Lecture 08


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Lecture 08

  1. 1. Wealth Planning and Management Waqf “The Global University in Islamic Finance”
  2. 2. ‫بسم ال الرحمن الرحيم‬ ‫)إذا مات النسان انقطع عمله إل من ثلث؛ صدقة‬ ‫جارية‬ .(‫وعلم ُنتفع به وولد صالح يدعو له‬ ‫ي‬The Prophet (s) said: When a man dies his acts come toan end, except three things, recurring charity, knowledge(by which people benefit), and pious offspring, who prayfor him. “The Global University in Islamic Finance”
  3. 3. 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 “The Global University in Islamic Finance”
  4. 4. Definition of WaqfWaqf, habs and tasbil all mean ‘to stop, toprevent, 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 theownership and the dedication of its usufruct in perpetuity to the welfare of society”   “The Global University in Islamic Finance”
  5. 5. 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) “The Global University in Islamic Finance”
  6. 6. 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. “The Global University in Islamic Finance”
  7. 7. Conditions for Creating WaqfThere are four legal conditions for the founder to be fulfilled when creating thewaqf.The founder of the waqf must be:1. ‘aqil (in full possession of his physical and mental faculties).• baligh (adult),• 3. hurr (a free man/women).4. own the property (immovable or movable) able to transfer the property ownershipFive conditions for Validity of Waqf6. aqil, baligh and hurr7. Property can either be movable or immovable8. Appoint mutawalli (trustee) either himself or someone9. 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 mosques5. Waqf creation can be verbal or written But preference would be written as proper maintenance of records and management “The Global University in Islamic Finance”
  8. 8. 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 : • ‫عن انس بن مالك رضي ال عنه قال: قال رسول ال )ص( " ان‬ ‫ال ل يظلم مومنا حسنة يعطى بها في الدنيا ويجزى بها في الخرة‬ • ‫واما الكافر فيطعم بحسنات ما عمل بها ل في الدنيا حتى اذا‬ ‫“افضى الى الخرة لم يكن له حسنة يجزى بها‬ The Prophet (pbuh) said “Allah will not oppress any Muslim from his gooddeeds, as he will be rewarded in this world and in the hereafter. But for thenon- Muslim he will be rewarded for all his good deeds only in this world” “The Global University in Islamic Finance”
  9. 9. Mixing of Cash WaqfFatwa 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” “The Global University in Islamic Finance”
  10. 10. al-Mawquf ‘alaihm al-Mawquf (the beneficiaries) (endowment property) Classification of Waqf Property1. Waqf khayri (public waqf) 1. Waqf manqul (movable waqfs) &Waqf ghair manqul2. Waqf dhurri (family waqf) (immovable waqfs)3. Al-waqf al-mushtarak 2. Waqf sahih (sound or valid (combined waqf) waqfs) & waqf ghair(lands, farms, fields or sahih (unsound or invalid buildings or privately waqfs) owned freeholds 3. Direct and Indirect waqfs properties (lands, farms, fields, or buildings or privately freehold properties. “The Global University in Islamic Finance”
  11. 11. 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. “The Global University in Islamic Finance”
  12. 12. Ten Stipulationsfor the Creation of Waqf “The Global University in Islamic Finance”
  13. 13. Modes of Investing and FinancingImmovable Waqf Properties Movable Waqf Properties• al-hikr (long lease right) 1. renting (jewelry, weapons)• al-ijaratain 2. exchange (crops) (the lease with dual payment) (selling and buying)• al-istibdal (substitution) 3. mudharabah (cash money)• 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. “The Global University in Islamic Finance”
  14. 14. Administration of Waqf as highlighted in the HadithThe 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 emancipationof slaves, for the poor, for guests, for travelers, and for kinsmen. Theperson 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 ofbecoming wealthy by its means. “The Global University in Islamic Finance”
  15. 15. 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 Global University in Islamic Finance”
  16. 16. The Historical Role of Waqf & Cash-WaqfWaqf & cash-waqf played significant rolesthrough their varied and widecontributions to the economic and sociallife of the people. There roles were like anetwork, which penetrated all sectorssuch as;1. the agricultural,2. the industrial &3. the social sector. “The Global University in Islamic Finance”
