Forms of Waqf Funds and SDGs

Abstract

Historically, property waqf and perpetual waqf have prevailed the waqf landscape despite some issues regarding the management of waqf resources and assets. In recent decades, the property waqf is completed and reinforced by the cash waqf thanks to its flexibility regarding resources mobilization and waqf investment. In this context, the waqf resources mobilization and their allocation can be performed through multiple instruments, the most important of them are the waqf funds whose permissibility is derived from the permissibility of cash waqf in its perpetual and temporary forms. The dimensions and goals of waqf and by consequence the waqf funds are potentially in line with the dimensions and goals of sustainable development. In this regard, the present Chapter examines the role of waqf funds forms in achieving the SDGs taking into consideration the convergence of waqf funds with the SDG. In fact, the waqf funds are characterized by their capacity to involve institutions, individuals, and governments in the waqf operation to meet the social challenges. Furthermore, the waqf funds forms vary according to the waqf strategy of the waqf institutions and can be divided into three principles forms: pure investment waqf funds, specialized waqf funds, and Qard Hassan waqf funds. This multiplicity of waqf funds can support sustainable development, principally education, health, poverty, microfinance, and entrepreneurship projects. This chapter focuses on the balanced existence of waqf funds forms to contribute efficiently to the realization of SDG.

Introduction

The welfare of Muslim societies is mostly based on the solidarity and philanthropy values that are embedded in the philosophy of waqf. In fact, the waqf is driven by the will of giving and charity which requires the implementation of waqf strategy to achieve the social goals. The waqf contributes to the coverage of the societal needs by following different strategies to mobilize and allocate waqf resources. Broadly, these strategies as practiced by many waqf institutions are based on different types of waqf funds given their flexibility and the succeeded experiences in many countries mostly in Kuwait, Saudi Arabia, and Malaysia in covering society’s needs. This highlights the central role that waqf funds can play in achieving sustainable development goals. The development of waqf funds is essential for the sustainability of waqf assets and by consequence the sustainability of the waqf system. The resources of waqf funds are essentially mobilized through cash waqf as a Sharia-compliant waqf. In fact, cash waqf through its perpetual and temporary forms is increasingly the priority of the waqf institution in terms of financing and investment given its characteristics related to mobilization flexibility, investment choices, and liquidity. In this regard, the waqf funds could make waqf more attractive for all types of donors enabling the success of waqf to fulfill the SDG. Besides, as an essential component of waqf mobilization and investment mechanism, the waqf funds can take different forms each one of them meets the SDG regarding poverty, inequality, education, and health. Fundamentally, these forms include the pure investment waqf funds, the specialized waqf fund, and the Qard Hassan waqf funds. The design of waqf funds forms depends on the vision and commitment of waqf institution in achieving societal needs.

The allocation of waqf resources and returns to the charity activity or the direct awqaf (Kahf 2000) is the final objective of the waqf funds establishment. Indeed, the donors contribute to the redistribution of their wealth derived mainly from the profit sector by channeling a part of it to the non-profit sector (Hamza 2019, p. 110). The contribution of the donors to the charity waqf assets increases when they perceive that their funds are used effectively and with transparency to resolve societal issues for instance poverty, health, education, and inequality and by consequence achieving the SDG. Through the pure investment waqf funds or specialized waqf funds, the waqf institution is committed to ensure the sustainability of direct awqaf. The reason for the creation of investment waqfs fund is to serve the direct awqaf. In fact, the waqf institution looks for a balance between direct waqf assets and waqf investment assets to ensure the stability and sustainability of awqaf (Alarnaut 2018, p. 46; Hamza 2020, p. 156). Moreover, the allocation of donations to real and financial assets is beneficial to the financial system goals through the increase of financing sources. A successful waqf is a successful investment of assets (Alarnaut 2018, p. 46) which generates a return that is going to be affected to the direct awqaf. The rational allocation of investment waqf funds return under donor conditions and in compliance with Sharia is determinant for the realization of the waqf objectives. The example of waqf funds established and managed by the General Authority of Awqaf in Kuwait and Islamic Development Bank (IDB) illustrates the efficiency of these waqf funds in meeting the goals of sustainable development.

