Transcript Slide 1

WIEF-IDB
AWQAF
ROUNDTABLE
Jakarta, Indonesia
“Beyond Charity: Harnessing
Waqf for Economic Prosperity”
5 JUNE 2014
LE MERIDIEN JAKARTA,
INDONESIA
WIEF-IDB
AWQAF
ROUNDTABLE
Jakarta, Indonesia
Islamic Philanthropy: Role of Waqf in Poverty
Alleviation and Socio Economic Development
Role Players:
Dr. H.M. Anwar Ibrahim, Head, Executive Council,
Indonesian Waqf Board,
Prof. Datuk Dr. Mohd. Azmi Omar, Director General,
Islamic Research and Training Institute (IRTI)
Moderator:
Mr. Zeinoul Abedien Cajee, Founding CEO, Awqaf South
Africa
WIEF-IDB
AWQAF
ROUNDTABLE
Jakarta, Indonesia
Dr. H.M. Anwar Ibrahim
Head, Executive Council
Indonesian Waqf Board
WIEF-IDB
AWQAF
ROUNDTABLE
Jakarta, Indonesia
Prof. Datuk Dr. Mohd. Azmi Omar
Director General
Islamic Research and Training Institute (IRTI)
Islamic Philanthropy:
Role of
Waqf in Poverty Alleviation and
Socio Economic Development
Prof. Dato’ Dr. Azmi Omar
Director General
Islamic Research and Training Institute
A Member of Islamic Development Bank Group
Presentation at
WIEF-IDB AWQAF ROUNDTABLE
Jakarta
5 June 2014
Objective
 How to utilize waqf
funds more effectively
in poverty alleviation
and
socio-economic
development
 The role of waqf
institutions in assets
redistribution, capacity
building and wealth
creation
6
CONTENTS
 Defining Waqf
 Motivation For Waqf
 Popularity Of Waqf
 Waqf Types
 Waqf As The Basis Of Islamic NPOS
 Integrating Philanthropy With Microfinance
 Deprived Families Empowerment Program, (Deep) Palestine
 Fa’el Khair Program, Bangladesh
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Defining Waqf
• A perpetual endowment,
also known as Habs
• Setting aside certain
assets by the donor
(wāqif) and preserving it
so
that
benefits
continuously flow to a
specified
group
of
beneficiaries
or
community
• Corpus of waqf may be
real estate or cash
• Waqf
has
unique
characteristics
distinct
from zakāh and ordinary
sadaqah
8
Motivation For Waqf
• “You shall never attain piety until you give from
what you love” (Al-Quran 3:92)
• The Prophet (peace be upon him) said: “When a
person dies, all his good deeds cease except for
three: an ongoing act of charity, beneficial
knowledge and a righteous son who prays for him.”
(Al-Tirmidhi, n.d.: 3/660; Al-Darimi, 1986: 1/148)
9
Popularity Of Waqf
• Assigned to Waqf were:
• Three-quarters of all the
arable land in the former
Ottoman Empire
• Half of the lands in
Algeria, under French
occupation in the 19th
Century
• One-third of the lands in
Tunisia in the same
period
10
Waqf Types
• Direct Waqf: donated asset may be directly used
for fulfillment of the intended community need
• Investment Waqf: donated asset may be put to
productive use so that the earnings there from are
used for fulfillment of the intended community
need; involves a careful investment decision so that
earnings from the asset(s) are maximized
11
Waqf Types
• Religious Waqf: Building and maintenance of
Masjids, religious schools
• Philanthropic Waqf: Addressing social needs of the
poor and underprivileged
- General Purpose Waqf
- Restricted Purpose Waqf
• Family Waqf: Descendants of the wāqif have a first
right on the benefits and revenues of the Waqf
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Waqf Types
Cash Waqf:
• Cash is endowed and the earnings generated out
of the investment of the cash funds are used to
fulfill the intended social needs
• More efficient in mobilization as cash donation can
take any value
• More efficient in application of waqf resources
allowing for a rational selection of projects to
maximize returns while keeping risks at acceptable
levels
13
Waqf Types
• Corporate Waqf:
endowment of
corporate stocks and
securities
- “Active” owner of
corporate assets
• Irsad: Endowment by
Sovereign
- Property not owned
- Designated
beneficiaries
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Waqf As The Basis Of Islamic NPOs
• Institutionalization of
charity
• Professional management
• Combine other forms of
charity: zakāh, sadaqah
• Can undertake a range of
financing and investment
activities to maximize
earnings (very similar to a
for-profit corporation)
with a benevolent motive
15
Waqf As The Basis Of Islamic NPOs
• Need for a progressive interpretation of fiqhi rules
• Undue rigidity may not be necessary as fiqh of
waqf is analogy-based
• Undue rigidity may not be desirable as it may curb
