IRP 117 – Corporate Waqf via Initial Public Offering (IPO): A Viable Instrument for the Sustainability of Malaysia’s Higher Learning Institutions

The need for sustainable funding of institutions of higher learning led the Government of Malaysia to formulate its Universities Transformation Programme 2015-2025. This transformation agenda came out as the Purple Book which highlighted the need to address the funding gap that may occur in the education sector in the event of unexpected budget cuts. It called for the enhancement of income generation, endowments and waqf to achieve self-sustainability for higher learning institutions (Ministry of Higher Education Malaysia, 2016).

Based on the above premise, this research explores the viability of corporate waqf via initial public offering (IPO) as an instrument to raise funds and sustain Malaysia’s higher learning institutions. Corporate waqf, as defined by the Securities Commission Malaysia, refers to:

A type of corporate [financial] instrument where liquid-asset-like shares or securities [are] endowed as waqf assets and [sic] thus enabling the waqf institutions to benefit from the dividend that can finance any welfare project or initiative (Securities Commission Malaysia 2014, p. 17).

The proposed instrument incorporates permanent and temporary waqf shares. While the permanent waqf shares are structured as ordinary/equity shares in the IPO, the temporary waqf shares are structured into two components—redeemable and convertible preference shares. Based on Malaysian laws, a company can only issue preference shares after it has already issued ordinary shares. The proposal embeds a mechanism for equity shareholders (permanent waqf donors) to have a share in dividends. Moreover, it allows preference shareholders to redeem their shares and convertible shareholders to convert their shares. These options will be enshrined in the constitution of the company as incentives. To ensure the sustainability of the Higher Learning Institution (HLI) that is supported by the corporate waqf, it is proposed that the project be supported by income-generating projects. Possible projects might include a residential and educational building complex and a Sharīʿah-compliant hotel for the corporate waqf entity to invest in. A governance framework is also modelled for efficient management and administration of the waqf income-generating projects.

The research then analyses Malaysian laws on companies and the Islamic capital market and reveals that these laws are ready to accommodate the proposed model. However, the right of pre-emption may only be possible if the shareholders clearly specify donating the shares as waqf because the sale of waqf is not permissible except under the rule of istibdāl.

This research examines the Sharīʿah rules on waqf to ascertain the validity of some principles adopted in the proposed structure. It establishes that waqf is a legal entity (shakhṣiyyah iʿtibāriyyah). It also discovers that temporary waqf is permissible and that permanent waqf donors can be among the beneficiaries of their waqf. In addition, the research finds that the intention of the wāqif plays a role in determining the subject matter of the waqf shares as clarified in the prospectus.

This research proposes the following recommendations:

1. Cooperation between the university and the Ministry of Education to create awareness of education waqf shares issued by the university’s own corporate waqf entity.
2. Assurance by the Ministry of Education and Ministry of Finance in the form of a letter of comfort and the Ministry of Finance providing a guarantee to the temporary waqf shareholders. This would increase the appetite of potential subscribers to subscribe or donate.
3. The corporate waqf entity should entrench the culture of a high level of accountability and transparency.
4. The embedded benefits of the permanent waqf shareholders should be made real and treated with utmost good faith.
5. A tax rebate should be given to waqf donors similar to the tax rebate enjoyed by zakat payers.
6. It is also possible to make the intention of subscribing to the new shares on behalf of one’s deceased relatives, like parents and siblings. This serves as ṣadaqah jāriyyah in the promotion of knowledge, which is the Sunnah.
7. Unfortunately, to the best of our knowledge, ‘waqf company’ with the same functions and structure as ‘trust company’ is yet to be found in any Muslim country and ‘waqf company’ and ‘corporate waqf’ are still riding on the existing corporate structure as received from the Western countries. Therefore, we recommend that a high-level study that will set out the features and structures of a corporate waqf and waqf company that will perform the same function of a trust company is important.

Keywords: corporate waqf, initial public offering (IPO), higher learning institutions, shares