Another important form of waqf funds is the Qard Hassan waqf funds. In fact, the Islam through its prohibition of Riba has limited the role of Qard in the economy in a narrow scope which is the charitable scope (Siddiqi 2016, p. 289). The Qard Hassan waqf funds are under the Sharia umbrella of temporary waqf and can be channeled to a variety of individual, microfinance, and SME needs. The Qard Hassan waqf funds exhibit the economic role of waqf similarly to the investment waqf funds with some differences related to return and redemption of funds and therefore are the projection of the economic and social role of cash waqf. The beginning of some experiences of Qard Hassan waqf funds in Saudi Arabia and Malaysia deserves more attention in terms of objectives and impact on society.

This chapter examines the contribution of waqf funds in achieving the challenges regarding poverty, inequality, education, and health which is in convergence with the SDGs. The second section presents the convergence between the concept of waqf and the SDG concept and the importance of the waqf funds as an involvement of the society in the charity activities. The third section examines the forms of waqf funds and their role in achieving SDG with the particularity of the Qard Hassan waqf funds as an instrument for lending cash waqf free of interest to the needy people. The final section concludes by giving recommendations to policymakers for the development of waqf funds.

Convergence of Waqf with SDGs

The concept of waqf reflects multiple dimensions of solidarity and charity through continuous donations and benefits for the welfare of society. The waqf concept is based on the relationship between donor, waqf assets, and beneficiaries. The resources mobilization from donors ensures the sustainability of waqf assets and the achievement of the social goals or beneficiaries’ needs. The waqf resources through cash waqf are characterized by the flexibility of mobilization and investment, the promotion of the collective donations, and the advantages of the liquidity (Hamza 2020, p. 156). Given the importance of cash waqf, several waqf institutions (Saudi Arabia, Kuwait, Bahrain, Turkey, and Malaysia) have adopted strategies to mobilize waqf resources within the framework of perpetual or temporary cash waqf (Hamza 2017, p. 124). Cash waqf gives opportunities for a much wider pool of donors to contribute to social good and reap eternal rewards than waqf restricted to immovable property (World Bank, INCEIF and ISRA 2019, p.vi). The cash waqf mobilization and investment can be performed through multiple instruments the most important of them are the waqf funds.

In fact, as a form of cash waqf, the permissibility of waqf funds is derived from the permissibility of cash waqf ¹. This permissibility allows waqf funds to be an important tool for financing waqf in order to achieve social objectives. The most important characteristic of waqf funds is their ability to promote the culture of popular participation in waqf projects. In fact, waqf funds allow all groups of society to participate in waqf and social development, it is also a transparent instrument that enables the private and governmental oversight of the waqf (Ali 2017). The waqf funds hold and invest the funds collected and spends their return on the waqf purposes specified in the donor condition or the participation document in the waqf funds in order to realize the benefit for individuals and society (Ali 2017). The strength of waqf funds lies in the ability to commercialize the waqf project and hence the ability to attract financial resources and urging donors to donate and contribute to the growth of the waqf funds resources. This requires an experience of the fund management in communicating with the donors (individuals, government, and institutions) in a correct manner and in full transparency (Al-Salahat 2014).

Waqf funds are an extension of the concept of investment funds² with important differences regarding the resources nature, the types of assets, which should be Sharia-compliant, and the allocation of the return to the charity activity instead of shareholders. In fact, waqf funds mobilize resources from the donors in order to allocate them in awqaf in investment or charitable nature. The role of waqf funds is to contribute to the sustainability and development of waqf assets in order to remain useful and productive within the framework of Sharia. In terms of resources mobilization and investment, the experiences in Kuwait, Saudi Arabia, Malaysia, and Turkey are the best examples of waqf funds management and development.