benevolent action; Waqf is driven by benevolence
• The fundamental purpose of waqf is to provide
benefits
16
Integrating Philanthropy With Microfinance
Micro-savings
2
Donor/
6
8
Cash
WAQF
Physical Assets
1
1
Qard Hasan
7
Microfinance
1
0
Micro-takaful
Waqif/
Self Help
Group
5
Economically
Muzakki
1
Skills Training
Zakah
Fund
4
Active
3
Safety Net
Economically
Guarantee
9
Inactive
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Integrating Philanthropy With Microfinance
1. Islamic Microfinance Program creates a Zakah Fund with
contribution from muzakki;
2. Program facilitates Waqf of physical assets as well as
monetary assets. The physical assets are used to facilitate
education and skills training. The monetary assets may be in
the form of a cash waqf, or simply as ordinary sadaqah;
3. Program carefully identifies the poorest of the poor and the
destitute who are economically inactive and directs a part
of zakah fund towards meeting their basic necessities as
grant, seeks to provide a safety net;
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Integrating Philanthropy With Microfinance
4. Program provides skills training to economically inactive,
utilizing community-held physical assets under waqf;
5. Beneficiaries graduate with improved skills and
managerial acumen;
6. Beneficiaries are formed into groups with mutual
guarantee under the concept of kafala;
7. Financing is provided on the basis of qard hasan to the
group; also to individuals backed by guarantee under the
concept of kafala;
19
Integrating Philanthropy With Microfinance
8.
Group members pay back and in turn, are provided higher
levels of financing;
9. Guarantee against default by the group is provided by the
Zakah Fund and actual defaulting accounts are paid off with
zakah funds; this is indeed the distinct feature of this
model;
10. Group members are encouraged to save under appropriate
micro-savings schemes;
11. Groups members are encouraged to form a Takaful Fund to
provide micro-insurance against unforeseen risks and
uncertainties resulting in loss of livelihood, sickness and so
on
20
Integrating Philanthropy With Microfinance
Real-Life Examples from IDBG Experiments:
• Deprived Families Empowerment Program, (DEEP)
Palestine
• Fa’el Khair Program, Bangladesh
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DEEP, Palestine
• Started In 2008 as 3 years pilot program funded by IDB and executed
by UNDP in partnerships with the Palestinian Authority.
• Package of financial and non-financial (PSSN) services.
• Started by providing the MFIs capacity building services (intensive
training, opening new branches, marketing campaign, office
equipment) in order to enable them to implement the Islamic
Microfinance in Palestine.
• First revolving fund (Apex fund) in Palestine that finance the MFIs
through soft loans.
• Targeted 4500 household poor families through in kind grants to
establish new businesses. In terms of sector targeting, 37% were in
the agriculture sector, 34% in the trade sector, 21% in the services
sector, and only 8% were in the industrial sector. 54% of the
enterprises created under DEEP generated a new job opportunity.
22
DEEP, Palestine
• Demand on Islamic Microfinance in Palestine: requested amount
estimated to reach US$ 203 Million in two years. MFIs used
Murabaha mainly, Istisnaa, and Musharaka to target individuals in
the 1st phase of DEEP.
• In the next phase DEEP plans to target about 10,000 clients
through Islamic microfinance tools.
• DEEP will finance the MFIs by Mudaraba instead of soft loans to
encourage them to do business with the poor and with the
vulnerable people.
• It will end with International Waqf fund (US$ 500 Million capital)
to provide for a safety net as well as other components of the
IsMF package.
23
Fa’el Khair, Bangladesh
A single donation of SAR500 million or USD130 million
placed with the Islamic Development Bank (IDB) with an
express intention that the same would be used for the
benefit of victims of cyclones and natural calamities in
Bangladesh
Two main components:
• The Fa’el Khair project with a corpus of USD110 million involved
the construction of school-cum-cyclone shelters.
• The Fa’el Khair microfinance program with a corpus of USD20
million, which aims to rehabilitate and restore livelihoods of
cyclone victims; registered as the Fa’el Khair Waqf under the
provisions of Waqf Ordinance 1962.
