Lecture 08 final updated

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Lecture 08 final updated

  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. 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”
  4. 4. What are the 3 types of waqf– Waqf Khayri (public waqf) – is an endowment made by the founder to support the general good and welfare of poor and the needy in society.– Al-waqf al-Dhurri, Alwaqf al-ahli and waqf ala-wlad – are same and refer to family waqf. The founder endows his property to his children, grandchildren, relatives or other persons whom he specifies. If the beneficiaries not longer alive, then waqf property will be given for public welfare purposes. Encourage by the Prophet (pbuh)– Al-waqf al-mushtarak (combined public and family waqf) – created by the founder to support both the public and his family. “The Global University in Islamic Finance” 4
  5. 5. Describe the conditions for validity of waqf – Founder must be ‘aqil (sound mind), baligh (adult) and hurr ( a free man/women) and capable to transfer the ownership to the ownership of Allah. – Dedicated property can either be movable or immovable – Appoint a muttawalli (trustee) either himself or someone else – Beneficiaries can be specified by the founder in his waqfiah (waqf deed), it can be either his family members, society – Creation can be either oral i.e verbal or written 5
  6. 6. Describe the endowment Assets (al Mawquf)– Immovable and movable property – land field, farms, buildings., mosque are immovable. Movable are cattle and implements of animal husbandry, books, money, crops, weapons, and share of company.– Waqf sahih (sound waqf) and waqf ghair sahih (unsound waqf)- waqf sahih is the waqf upon mulk land i.e. Privately owned freehold property over which the owner held complete rights of alienation. Waqf ghair sahih are state owned land and whose property belongs to the empire’s public treasury– Direct and indirect waqfs – direct waqf is a waqf created to serve the people free of charge like mosque, schools. The creation of indirect waqf is needed in order to provide running expenses e.g. Renting properties. 6
  7. 7. What are the restrictions to waqf- Irrevocability – founder cannot revoke the dedication if the property has already been declared as waqf– Perpetuity – waqf created must be perpetuity this will ensure no confiscation of the property by the government or individual and will ensure continuous support.– Inalienability of the Waqf- once the property of waqf is transferred to Allah (swt) no one can ever become owner of it. The usufruct derived from it can benefit man as intended. 7
  8. 8. 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”
  9. 9. 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”
  10. 10. 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”
  11. 11. 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”
  12. 12. 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”
  13. 13. Ten Stipulationsfor the Creation of Waqf “The Global University in Islamic Finance”
  14. 14. What are the TEN (10) stipulations for the creations of Waqf – Ziyadah (increase) and Nuqsan (decrease) –the founder can increase the share of one beneficiary or decrease the share of another. E.g. Equal share for mosque and hospital. Hospital requires more fund, the founder can change the revenue to increase for hospital and reduce for mosque. – Idkal (addition) and Ikhraj (removal) – add new beneficiaries and remove another- flexibility for public waqf. – I’ta a (granting) and Hirman(dispossession) – allows founder to grant all or a portion of his waqf revenue to whomever he chooses for a specific period and dispossess. Revenue for scholarship can be channelled to heart patient in hospital. “The Global University in Islamic Finance” 14
  15. 15. What are the TEN (10) stipulations for the creations of Waqf – Taghir(replacement) and Tabdil (conversion) – founder can replace use of the waqf revenue to purchase of hospital equipment instead of rental maintenance while tabdil allows the founders the right to change the waqf property. Eg. convert unproductive land to housing to gain revenue. – Istibdal (substitution) and Ibdal (exchange). Ibdal actual selling of non-profitable waqf property while Istibdal is the purchase of another property. “The Global University in Islamic Finance” 15
  16. 16. 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”