The waqf specificities regarding perpetuity and utility continuity and by consequence the waqf funds are in some extent in convergence with the concept of sustainable development. In this regard, the waqf funds objectives square with the SDG which gives waqf an international dimension in resolving social and economic issues. In fact, The United Nations General Assembly adopted in 2015 the 2030 Agenda for Sustainable Development which includes 17 SDG’s. These goals are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social, and environmental.³ From general view, these goals pertain to all issues essentially poverty, hunger, health, education, inequality, climate change, and environment protection. In this regard, the sustainable dimensions of waqf and waqf funds particularly are aligned with the dimensions of sustainable development and could contribute, with the efforts of governments, in reaching the SDG in compliance with the 2030 Agenda. It is important to ensure the convergence between the investment of waqf and the necessities of development through focusing on the developmental role of the waqf and linking it to the State’s strategic development directions as long as it does not affect the investment return of the waqf (Al-Omar 2007, p. 276).

The waqf funds vary according to the strategy of the waqf institutions and can be divided in three principals’ forms: pure investment waqf funds, specialized waqf funds, and Qard Hassan waqf funds (Table 25.1).

Table 25.1 Forms and impacts of Waqf funds

The multiplicity of waqf funds and their purposes leads to a diverse and integrated assortment of projects financed by these funds in all fields that serve a comprehensive sustainable development (Jaafar 2014, p. 160). The forms of waqf funds differ according to the goal that they seek to achieve, the internal conditions of the country, and the conditions of people and society, and cover many areas of religious, social, scientific, health, environmental, development, and economic life (Al-Zuhaili 2006). The choice of one or more forms of waqf funds by waqf institutions should be examined according to the waqf policy of the general waqf authority and the capacity of waqf institutions in respecting its commitments toward the society. In fact, each form of waqf funds has its own characteristics and challenges in terms of funds mobilization, management and allocation of resources, and the social impact targeted. In fact, achieving the SDGs require mobilizing a vast amount of resources to fill the gaps (Ahmed 2017, p. 39). The existence of these forms in a balanced manner could contribute efficiently to the realization of SDGs. Similarly, waqf funds and SDG take into consideration the need and rights of the future generation regarding life conditions in terms of health, education, poverty, and climate. The realization of SDG from an Islamic perspective is potentially conditional to the existence of multiple waqf funds forms which can cover the economic, social, and the environmental dimensions through investment and Qard Hassan.

Role of Waqf Funds Forms in SDGs Realization

Waqf funds are a tool for mobilization of financial resources from donors, individuals, and institutions, through donations for the purpose of allocating these resources in waqf assets that generate benefits and returns that are disbursed to specific entities within the framework of the donor clause and Sharia, which benefits individuals and society and contributes to the preservation and development of waqf assets ⁴. In this regard, waqf funds are an important mechanism of resources mobilization and assets investment allowing the realization of waqf objectives regarding needy parties. Therefore, direct or charity waqf assets use the returns of waqf investment assets to achieve their goals and both types of assets are generally managed separately to ensure economic efficiency. Globally, the waqf funds resources are composed of donations (individuals, institutions, firms, government) and returns of new and old investment waqf (real and financial assets). There are three principal forms of waqf funds, each one incorporates multiple dimensions of the SDG.

Pure Investment Waqf Funds

The waqf investment represents the process of selecting, managing, and developing the waqf assets represented by real and financial investments. The waqf investment gives the waqf an economic and developmental dimensions in addition to its charitable and social roles. The philosophy of waqf investment is to serve the charitable awqaf assets to ensure its continuity and historically, the development of the waqf forced the donor to build income-generating enterprises or waqf investment to ensure the continuation of charitable waqf (Alarnaut 2018, p. 40). The specificity of waqf and the nature and size of charitable waqf give an orientation to what should be the investment in terms of strategy to implement and return to realize. In this regard, the establishment and success of investment waqf funds as a form of investment waqf is highly tied to the trust of donors toward waqf institution and the responsibility of this institution in the investment and return management.