  17. 17. II. MODERN APPLICATIONS OF CASH WAQFThe 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. “The Global University in Islamic Finance”
  18. 18. Cash-Waqf Models1. Waqf Shares Model2. Waqf Takaful Model3. Direct Model4. Mobile Model5. Compulsory Model6. Corporate Cash Waqf Model7. Deposit Product Model8. Co-Operative Model9. Waqf Mutual Fund Model “The Global University in Islamic Finance”
  19. 19. 1. Waqf Shares Model (Public Waqf) Shareholders/Waqifs/founders buy waqf 1. Malaysia share (s) from specified 2. Indonesia 3. UK religious institution/NPO 4. Sudan 5. Kuwait The purchased waqf share(s) is/are endowed as waqf to theFounders will religious institutions/NPOreceive cashWaqfCertificateonly The religious institutions/NPO manages the funds collected (mutawalli) Element of Perpetuity is The funds/revenue generated are used not clear for charitable purposes “The Global University in Islamic Finance”
  20. 20. 2. Waqf Takaful Model Upon death of the waqif or maturity of the plan, the WAQIF The waqif pays a minimum contribution of amount accumulated in 1 RM10/USD3 per month under this plan the PA will be paid to the CONTRIBUTION beneficiaries specified The contribution will be divided into by The Participants’ Account (PA) the waqif in the 2 and Participants’ Special Account Waqf Declaration Form. (PSA) (pre agreed ratio) 5 BENEFICIARIES PARTICIPANTS’ PARTICIPANTS’ ACCOUNT SPECIAL ACCOUNT Waqf Mushtarak 4 - Profit 4 - Profit OPERATING 3 (founders will EXPENSES not benefit – after death) PROFIT ON INVESTMENTProfit from investments (if any), will be distributed between Syarikat Takaful Malaysia Berhad and the PA in the formof a profit-sharing arrangement “The Global University in Islamic Finance”
  21. 21. 3. Direct Model (Public Waqf) Founder contribute to Religious authority/NPO/regulatory body by depositing money to a specific bank account. 1. Malaysia 2. Singapore 3. Bahrain 4. UAE 5. Pakistan 6. India The bank then invest the money. 7. US 8. South Africa send to 9. IDB 10.OPEC Revenue generated will be channeled by the Religious authority/NPO (mutawalli) charitable areas “The Global University in Islamic Finance”
  22. 22. 4. Mobile Model (Public Waqf) Contributions can be made by sending a coded SMS to a designated server 1. Malaysia number ordering for deduction of a 2. Kuwait certain amount from his airtime to a certain religious authority/NPO Amount collected will be invested through Musharakah investment Revenue Generated (distributed on pre-agreed ratio)telecommunication company Religious authority/NPO Charitable (to cover operating costs) areas “The Global University in Islamic Finance”
  23. 23. 5. Compulsory Model (Public Waqf)Compulsory monthly contributions are made by Muslim employees inMuslim 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) “The Global University in Islamic Finance”
  24. 24. 6. Corporate Cash Waqf Model (Public Waqf) CORPORATION Associated waqf institution established by the mother corporation Cash waqf scheme Corporate Waqf Scheme Associated waqf Institution Contributions (cash, The Dividends earned by units ofjewellery, real estate, etc.) shares are channeled as cashfrom individuals, State waqf to:Baitulmal and othercorporations are channeled to: INVESTMENT EARNINGS 1. Malaysia (Kumpulan Waqf an-Nur 1998)Deduct operational expenses 2. Turkey (Sabanci Foundation-1974) 3. Pakistan (Hamdard Foundation-1953) CHARITY 4. South Africa (National Awaqf Foundation PROJETCS -2000) “The Global University in Islamic Finance”
  25. 25. 7. Deposit Product Model (Public Waqf) DEPOSITOR BANK 2. The bank manages the 1. The waqif deposits capital on behalf of the money into the cash waqif (Mutawalli) waqf-based account. CAPITAL 3. The capital is invested INVESTMENT EARNINGS 4. The cash waqf accountBangladesh earns profit through a mudharabah contract3. Social Investment Bank Limited (SIBL) CASH WAQF ACCOUNT 5. The proceeds will be2. Islamic Bank Bangladesh Limited (IBBL) used for charitable purposes or purposes specified by the waqif. CHARITY PROJECTS “The Global University in Islamic Finance”
  26. 26. 8. Co-Operative Model (Public Waqf) Mahalla Cash Waqf in UzbekistanDecentralized 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 DISTRICT CASH WAQF CITIZENS FUND The capital is invested. Citizens endow cash to the cash waqf INVESTMENT fund specific for EARNINGS their district. DEVELOPMENT PROJECTS IN THE DISTRICT “The Global University in Islamic Finance”
