The World Bank Group, INCEIF & ISRA Waqf Report – Maximising Social Impact Through Waqf Solutions

Waqf is a potent tool for mobilizing resources to meet societal needs by the self-sustaining contributions of private donors rather than by governmental borrowing or spending of tax money. In waqf, the donor declares an asset inalienable, meaning it cannot be sold or disposed of in any other way. Meanwhile, the proceeds are periodically spent for the beneficiaries designated by the waqf founder. Instead of a one-off act of charity, waqf is the “gift that keeps on giving”. It not only continues to benefit the recipients, it provides a means for the donor to keep reaping rewards even after their death.

Waqf played a major historical role in providing infrastructure, education, medical care and many other essential services in Islamic civilization. Colonization and cultural stagnation led to the decline of waqf in the 19th century, but the political independence of Muslim lands in the 20th century led to efforts to revitalize the waqf institution. Some major problems must be solved, however, in order for waqf to realize its immense potential.

Although waqf is essentially a type of private charity, administered by private managers appointed by the waqf founder, governments everywhere have seen the need to involve themselves in supervising them. One way they do so is by providing regulatory frameworks to ensure that the management of awqaf (pl. of waqf) meets certain minimum standards of competence and integrity. Most of them also set up institutions that, at the very least, monitor the behavior of waqf administrators. Governmental or quasi-governmental waqf authorities in some jurisdictions take a much more active role in directly administering waqf assets.

The lack of a professional management culture among waqf administrators has been a problem in many jurisdictions. Kuwait and Singapore are notable exceptions, applying modern management techniques competently and transparently. Their achievements have provided a powerful incentive for others to study them and adopt their most effective practices, adapting them to local conditions as needed. Emulation should not stop at particular detailed practices but should extend to outlook. A systematic problem-solving approach is called for that critically re-examines inherited opinions and procedures in light of the Shariah objectives that waqf was originally intended to achieve. One of the problems that confronts waqf throughout Muslim lands is the very problem of lands. A huge amount of arable land in Muslim countries has been designated as waqf. No one knows exactly how much because of haphazard registration and inefficient administration in many countries. The majority of these lands lie idly unproductive because of the lack of funds to maintain and develop them. Moreover, the lack of readily accessible public information about their status makes them vulnerable to corrupt administrators or unscrupulous third parties taking them over and treating them as their own.

Another major impediment to unleashing waqf’s potential is a classical fiqh ruling that cash is an invalid subject matter for waqf. This is based on the concept that the endowed asset must be of a permanent nature, a concept that was itself a matter of dispute among classical scholars. Even some of those who accepted the concept that waqf must be permanent understood cash waqf as having that intrinsic capacity. One way to realize it is to treat the cash as capital for investment, with the proceeds being spent on the designated beneficiaries and the capital being left intact. Another method is to use part of the endowed cash for qard hasan (interest-free loans) that is continuously recycled as new loans when old loans are repaid.

Cash waqf opens up opportunities for a much wider pool of donors to contribute to social good and reap eternal rewards than waqf restricted to immovable property. Not many people can afford to make waqf of a piece of land, but almost anyone can contribute to a cash waqf. The marked success of Turkey’s experience in pioneering cash waqf has attracted the attention of policy makers in other Muslim countries, who have modified their laws to accommodate it. Cash waqf has become one of the burgeoning frontiers for making waqf an effective tool for social finance in the 21st century.

The successful use of cash waqf has opened up thinking on how to make waqf of financial instruments like corporate shares. Singapore and Saudi waqf authorities have pioneered the use of sukuk to finance the revitalization of rundown waqf properties in prime locations for attractive projects that generate solid income. Sukuk could also be used to finance infrastructure projects that become awqaf after the investors have been paid off. The possibilities for the creative use of financial instruments are manifold. The primary limitations are limitations of imagination.

Many people are reluctant to donate to waqf institutions because they doubt the honesty of the administrators and do not know how their donations will be used. Lack of transparency has been a huge problem in waqf administration. Blockchain, a distributed public ledger that records transactions, is a technology that has recently begun to make a major impact on the financial system. It is predicted that its role and applications will continue to increase in the future. Integrating blockchain with waqf could go a long way to addressing the problems of transparency and trust that currently hamper broad-based public participation in waqf. Blockchain is still a developing technology, however, and there are Shariah issues that need to be resolved before applying it to waqf and other venues of Islamic finance.

Although many issues and problems must still be solved in order to unlock the potential of waqf, great advances have been made in the last fifty years or so. Improved management approaches, enabling legislation and regulatory frameworks, the willingness to re-examine inherited juristic opinions, creative thinking and new technology are all converging to provide good reasons to be optimistic about the future of waqf.