The establishment of investment waqf funds policy in accordance with SDG may enable waqf institution to have a global vision regarding waqf policy and to expand its activities by attracting more donations and reaching more social layers. The SDG may allow the development of investment waqf funds regarding the assets allocation which ensure more efficiency and stability of the waqf asset. The investment policy of waqf institution regarding investment waqf funds focus on the optimal investment assets according to the waqf specificities. The choice of real and financial assets in compliance with Sharia and with reasonable and stable return is the essential conditions given the specificities of the waqf and responsibilities toward the waqf beneficiaries. The investment waqf funds is a blend of investment thought and waqf thought and is considered as a special type of investment fund since they are under the law and procedures of investment funds (Al-Rached 2019, p. 224).

A successful waqf is a successful investment of assets (Alarnaut 2018, p. 46) given the importance and role of investment return to guarantee the continuity and sustainability of waqf benefits for future generations. The investment waqf funds follow a strategy based on diversifying assets and maintaining their sustainability and it seeks to achieve the goals of stabilizing the waqf returns by reducing the risks. The optimal management of waqf assets is based on diversification of a number of elements, the most important are the diversification of investment assets, investment sectors, investment areas, investment terms, and investment currencies in order to reduce risks, sustain returns and provide liquidity. In fact, as a result of waqf investment, the distribution of return to the beneficiaries is the core of the waqf philosophy and is determinant for the donor’s commitment regarding the social impact of their donations.

The multiplicity of investment waqf funds in terms of assets allocation (economic sectors, financial assets, real assets) and returns allocation to the different need of the society (Health, poverty, employment, SME) is determinant for the realization of the SDG in accordance with the objectives of the government and the priority need of the society. The optimal choice of waqf investment assets and the level and stability of the waqf return is crucial for the realization of the social impact of waqf. The management of investment waqf funds should respect some conditions mostly the compliance with the Sharia and the avoidance of high-risk investment which could be harmful for the waqf assets and by consequence waqf beneficiaries. The western experience in investing waqf assets shows the importance of investing assets through low-risk mechanisms, even though their profits are reduced (Khafagy and Irfan 2012, p. 14). The investment waqf funds could be more useful if a part of funds are channeled to the necessary sectors and small and micro-enterprises leading to an economic benefit added to charitable benefits provided that reasonable and stable return is ensured. The success of the investment fund in meeting the SDG is a key motivation for the donors’ continuous donations which may reinforce their trust and relationship with waqf institution.

The most important pure investment waqf funds are those established and developed by the (IDB). These investment waqf funds are closely converged with the SDG mainly regrading poverty alleviation, education and health. In fact, the IDB has established the first endowment fund in 1997 called “The Bank waqf Fund,” which finances health, education, relief, and natural disaster. In addition, the IDB has established a “Waqf Property Investment Fund” in 2001 which finances waqf projects in the housing and trade sector generating benefit for education, religion institutions and health. This waqf fund is a profitable investment portfolio for the development of waqf properties. In 2005, the “Islamic Solidarity Fund” has been established, whose tasks include financing programs to combat poverty and diseases, reducing professional illiteracy, supporting microfinance, and establishing solidarity villages (Hamza 2019, p. 121). Among the “Islamic Solidarity Fund” priorities: human development, agricultural and rural development, infrastructure development. The resources of the fund are determined through fieldwork, identifying the needs of local communities, and the projects and programs necessary for IDB member states. The financial resources of this waqf fund consist of the fund’s capital, immovable waqf, cash waqf, financial grants from IDB member states.

