Lecture 08

“The Global University in Islamic Finance”

Wealth Planning and Management

Waqf


الرحيم الرحمن الله بسم

ثالث؛ ) من إال عمله انقطع االنسان مات إذاجارية صدقة

.) له يدعو صالح وولد به ?نتفع ي وعلم

The Prophet (s) said: When a man dies his acts come to an end, except three things, recurring charity, knowledge (by which people benefit), and pious offspring, who pray for him.


I. THE LEGAL FRAMEWORK FOR THE INSTITUTION OF WAQF

• Definition of Waqf • Legitimacy of Cash-Waqf • Legal Conditions for Waqf • Legal Condition for a Non-Muslim• Classification of Waqf Property • Ten Stipulations for the Creation of Waqf• Modes of Investing and Financing Waqf Properties• Historical Role of Waqf


Definition of Waqf

Waqf, habs and tasbil all mean ‘to stop, to prevent, to restrain’ i.e. al-habs wa al-man‘, all mean devoting in the way of Allah (fi

sabil Allah).

“ The confinement of a private property, movable or immovable, from the

ownership and the dedication of its usufruct in perpetuity to the welfare of society”


Legitimacy of Waqf & Cash-Waqf

All schools of fiqh Hanafi, Maliki, Shafe‘i & Hanbali agreed upon immovable and movable properties as a subject matter of waqf including the creation of “cash waqf”.

• “By no means shall ye attain righteousness unless ye give (freely) of that which ye love; and whatever ye give, of a truth God knoweth it well (surah al-’imran 3:92)

• “it is not righteousness that ye turn your faces towars East or West, but it is righteousness to believe in Allah, and the Last Day, and the Angels, and the Book, and the Messengers, to spend of yoru substance out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves, to be steadfast in prayer and practise regular charity.”(Surah al-Baqarah 2:177)


Legitimacy of Waqf & Cash-Waqf

• Evidence from the Sunnah

“Abu Hurairah (Allah be pleased with him) reported Allah’s Messenger (pbuh) as saying: when a man dies, his acts comes to an end, except three things, recurring charity, or knowledge (by which people benefit), or pious offspring, who prays for him. (Sahih Muslim)

Majority of Muslim jurists understood that recurring charity serves as the basis of waqf.


Conditions for Creating Waqf

1. ‘aqil (in full possession of his physical and mental faculties).

2. baligh (adult),

3. 3. hurr (a free man/women).

4. own the property (immovable or movable) able to transfer the property ownership

Five conditions for Validity of Waqf

1. aqil, baligh and hurr

2. Property can either be movable or immovable

3. Appoint mutawalli (trustee) either himself or someone4. Beneficiaries must be specified by the founder in his waqfiah (waqf deed). It can be relatives

of the founder, public individuals or organization like building mosques

5. Waqf creation can be verbal or written But preference would be written as proper maintenance of records and management

There are four legal conditions for the founder to be fulfilled when creating the waqf.

The founder of the waqf must be:


Legal Condition for a Non-Muslim

The Shafie School permitted the creation of waqf from a non -Muslim even if it is for the benefit of a Mosque. He based his opinion on the following hadith :

• ) ( : ص الله رسول قال قال عنه الله رضي مالك بن انس عنويجزى ان" الدنيا في بها يعطى حسنة مومنا يظلم ال الله

االخرة في بها• حتى الدنيا في لله بها عمل ما بحسنات فيطعم الكافر واما

بها يجزى حسنة له يكن لم االخرة الى افضى ”اذا

The Prophet )pbuh( said “Allah will not oppress any Muslim from his good deeds, as he will be rewarded in this world and in the hereafter. But for the non- Muslim he will be rewarded for all his good deeds only in this world”


Mixing of Cash Waqf

Fatwa from Kuwait Awqaf Public Foundation (web-site)

“It is permissible to mix the cash-waqf of a non-Muslim with the cash-waqf of a Muslim as long as it satisfies with the legal condition for the creation of waqf”


Classification of Waqf Property

al-Mawquf ‘alaihm

(the beneficiaries)

al-Mawquf

(endowment property)

1. Waqf khayri (public waqf)

2. Waqf dhurri (family waqf)

3. Al-waqf al-mushtarak (combined waqf)

(lands, farms, fields or buildings or privately owned freeholds properties

1. Waqf manqul (movable waqfs) &Waqf ghair manqul (immovable waqfs)

2. Waqf sahih (sound or valid waqfs) & waqf ghair sahih (unsound or invalid waqfs)

3. Direct and Indirect waqfs

)lands, farms, fields, or buildings or privately freehold properties.


