When Waqf meets Banks

By Ebi Junaidi

Global economy has been leaning toward innovations focussed in achieving sustainability. Ebi Junaidi promotes the age-old Waqf “movement” established by the Muslims. The Waqf system, with its philanthropic nature, does not only motivate sustainability but more importantly promises to enable financial institutions that goes beyond corporate social responsibility.


Currently there is a new trend in Islamic Economics and Finance that is “revitalising the original institution/instruments” once practiced in early and medieval Islam. One of the very authentic institution/instrument is waqf. Waqf (plural: awqaf) is perpetual charitable trust established by Muslim. Waqf has been in the centre of attention in the latest World Bank-IRTI IDB’s Global Report in Islamic Finance 2016 by putting it in many aspects of Islamic Finance potential development in an effort to create a shared prosperity and reaching the Sustainable Development Goals (SDG).

In a national and local level, the trend has succeeded creating the new regulations, emerging some new institutions, empowering existing ones, as well as enabling cooperation among institutions once perceived to be “in different part of world”. This “movement” has been so massive, to the extent that Nagaoka of Kyoto University considered it as the New Horizon 2.0. in Islamic Economics and Finance.1

The support that has come from the Islamic Scholar, government, regulator, existing waqf institution, academics and common people (who act as the waqif, the giver of waqf and the beneficiaries of waqf) has not come without justifiable reasons. The existing dormant assets of waqf are enormous, its possible collection in the future is highly potential, as well. At the same time, religious-wise, contribution to waqf is highly recommended as it is believed that the perpetual nature of the instrument equals to continuous never-ending benefit received by the giver surpassing his life time. Modern historian, such as Hodgson affirmed that waqf is the key for the success of the Muslim world economy.2

Modern historian, Hodgson (1974) affirmed that waqf is the key for the success of the Muslim world economy.

The question now is, how to actually realise this potential? What model to be initiate to enable an efficient waqf management? Effort has been done in modelling waqf management. Some has come up with independent waqf-based charity organisations, microfinance institutions, a joint cooperation between waqf institution and (Islamic) banks creating a banking model of corporate waqf, joint cooperation between waqf institution and insurance companies,a stand-alone corporate waqf, etc.

Looking at current share of Islamic finance, which is still dominated by Islamic banks, it is easy to conclude that integrating waqf with Islamic banking institution will be one of the option that might create more impactful result. Estimate from the Islamic Financial Services Board (IFSB 2015) mentioned that almost 79% of the $1.87 trillion Islamic Finance industry belongs to Islamic Bank. This article, thus, focusses on what waqf could offer to the banking sector and how banking corporate governance will benefit from it. Other word, it aims to integrate the waqf into the mainstream of (Islamic) financial industry.

As waqf is a philanthropy in nature, the usage of the funding should have socio-economics dimension. Therefore the idea of financial inclusion looks appeal as it is now been mainstreamed in both developed and developing countries through financial institution and banking. For Islamic banking, these ideas are even more relevant as Islamic financial system stems from the main goals of Islam, those are: eradication of poverty, promotion of socio-economic justice and equitable distribution of income.

“The history of awqaf is very rich with prominent achievements in serving the poor in particular and in enhancing the welfare in general.”

In the past Waqf has played a tremendous role both as commercial and public institutions, even before the existence of bank and financial institution.3,4 During The Ottoman empire, for example, it is depicted that throughout the entire life of a citizen, waqf functions in “making his/her life possible” to the extent that it can be depicted as follow: “Thanks to the prodigious development of waqf institutions, 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 instructions through waqf-owned books, become a teacher in a waqf schools, draw a waqf-financed salary, and at his death be placed in a waqf provided coffin for burial in waqf cemetery. In short, it was possible to meet all one’s need through goods and services immobilised as waqf.”5

Indeed, “The history of awqaf is very rich with prominent achievements in serving the poor in particular and in enhancing the welfare in general.”6

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About the Author

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


1. Nagaoka, S. (2014). Resuscitation of the Antique Economic System or Novel Sustainable System?: Revitalization of the Traditional Islamic Economic Institutions (Waqf and Zakat) in the Postmodern Era (Special Feature: Socio-Economic Role of Islamic Finance and its Potential in the Post-Capitalist Era). イスラーム世界研究, 7, 3-19.
2. Hodgson, M. G. (1974). The Venture of Islam: Conscience and History in a World Civilization (éd. 2). Chicago: University of Chicago Press.
3. Kuran, T. (2001). The Provision of Public Goods under Islamic Law:Origins, Impact, and Limitations of the Waqf Law and Society Review, 35(4), 841-898.
4. Yediyildiz, 1990:5, as cited in Kuran, 2001:815
5. Ahmed, Habib (2011). “Waqf-Based Microfinance: Realizing the Social Role of Islamic Finance” in Essential Readings in Contemporary Waqf Issues. Monzer Kahf & Siti Mashitoh Mahamood CERT, Kuala Lumpur.
6. Cizakca, M (2004). Incorporated cash waqfs and mudaraba, Islamic non-bank financial instrument from the past to the future,” MPRA Paper 25336, University Library of Munich, Germany.<
7. See Ahmed, 2014.
8. See Ahmed, 2007.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.