Specialized Waqf Funds

This form of waqf funds are based on a set of donations mobilized continually and allocated simultaneously to charity projects and investment assets. The charitable waqf fund is dedicated to the establishment and administration of charitable projects or what is called direct awqaf. These awqaf do not represent a capital of investment nature and are used directly by the society, where they provide direct and basic benefits or services to the needy people and the general public (Kahf 2000). The benefit of these awqaf is through their use by providing real benefits that represent their social contribution. Direct awqaf include mosques, wells, roads, orphanages, educational and health institutions. The decision to establish these funds and the choice of their fields depend on the social and economic needs. Moreover, given their nature, this form of waqf funds require continuity donations as a main source of funds mainly from individuals, institutions, and government.

The awareness of the importance of developing this form of specialized waqf funds explain the succeeded strategy followed by the General Awqaf Authority in Kuwait which is the pioneer in this field. In Kuwait, the waqf funds are under a special law other than the investment fund law. The special law mentions that the waqf funds have among objectives an investment objective. These specialized waqf funds are under the organization and control of the general awqaf authority. The strategy and organization of the specialized waqf funds are fundamentally based on the realization of social objectives regarding the beneficiaries (Al-Rached 2019, p. 222). In fact, waqf funds have been chosen as a strategic choice in the development of waqf by the General Awqaf Authority in Kuwait. In this regard, four types of charitable waqf funds were established: The waqf fund of the Holy Quran and its sciences, the waqf fund for the care of mosques, the waqf fund for scientific and social development and the waqf fund for health development.⁵ The waqf funds of the general authority of awqaf have a special importance, as financial waqf units specialized in a variety of charity activities. The financial resources of waqf funds are provided by the donors for the purposes sponsored by the fund, and of the funds allocated by the general authority of awqaf for each waqf fund (Ali 2017).

The identification of charitable projects through the knowledge and prioritization of the needs of the society complies with Maqasid Sharia. The prioritization could be tied to the major social issues for instance poverty, health, and education. The multiplication of the charitable waqf funds designed to multiple needs is able to cover large layers of the society. In this regard, the involvement of the waqf institutions in the attraction of donors through charitable projects is crucial and necessitate a waqf management with transparency and governance which are required by the general authority of awqaf.

The specialized waqf fund are financed by donations from general public, institutions, compagnies, government, and the awaqf general authority. These donations through cash or real assets are allocated to the spending and investment sections of the waqf funds. In fact, the waqf fund administration is divided on spending administration and investment administration both are separated and having different roles. The role of the spending administration is to serve the waqf beneficiaries or the waqf project by the realization of the social role of the fund. The role of investment administration is the realization of returns as new resources serving the spending administration. The specialized waqf funds mechanism are based on a recurrent collect of donations allocated on one hand to charity projects initially established and in another hand to investment assets. The management of charity waqf funds and the investment waqf funds is separated which could make more efficiency in the realization of the waqf institutions objectives. The establishment of waqf fund has been based on allocation of amounts and waqf assets where its return is spent for the realization of waqf fund objectives (Al-Moutawa 2001, p. 503).

The multi-purpose of waqf funds and the diversity of their specializations in proportion to the needs of society have had a significant impact on the success of the waqf funds experience as a financier of sustainable development in Kuwait, and the evidence of their success is the increase of the waqf capital of these funds, and the increase in volume of financing to serve their various purposes in various fields of sustainable development (Jaafar 2014, p. 170)

Qard Hassan Waqf Funds

The Islamic Fiqh Academy of the Organization of the Islamic Conference (OIC) authorized cash waqf for Qard Hassan⁶. The Accounting and Auditing Organization for Islamic Financial Institutions (AAIOIFI) has authorized the cash waqf including the establishment of waqf funds whose purpose is to collect, develop, and loan funds⁷ in form of Qard Hassan. In addition, the thirty-third Al-Barakah Symposium (2012) and the European Council for Fatwa and Research authorized the permissibility of the cash waqf for purpose of Qard Hassan and investment of the funds collected⁸. Historically, waqf for lending is proven in Morocco which was distinguished by a waqf fund for interest-free loan that was located in the city of Fez underlining the attention given for helping needy layers⁹ (Hamza 2019, p. 73). The Qard Hassan waqf fund devotes the notion of solidarity toward a category of needy persons concerned by the financial inclusion and access to finance.