24
Fa’el Khair, Bangladesh
 Three-year (extendable) agreements with four NGOs –
Islami Bank Foundation (IBF), Muslim Aid, Voluntary
Organaization for Social Development (VOSD) and BRAC
that would implement the Microfinance program.
 Microfinance intervention involves provision of interestfree (qard) microloans as well as training to the cyclone
victims in order to help them make up for their losses
and live a decent life.
25
Fa’el Khair, Bangladesh
• In 2012 the implanting NGOs start implementing their exit plan
by repatriating one third of the Program funds back to the Fa’el
Khair Waqf
• Repatriated funds put in Islamic investment avenues generating
returns in the range of ten percent per annum that could now be
used to cover the administrative costs of the Fa’el Khair
Rehabilitation Program
• An excellent example of how a benevolent cash donation could
be used to engineer a waqf and how high administrative costs of
a poverty alleviation program (with finance as well as skill
enhancement inputs) may be absorbed by returns generated on a
waqf dedicated to the poverty alleviation objective
26
Lessons and Policy Implications
• Waqf law should provide a comprehensive
definition of waqf that includes both permanent
and temporary waqf. However, it must be
recognized that once the waqf has been declared, it
is irrevocable. It must explicitly cover various types
of waqf: family and social waqf, direct and
investment waqf, cash waqf, and corporate waqf.
27
Lessons and Policy Implications
• The legal framework must clearly articulate the permanent
nature of waqf arising from the principle of “once a waqf,
always a waqf”. At the same time, it must clearly recognize
the importance of sustaining and enhancing the benefits
flowing out of the waqf, this being the ultimate purpose of
the act of waqf. This is possible only when the importance of
the development of waqf is clearly recognized. An undue
emphasis on preservation (e.g. constraints on leasing) would
lead to neglect of developmental possibility with private
participation. Similarly, an undue emphasis on development,
to the extent that it results in loss of full or partial ownership
of asset to private developers would dilute and vitiate the
very concept of waqf. The regulatory framework must seek
to strike a balance between concerns about preservation
and development.
28
Lessons and Policy Implications
• The legal framework must not put undue restriction on
creation of new waqf. There is no reason to disallow
individuals from making waqf beyond one-third of their
assets, since fiqhi rules permit this unless made on a
person’s deathbed. Legal requirements that make the
process more difficult, e.g. approval from the head of the
state, are both unnecessary and undesirable. A simple
process of registration with the regulatory body is both
desirable and adequate. While obstacles to waqf creation
must be avoided, the legal framework should actually
encourage creation of new waqf by minimizing financial and
non-financial costs of waqf creation and management.
29
Lessons and Policy Implications
• Awqaf in general, have fallen behind common trusts
and other forms of organizing charitable and notfor-profit activities in terms of responding to
evolving societal needs. Creation and management
of waqf is a relatively more complex and demanding
process and involves additional financial and nonfinancial costs. Incentivizing waqf in a manner
similar to secular trusts and other forms of not-forprofit organizations, e.g. tax rebate on contributions
for the donor/ endower would make the system
both efficient and fair.
30
Lessons and Policy Implications
• The legal framework should not restrict making a waqf
only to Muslim individuals and should permit both nonMuslims and institutional waqif as long as the purpose
of waqf is religious or charitable.
• The legal framework should not restrict the definition of
the endowed asset to immovable tangible assets such
as real estate, but should also explicitly recognize
movable, financial and intangible assets, e.g. cash,
stocks, bonds and financial securities, transportation
vehicles, rights on land and building, rights of leasing,
rights of intellectual property. Given the many benefits
of cash and corporate waqf, law must explicitly provide
a framework for them including their investment
dimension.
31
Lessons and Policy Implications
• The institution of family waqf must be revived.
Since the distinction between family and public
waqf is largely a matter of the nature of
beneficiaries, the law must provide for an explicit
basis of distinction. For example, where more than
50 percent of the net available income of a waqf
property is exclusively applied for religious and
charitable purposes, such a waqf may be deemed to
be a public waqf. Similarly, endowments where
more than 50 percent of the net available income is
meant for the waqif’s descendants, such a waqf
may be treated as family waqf.
32
Lessons and Policy Implications
• Waqf is originally an institution, and is always meant to be in
the voluntary sector, with management of waqf entrusted to
private parties. However, the state has often sought to play a
role in the ownership and management of awqaf, at times
governed by motives to expropriate and at other times, by a
need to curb corrupt practices of private trustee-managers.