Key Restrictions of Waqf• Irrevocability – important feature of waqf as there is a consensus among

Muslim jurists that the founder cannot revoke the dedication if the property has already been declared as waqf.

• Perpetuity – waqf must be perpetual once it is created ensure no confiscation of the property either by government or by individual or institutions

• Inalienability – as property for waqf is transferred to Allah (swt) and it is in a form of ‘frozen property” and cannot be subjected to any sale, disposition, mortgage, gift, inheritance or any alienation.


Ten Stipulations for the Creation of Waqf


Modes of Investing and Financing

Immovable Waqf Properties Movable Waqf Properties

1. al-hikr (long lease right) 1. renting (jewelry, weapons)

2. al-ijaratain 2. exchange (crops)

(the lease with dual payment) (selling and buying)

3. al-istibdal (substitution) 3. mudharabah (cash money)

4. Al-mursad (advanced lump sum is paid by the lessee to be credited by the waqf department toward the agreed upon periodical rent applicable for reconstruction.


Administration of Waqf as highlighted in the Hadith

The Hadith narrated ibn ‘Umar (pbuh): In the lifetime of Allah’s Messenger (pbuh), ‘Umar gave in charity some of his property, a garden of date palms called Thamgh. ‘Umar, said, “O Allah’s Messenger! I have some property which I prize highly and I want to give it in charity.”

The Prophet (pbuh) said, “Give it in charity (i.e. as an endowment) with its land and trees on the condition that the land and trees will neither be sold nor given as a present, not bequeathed, but the fruits are to be spent in charity.”

So ‘Umar gave it in charity, and it was for Allah’s Cause, the emancipation of slaves, for the poor, for guests, for travelers, and for kinsmen. The person acting as its administrator could eat from it reasonably and fairly, and could let a friend of his eat from it provided he had no intention of becoming wealthy by its means.


Hadith Highlightes

• Perpetuity of the Waqf: once the property becomes a waqf it MUST NOT be sold or inherited or given away as a gift.

• Beneficiaries: it is up to the founder to specify his beneficiaries, either to the public or to his family. In this hadith Caliph ‘Umar devoted it to both i.e. WAQF MUSHTARAK.

• Administration of the waqf: the founder himself can administer his own waqf and at the same time he can benefit from its REVENUE in a reasonable manner as long as he lives.


The Historical Role of Waqf & Cash-Waqf

Waqf & cash-waqf played significant roles through their varied and wide contributions to the economic and social life of the people. There roles were like a network, which penetrated all sectors such as;

1. the agricultural, 2. the industrial & 3. the social sector.


II. MODERN APPLICATIONS OF CASH WAQF

The last two decades witness the revival of the institution of waqf and the creation of movable waqf i.e. cash waqf in almost all Muslim countries and Muslim minority countries.

The followings will highlight nine different cash-waqf models that have been practiced in 15 countries and in 3 international organizations.


Cash-Waqf Models1. Waqf Shares Model2. Waqf Takaful Model3. Direct Model4. Mobile Model5. Compulsory Model6. Corporate Cash Waqf Model7. Deposit Product Model8. Co-Operative Model 9. Waqf Mutual Fund Model


1. Waqf Shares Model (Public Waqf)

Shareholders/Waqifs/founders buy waqf share )s( from specified religious institution/NPO

The purchased waqf share)s( is/are endowed as waqf to the

religious institutions/NPO

The religious institutions/NPO manages the funds collected

)mutawalli(

The funds/revenue generated are used for charitable purposes

1. Malaysia2. Indonesia3. UK4. Sudan5. Kuwait

Founders willreceive cash Waqf Certificate only

Element of Perpetuity is notclear


2. Waqf Takaful ModelUpon death of the

waqif or

maturity of the plan, the

amount accumulated in

the PA will be paid to the

beneficiaries specified by

the waqif in the

Waqf Declaration Form.

The waqif pays a minimum contribution of

RM10/USD3 per month under this plan

Profit from investments (if any), will be distributed between Syarikat Takaful Malaysia Berhad and the PA in the form of a profit-sharing arrangement

The contribution will be divided into

The Participants’ Account (PA)

and Participants’ Special Account

(PSA) (pre agreed ratio)

WAQIF

CONTRIBUTION

PARTICIPANTS’ SPECIAL

ACCOUNT

PARTICIPANTS’ ACCOUNT

OPERATING EXPENSES

BENEFICIARIES

1

2

3 4 - Profit4 - Profit

5

PROFIT ON INVESTMENT

Waqf Mushtarak

)founders willnot benefit – after death(


3. Direct Model (Public Waqf)

Revenue generated will be channeled by the Religious authority/NPO

)mutawalli(

Founder contribute to

Religious authority/NPO/regulatory body

by depositing moneyto a specific bank account.