The origins of resources of Qard Hassan waqf fund are the donations with perpetual nature and the temporary cash waqf in form of Qard Hassan. The donors have the choice to donate cash waqf temporarily or perpetually. These donations are allocated in the form of Qard Hassan to the eligible persons for microfinance and entrepreneurship projects depending on their projects in terms of volume, duration, and solvency capacity. The allocation of Qard Hassan to the needy persons reinforces the financial inclusion and access to finance. Through the Qard Hassan waqf funds, the waqf institution endeavors to meet the needs of an important segment of society, especially microfinance, which supports the efforts of the state in achieving sustainable development goals.

The selection of projects is based on their economic and social feasibility which allow the grant of Qard Hassan to the persons that have suitable profitable projects, thus guaranteeing the repayment of the Qard Hassan at specific times according to the donors’ conditions. Likewise, to manage liquidity risk, delays and non-payment of Qard Hassan by creditors, the fund management can take the necessary measures to counter these risks by taking the necessary guarantees and verifying the economic feasibility of the funded projects (Hamza 2017). Furthermore, the administration of Qard Hassan waqf funds follow-up the financing process until the repayment of the total Qard and manage the changes that can happen during the Qard Hassan period (project performance, deficit, death …). The Qard Hassan waqf funds can encourage people for donating to constitute reserves useful for facing the non-performing Qard Hassan or the insolvency of the needy persons (Al-Gari 2015). Zarqa (2006) suggested a practical instrument for financing micro-projects for the poor, based on the Qard Hassan as a temporary cash waqf ¹⁰. Zarqa (2006) pointed out that this instrument aims to provide temporary charitable financing to the poor, enabling them to finance a permanent livelihood with the necessity to find guarantors to avoid liquidity risk and insolvency.

The Qard Hassan waqf funds can be established from the investment waqf fund. In fact, Khalid (2014) indicates that the waqf institution can use a percentage of the income generated from investment waqf to give interest-free loans to those in need using the Qard Hassan contract. Therefore, the potential establishment of Qard Hassan waqf funds through investment waqf funds will depend on the strategy of the waqf institution regarding the management of return distribution and also on the performance of the waqf return. As a result, the success of waqf investment is beneficial for the waqf institutions continuity, waqf beneficiaries and the creation of new waqf funds for instance the Qard Hassan waqf fund. Moreover, as mentioned above, Qard Hassan waqf funds could experience some financial difficulties regarding the insolvency of the Qard Hassan beneficiaries or non-performing Qard Hassan, in this case, the income of investment waqf funds can also be used to face these difficulties and ensure the financial sustainability of the Qard Hassan waqf funds.

Conclusion

The waqf funds are the most popular and efficient instrument of mobilization and investment of waqf resources. The experiences of the Awqaf General Authority in Kuwait and the Islamic Development Bank in Saudi Arabia are considered as the best model given their success in meeting the social needs. The success of these waqf funds is based on the involvement of waqf institutions and government in mobilization of resources and assets allocation to cover the beneficiaries need. The forms development of these waqf funds can fill the gap for reaching the majority of SDGs. The investment waqf funds initiated by the IDB and followed by other institutions and countries show the efficiency of this form of instrument in the SDG realization. The specialized waqf funds in Kuwait as a form of investment waqf funds constitute a successful example regarding the comprehensive realization of the SDG and can be expanded in other countries. Finally, the Qard Hassan waqf funds can complete and promote the role of waqf funds in society given its characteristics and the beneficiaries targeted. The Qard Hassan waqf funds need more attention and development from the authority and waqf institutions given its multiple social and economic benefits. The existence of these forms of waqf funds in a balanced manner can promote the waqf sector and contribute substantially to the SDGs.