Whether ownership and management of awqaf should be in
private hands or with the state, has no clear answer. There
seems to be some positive evidence that the state can
indeed play the role of an efficient manager of awqaf.
Contrary to general belief, state control may not necessarily
hamper creativity and innovation in awqaf development
(e.g. corporate waqf as well as cash waqf in Malaysia and
large-scale development of existing awqaf in public-private
mode in Singapore).
33
Lessons and Policy Implications
• Where waqf management is in private hands, the state
agency as regulator should clearly stipulate and clear
eligibility criteria for a mutawalli or nazir or trustee-manager
not only covering aspects of integrity and trust-worthiness
but also professional competence. Given that the individual
or institution so nominated meets the criteria, the regulator
must respect the expressed intention of the waqif or
endower. Laws must clearly articulate the responsibility of
waqf management, which should not only emphasize
preservation and protection of waqf assets, but also their
development. The responsibility should also include
transparent and honest reporting of financials. Laws must
clearly stipulate the method of determination of
remuneration of managers, sufficiently incentivizing sound
and professional management of waqf assets.
34
Lessons and Policy Implications
• There is every reason for the state to take punitive action against
mutawallis who fail the tests of efficiency, integrity, and
transparency. The measures must act as effective deterrent
against further acts of apathy, neglect and misappropriation. At
the same time, the state should not be allowed to wield absolute
power to engage in irrational or whimsical action against the
mutawalli. Instances of unfair and unlawful action by the state are
numerous, as are cases of corrupt mutawallis. There needs to be
effective checks and balances in the law against wrongful acts
both by the state as well as the private mutawallis. Power has a
tendency to corrupt and the possibility of such action can
significantly increase the non-financial cost of creating new waqf.
Endowers are likely to seek alternative forms of organizing their
charitable activities if there is a possibility of undue state
interference in the management of the endowed assets or
outright usurpation of the endowed assets by the state.
35
Lessons and Policy Implications
• The law must explicitly prohibit the waqf asset from being
used as a mortgage, confiscated, given away, sold, inherited,
exchanged or being alienated into any form of right. The
waqf asset may however be exchanged as an exception to
the above general rule, when this is deemed to be in the
public interest. Such exchange would however, require prior
permission from the regulator with additional conditions
that the same is (i) necessary or beneficial to the waqf; (ii)
consistent with the objects of the waqf; (iii) against another
asset of equal or higher value;(iv) and with due respect to
the inalienability of religious awqaf.
36
Lessons and Policy Implications
• Waqf development must be a mandatory obligation of the
waqf management. Innovating financing methods may be
employed that bring in new waqf capital for development of
existing awqaf. Innovative methods may also be employed
that facilitate private-public partnerships (e.g. involving issue
of sukuk) that involve transfer of rights to lease as distinct
from ownership rights to private financing entities for finite,
yet long enough period to provide a fair return on
investment capital. Legal constraints motivated by
preservation concerns, such as those on long-term leasing of
awqaf assets should be removed.
37
Lessons and Policy Implications
• Financial penalties, especially when these are expressed in
absolute numbers tend to lose their effectiveness as
deterrents with time. These should either be subjected to
continuous revision or be linked to the quantum over
misappropriation. Physical punishments are potentially more
effective.
38
Lessons and Policy Implications
• It is compulsory to invest waqf assets, be they real estate or
moveable assets like cash. Investment can alone generate
returns which may then be applied to the purpose for which
the waqf has been created. The assets purchased using the
waqf investment returns do not form part of the waqf and
therefore, may be resold unlike the original assets that have
been given as waqf. Further, the conditions given by the
waqif with regard to the investment of the waqf and/or that
the returns from investment are to be spent on specific
areas, is also binding. It would be rational to seek risk
minimization through diversification or avoidance of high
risk investment avenues. Risk minimization may however not
be sought if the purpose of the waqf itself is to engage in
specific risky ventures.
39
Thank you
Contact Details:
P.O.Box 9201, Jeddah 21413
Kingdom of Saudi Arabia
Email: [email protected]
Together We Build a Better Future
WIEF-IDB
AWQAF
ROUNDTABLE
Jakarta, Indonesia
End Of Session
10th World Islamic Economic Forum
28 - 30 October 2014
Madinat Jumeirah Conference Centre, Dubai
Thank You,
See you in Dubai!