  27. 27. 1. 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. Batasa Capital WAQIF/INVESTOR Asset Management The founder Batasa Capital Asset Management contributes e.g. invests the capital in a portfolio of RM5,000 and low-risk financial instruments. specifies that 70% of the INVESTMENT investment earnings EARNINGS returns will be allocated to the 70% 30% mutual fund (his personal account) MUTUAL WAQF FUND and FUND the remaining 30% is appropriated to the waqf fund. Dompet Khuafa’s CHARITY (Waqf Mushtarak) PROJETCS “The Global University in Islamic Finance”
  28. 28. Country Cash Waqf Model(s) Applied Total Revenue Total Collection generated Distribution (USD) (USD) (USD)1. Malaysia 1. Waqf shares model; 2. Waqf takaful model; 64,403,255.94 3. Direct model & Mobile model; 4. Corporate cash waqf model. NA 199,674.652. Singapore 1. Direct model; and 2. Compulsory model. 28,123,810.09 NA NA3. Indonesia 1. Waqf shares model; and 2. Waqf mutual fund model. 1,178,097.68 NA 1,461,133.934. Turkey Corporate cash waqf model. 23,953,569.85 NA NA5. Bangladesh Deposit product model. 899,621.00 NA NA6. United 1. Waqf shares model; andKingdom 2. Direct model. 3,166,752.62 527,984.72 257,451.117. Sudan Waqf shares model. NA NA NA8. Kuwait Waqf shares model. NA NA NA9. Bahrain Direct model. NA NA NA10. UAE Direct model. NA NA NA 1. Direct model; and11. Pakistan 2. Corporate cash waqf model. NA NA NA12. India Direct model. NA NA NA “The Global University in Islamic Finance”
  29. 29. Total Income from International Cash Waqf Model(s) Total Collection Investments Total Distribution Organisation Applied (USD) (USD) (USD) Co-operative model.13. Uzbekistan NA NA NA Direct model.14. United States NA NA NA15. South Africa 1. Direct model; and 2. Corporate cash waqf model. NA NA NA Direct modelIslamic Development (contributions by NA 287,039,251.10 225,739,938.42Bank member countries). Direct modelOrganization of the (contributions byPetroleum Exporting member countries). NA NA NACountriesWorld Conservation Direct modelUnion (contributions by NA NA NA member countries). “The Global University in Islamic Finance”
  30. 30. Total Cash Waqf Collection by Country 70.00 60.00 50.00 Am ount 40.00(USD m illion) 30.00 20.00 10.00 0.00 Malaysia SingaporeIndonesia Turkey Bangladesh United Kingdom Country 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 “The Global University in Islamic Finance”
  31. 31. KEY ISSUESWhy 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 Global University in Islamic Finance”
  32. 32. 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; “The Global University in Islamic Finance”
  33. 33. 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. “The Global University in Islamic Finance”
  34. 34. NEW CASH WAQF MODEL – EXAMPLEWaqif/Contributor Mutawalli/Fund /Investor manager 1. The investor invests RM1,000 and specifies that 2. The mutawalli manages 70% of the returns accrue the capital on behalf of the to him as family waqf (waqf waqif ahli) and the remaining 30% is spent for charity Capital (waqf khayri) Capital is invested Profit earned: 70% is credited to the family waqf Investment earnings Profit earned: 30% is spent on charitable purposes (waqf khayri) “T he G “The lGlobalniversity in I sla mic F ina nce” lo b a U University in Islamic Finance” 21
  35. 35. 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; “The Global University in Islamic Finance”
  36. 36. 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. “The Global University in Islamic Finance”
  37. 37. 1. Reviewing the Current Law of Waqf in MalaysiaIt 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. “The Global University in Islamic Finance”
  38. 38. 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. “The Global University in Islamic Finance”
  39. 39. Cont. Administration of WaqfTo 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. “The Global University in Islamic Finance”
  40. 40. 3. List of Needy AreasFor creating waqf for the public it is muchrecommended to prepare a list of needsin the different states of Malaysia and togive the right to the founder to choseaccordingly. “The Global University in Islamic Finance”
  41. 41. 4. Inclusion of the Ten Stipulations in the Waqf DeedIt 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. “The Global University in Islamic Finance”
  42. 42. Thank You Q&A“The Global University in Islamic Finance”