Lecture 08

Wealth Planning and Management

Waqf

“The Global University in Islamic Finance”

‫بسم ال الرحمن الرحيم‬

‫)إذا مات النسان انقطع عمله إل من ثلث؛ صدقة‬
‫جارية‬
.(‫وعلم ُنتفع به وولد صالح يدعو له‬
‫ي‬

The Prophet (s) said: When a man dies his acts come to
an end, except three things, recurring charity, knowledge
(by which people benefit), and pious offspring, who pray
for him.


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


Definition of Waqf

Waqf, habs and tasbil all mean ‘to stop, to
prevent, 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 the
ownership and the dedication of its usufruct
in perpetuity to the welfare of society”


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)


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.


Conditions for Creating Waqf
There are four legal conditions for the founder to be fulfilled when creating the
waqf.
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 ownership
Five conditions for Validity of Waqf
6. aqil, baligh and hurr
7. Property can either be movable or immovable
8. Appoint mutawalli (trustee) either himself or someone
9. 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 mosques
5. Waqf creation can be verbal or written But preference would be written as proper maintenance
of records and management


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 good
deeds, as he will be rewarded in this world and in the hereafter. But for the
non- Muslim he will be rewarded for all his good deeds only in this world”


Mixing of Cash Waqf

Fatwa 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”


al-Mawquf ‘alaihm al-Mawquf
(the beneficiaries) (endowment property)
Classification of Waqf Property
1. Waqf khayri (public waqf) 1. Waqf manqul (movable waqfs)
&Waqf ghair manqul
2. 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.


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.


Ten Stipulations
for the Creation of Waqf


Modes of Investing and Financing

Immovable 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.


Administration of Waqf as highlighted in the
Hadith
The 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 emancipation
of slaves, for the poor, for guests, for travelers, and for kinsmen. The
person 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 of
becoming wealthy by its means.


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 Historical Role of
Waqf & Cash-Waqf
Waqf & cash-waqf played significant roles
through their varied and wide
contributions to the economic and social
life of the people. There roles were like a
network, which penetrated all sectors
such as;
1. the agricultural,
2. the industrial &
3. the social sector.

II. MODERN APPLICATIONS OF CASH WAQF

The 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.


Cash-Waqf Models
1. Waqf Shares Model
2. Waqf Takaful Model
3. Direct Model
4. Mobile Model
5. Compulsory Model
6. Corporate Cash Waqf Model
7. Deposit Product Model
8. Co-Operative Model
9. Waqf Mutual Fund Model


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 the
Founders will religious institutions/NPO
receive cash
Waqf
Certificate
only The religious institutions/NPO manages
the funds collected
(mutawalli)
Element of
Perpetuity is
The funds/revenue generated are used not
clear
for charitable purposes


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 INVESTMENT

Profit from investments (if any), will be distributed between Syarikat Takaful Malaysia Berhad and the PA in the form
of a profit-sharing arrangement


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


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


5. Compulsory Model
(Public Waqf)
Compulsory monthly contributions are made by Muslim employees in
Muslim 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)


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 of
jewellery, real estate, etc.) shares are channeled as cash
from individuals, State waqf to:
Baitulmal and other
corporations 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)


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 account
Bangladesh earns profit through a
mudharabah contract
3. Social Investment Bank
Limited (SIBL)
CASH WAQF
ACCOUNT 5. The proceeds will be
2. Islamic Bank Bangladesh
Limited (IBBL) used for charitable
purposes or purposes
specified by the waqif.

CHARITY
PROJECTS


8. Co-Operative Model (Public Waqf)
Mahalla Cash Waqf in Uzbekistan
Decentralized 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


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


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 199,674.65
2. Singapore 1. Direct model; and
2. Compulsory model. 28,123,810.09 NA NA

3. Indonesia 1. Waqf shares model; and
2. Waqf mutual fund model. 1,178,097.68 NA 1,461,133.93

4. Turkey Corporate cash waqf model. 23,953,569.85 NA NA

5. Bangladesh Deposit product model. 899,621.00 NA NA

6. United 1. Waqf shares model; and
Kingdom 2. Direct model. 3,166,752.62 527,984.72 257,451.11
7. Sudan Waqf shares model. NA NA NA
8. Kuwait Waqf shares model. NA NA NA
9. Bahrain Direct model. NA NA NA
10. UAE Direct model. NA NA NA
1. Direct model; and
11. Pakistan 2. Corporate cash waqf model. NA NA NA
12. India Direct model. NA NA NA


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 NA
15. South Africa 1. Direct model; and
2. Corporate cash
waqf model. NA NA NA
Direct model
Islamic Development (contributions by NA 287,039,251.10 225,739,938.42
Bank member countries).

Direct model
Organization of the (contributions by
Petroleum Exporting member countries). NA NA NA
Countries

World Conservation Direct model
Union (contributions by NA NA NA
member countries).


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


KEY ISSUES

Why 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 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;


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.


NEW CASH WAQF MODEL – EXAMPLE
Waqif/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

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;


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.


1. Reviewing the Current Law of Waqf
in Malaysia

It 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.


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.


Cont. Administration of Waqf
To 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.

3. List of Needy Areas
For creating waqf for the public it is much
recommended to prepare a list of needs
in the different states of Malaysia and to
give the right to the founder to chose
accordingly.


4. Inclusion of the Ten Stipulations in
the Waqf Deed
It 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.


Thank You
Q&A


Lecture 08

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