The bank then invest the money.send to

charitable areas

1. Malaysia2. Singapore3. Bahrain4. UAE5. Pakistan6. India7. US8. South Africa9. IDB10.OPEC


4. Mobile Model (Public Waqf)

Religious authority/NPO

Revenue Generated

)distributed on pre-agreed ratio(

Contributions can be made by sending a coded SMS to a designated server number ordering for deduction of a certain amount from his airtime to a certain religious authority/NPO

Amount collected will be invested through Musharakah investment

telecommunication company

)to cover operating costs(

1. Malaysia2. Kuwait

Charitable areas


5. Compulsory Model (Public Waqf)

Compulsory monthly contributions are made by Muslim employees in Muslim minority country depending on their monthly gross income

)automatic check-off system(

Amount deducted from their salaries will be channeled through the CPF,

to Singapore Islamic Council )MUIS(

)Mutawalli(

Amount collected finance charitable purposes )building Mosques/educational programs(


6. Corporate Cash Waqf Model (Public Waqf)

The Dividends earned by units of shares are channeled as cash waqf to:

Contributions (cash, jewellery, real estate, etc.) from individuals, State Baitulmal and other corporations are channeled to:

CORPORATION

Associated waqf Institution

Cash waqf scheme Corporate Waqf Scheme

Associated waqf institution established by the mother corporation

INVESTMENT EARNINGS

CHARITY PROJETCS

Deduct operational expenses1. Malaysia )Kumpulan Waqf an-Nur 1998(2. Turkey )Sabanci Foundation-1974(3. Pakistan )Hamdard Foundation-1953(4. South Africa )National Awaqf Foundation -2000(


7. Deposit Product Model (Public Waqf)

Bangladesh

1. Social Investment Bank Limited (SIBL)

2. Islamic Bank Bangladesh Limited (IBBL)

BANKDEPOSITOR

1. The waqif deposits money into the cash waqf-based account.

2. The bank manages the capital on behalf of the waqif (Mutawalli)

CAPITAL

3. The capital is invested

INVESTMENT EARNINGS

4. The cash waqf account earns profit through a mudharabah contract

CASH WAQF ACCOUNT 5. The proceeds will be

used for charitable purposes or purposes specified by the waqif.

CHARITY PROJECTS


8. Co-Operative Model (Public Waqf)

DISTRICT CASH WAQF FUNDCITIZENS

Citizens endow cash to the cash waqf fund specific for their district.

The capital is invested.

INVESTMENT EARNINGS

DEVELOPMENT PROJECTS IN THE DISTRICT

Mahalla Cash Waqf in Uzbekistan Decentralized waqf system established in 1992 to providing the basic needs for each district. Each district manages their own cash waqf funds. In 2002 the number of mahallah cash waqf

funds becomes 9,941, for religious educational, healthcare and for economic development


Batasa Capital Asset

Management

WAQIF/INVESTOR

The founder contributes e.g.

RM5,000 and specifies

that 70% of the

investment earnings

returns will be

allocated to the

mutual fund (his

personal account) and

the remaining 30% is

appropriated to the

waqf fund.

(Waqf Mushtarak)

Batasa Capital Asset Management invests the capital in a portfolio of low-risk financial instruments.

WAQF FUND

INVESTMENT EARNINGS

30%

Dompet Khuafa’s CHARITY

PROJETCS

MUTUAL FUND

70%

9. Waqf Mutual Fund Model(Indonesia)

The Dompet Dhuafa-Batasa Syariah Mutual Fund was established in July 2004 as a Shariah-compliant mutual fund, which invests heavily in fixed-income returns financial instruments.

This mutual fund is managed by the Batasa Capital Asset Management.


Country Cash Waqf Model(s) Applied TotalCollection (USD)

Revenue generated

(USD)

TotalDistribution

(USD)

1. Malaysia 1. Waqf shares model;2. Waqf takaful model;3. Direct model & Mobile model; 4. Corporate cash waqf model.

64,403,255.94

NA 199,674.65

2. Singapore 1. Direct model; and 2. Compulsory model. 28,123,810.09 NA NA

3. Indonesia 1. Waqf shares model; and2. Waqf mutual fund model. 1,178,097.68 NA 1,461,133.93

4. Turkey Corporate cash waqf model. 23,953,569.85 NA NA

5. Bangladesh Deposit product model. 899,621.00 NA NA

6. United Kingdom

1. Waqf shares model; and2. Direct model. 3,166,752.62 527,984.72 257,451.11

7. Sudan Waqf shares model. NA NA NA

8. Kuwait Waqf shares model. NA NA NA

9. Bahrain Direct model. NA NA NA

10. UAE Direct model. NA NA NA

11. Pakistan1. Direct model; and2. Corporate cash waqf model. NA NA NA

12. India Direct model. NA NA NA


International Organisation

Cash Waqf Model(s) Applied

Total Collection (USD)

Total Income from Investments

(USD)Total Distribution

(USD)

13. UzbekistanCo-operative model.

NA NA NA

14. United StatesDirect model.

NA NA NA

15. South Africa 1. Direct model; and2. Corporate cash

waqf model. NA NA NA

Islamic Development Bank

Direct model (contributions by member countries).