  17. 17. Describe the modes for Immovable waqf– Hikr (long lease right)- was developed to prevent the waqf property from being sold in case it came to any harm. The right is given to the trustee to lease the waqf property on a long lease at a nominal periodic rent. The right is sold for a lump sum, which is equal to the value of the waqf property in advance and with a nominal periodic rent paid to the trustee– Al-ijaratian (the lease with dual payment) – resulted from destruction of some fo waqf properties by fire in Constantinople (1020AH) dual method of finance and reconstruct these damage waqf properties, This is also a long lease contract with a large lump sum to be paid in advance which is approximately equal to the value of the waqf property for reconstruction and with a nominal periodic rent. “The Global University in Islamic Finance” 17
  18. 18. Describe the modes for Immovable waqf– Al-istibdal (substitution)- emerge from the fact that the waqf property cannot be sold. Muslim jurist agrees to exchange the waqf property with another property or for money in order to renovate the old ones. If the waqf property can no longer generate revenue. It provides liquidity and the disadvantage is that it lost half of the waqf property or its good location.– Al-murshad mode_ in which advance lump sum is paid by the lessee to be credited by the waqf department towards the agreed upon periodical rent applicable after reconstruction. Advantage land is developed, disadvantage is that the lessee will claim his ownership of this land after a long time “The Global University in Islamic Finance” 18
  19. 19. Describe the modes for movable waqf– Jewellery can be created as waqf and no zakat for waqf property.– Measurable and weighable waqf property could be sold and its proceeds can be invested in Mudarabah i.e. changing its status from crops to cash waqf. (wheat seed grain given to poor for cultivation and taken back and given to others, in the way perpetuity of the waqf is maintained.– Cash waqf (liquid form) can utilised Mudarabah partnership. Imam Zufar who approved the validity of darahi (money) to dedicated as waqf says that the money deposited as a waqf can be invested in mudarabah and the return to be used for a pious purpose. “The Global University in Islamic Finance” 19
  20. 20. 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”
  21. 21. 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”
  22. 22. 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”
  23. 23. 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”
  24. 24. 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”
  25. 25. 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”
  26. 26. 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”
  27. 27. 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”
  28. 28. 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”
  29. 29. 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”
  30. 30. 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”
  31. 31. 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”
  32. 32. 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”
  33. 33. 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”
  34. 34. 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”
  35. 35. ISLAMIC B A N K ( T R U S T E E ) ISLAMIC B A N K ( T R U S T E E ) CASH W AQF ( B A N K ) W I N D O W S FUND A C C U M U L A T I O N INVESTMENT A N D P R O F IT D IS T R IB U T IO N (C H A R IT Y , MNAGEMENT A N D C A P IT A L ENDOW MENT OF SHARES ( I B AND OTHER E N H A N C E M E N T ) A N D INSTITUTIONS) A S CASH W A Q F M A R K E T IN G . CASH WAQF BY O T H E R S INSTITUTIONS FROM THEIR P A R T S OF D I V I D E N D WAQF LAND D E V E L O P M E N T S (MUDARABAH AND M U S H A R A K A H ) WAQF CERTIFICATE (SPECIFIC OR G E N E R A L ) MICROFINANCE (GROUP B A S E D LENDING OR S O C I A L COLLATERAL [E.G. P R A Y E R WAQF INSURANE (SPECIFIC O R G E N E R A L ) LEADER], C O M P U L S O R Y SAVINGS AND ASSETS INSURANCE FOR F A R M E R S TEMPORARY W A Q F : SME LOAN: M U S H A R A K A H (COLLATERRAL, DEPOSIT W ITHOUT S H A R E O F P R O F I T C O M P U L S O R Y SAVINGS, OPTIONAL ASSETS I N S U R A N C E ) BUYING W AQF SHARES (50% O F DIVIDEND POTFOLIO I N V E S T M E N T IN IFI’S WILL BE D O N A T E D ) SECURI T I E S E-WAQF (LUMP S U M A M O U N T ) EMERGENCY NEEDS F U L F I L L OTHERS: SPECIFIC B Y DONOR AND GENERAL (MOSQUE, MADRASH E T C . )Figure 2. Cash WAQF model. “The Global University in Islamic Finance”
  36. 36. Thank You Q&A“The Global University in Islamic Finance”

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