letter, Vol 22, 4348-4350, 2016.
6. Haneef, M., Pramanik, A., Mohammed, M., Amin, M., & Muhammad, A. (2015). Integration of waqf-Islamic microfinance model for poverty reduction: The case of Bangladesh. International Journal of Islamic and Middle Eastern Finance and Management, 8(2), 246-270.
7. Kahf, M. (2007). Infaq in the Islamic economic system. Retrieved from http://monzer.kahf.com/papers/english/Infaq_in_the_Islamic_Economic_System.pdf 
8. Kahf, M. (2007). The Role of Waqf in Improving the Ummah Welfare. Paper presented at the Singapore International Waqf Conference 2007, held in Singapore, March 6-7.  
9. White, A. (2006). Breathing new life into the Islamic waqf: What reforms can fiqh regarding awqaf adopt from the Common Law of Trusts without violating Shari’ah?. Real Property, Probate and Trust Journal. 41(3), 497-527.