NA 287,039,251.10 225,739,938.42

Organization of the Petroleum Exporting Countries

Direct model (contributions by member countries). NA NA NA

World Conservation Union

Direct model (contributions by member countries).

NA NA NA


Country Total Collection (USD)

Malaysia 64,403,255.94

Singapore 28,123,810.09

Indonesia 1,178,097.68

Turkey 23,953,569.85

Bangladesh 899,621.00

United Kingdom 3,166,752.62

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Amount (USD million)

Malaysia SingaporeIndonesia Turkey Bangladesh UnitedKingdom

Country

Total Cash Waqf Collection by Country


KEY ISSUES

Why Cash Waqf? Cash waqf is more flexible and does not face

the problems associated with static perpetuity like capital tied up in fixed assets that may be unproductive.


The Objectives of Cash Waqf

• To enable individuals to donate under a waqf system;

• To create a fund that can be used for purposes benefiting the Muslim community;

• As a platform for Muslim organizations to source for funds to finance its programmes;

• To inculcate the culture of participating in waqf;

• To encourage Muslims to recognize waqf as a viable tool to enhance their societies;


Cont.• As part of a comprehensive Muslim economic development

strategy;

• To enable Muslims to be involved in charity in a more systematic manner;

• To develop a productive and credible waqf institution; and

• To provide an opportunity for all people, regardless of their religion and level of income, to create waqf in the form of liquid assets which is easier than creating immovable assets.


21“T he G lobal U niversity in I slamic F inance”

Mutawalli/Fund manager

Waqif/Contributor/Investor

1. The investor invests RM1,000 and specifies that 70% of the returns accrue to him as family waqf )waqfahli( and the remaining 30% is spent for charity )waqf khayri(

2. The mutawalli manages the capital on behalf of the waqif

Profit earned: 30% is spent on charitable

purposes )waqf khayri(

Capital

Capital is invested

Investment earnings

Profit earned: 70% is credited to the family

waqf

NEW CASH WAQF MODEL – EXAMPLE


Issues

• There is a general lack of promotion about cash waqf and generally contributors are those who happen to stumble by accident;

• Project cost could dilute the waqf collected;

• There is not proper standard system of waqf management;

• A need for a sound management system; as Malaysia inherit the waqf from Colonials, there is no particular system in place;


Cont.

• One of the legal problems is that the waqf has to be under religious affairs as it is under state list and it is burdensome as it involves the powers of sultan;

• For bigger project like university, the waqf management of the religious affairs are unable to handle;

• Possible mismanagement and abuse of the waqf as beneficiaries may not received it;

• Possible decrease or lost of the capital in case of mismanagement.


1. Reviewing the Current Law of Waqf in Malaysia

It is much recommended to review the current law of waqf in Malaysia in the light of shariah since the current law is inherited from the colonial era. This will give more flexibility in terms of the creation of waqf and its administration and in terms of encouraging more founders to contribute to this institution.


2. Administration of Waqf

• It is much recommended to give the right to the waqf institutions/NPO to administer their own waqf, and for the religious council, in each states, to act as a supervisory body only.

• It is also appreciated to invite people from the religious council to be members on any waqf board so that they can be involved in the administration and the supervision indirectly.


Cont. Administration of Waqf

To minimize mismanagement it is much recommended:

• to maintain a waqf registry to monitor the management of waqf, including to keep and maintain a register of cash waqf, and to maintain all documents relating to waqf.

• a performance report shall be published by the waqf institution twice a year.


3. List of Needy Areas

For creating waqf for the public it is much recommended to prepare a list of needs in the different states of Malaysia and to give the right to the founder to chose accordingly.


4. Inclusion of the Ten Stipulations in the Waqf Deed

It is also much recommended to practice the flexibility given by including the ten stipulations in the waqf deed. This will give the trustee the right to change the ratio or to switch the beneficiaries if deemed necessary, or to exchange unprofitable waqf property with another property, which is profitable.


Thank YouQ & A

Lecture 08

Education

waqf creation

management waqf

waqf khayri public waqf

perpetuity waqf

basis of waqf

creation of cash waqf

waqf legal conditions

waqf sahih sound