With the declaration of ‘Year of Giving’ envisioned by the nation’s esteemed Government, and Ramadan upon us in the UAE, the act of making a positive difference towards the lives of the less fortunate is high on the regional agenda.
Today, there are a numerous ways in which individuals can make positive contributions to society. One initiative particularly gaining interest around the world, that epitomises the ethical values set by the rapidly growing Islamic Economy, is Waqf.
Waqf: A Beneficial Charitable Endowment
Otherwise known as an Islamic endowment, Waqf (or the plural, Awqaf) provides funding towards initiatives that promote social and community welfare, such as building mosques or schools, or funds for charity. Following strictly shari’a principles, Waqf also generates income from its investments, which are channelled to beneficiaries or back into the portfolio.
Due to various reasons which include lack of management, accountability as well as the ineffectiveness of methods used, Waqf had initially become less popular after its initial beginnings. However, it has now re-emerged as a beneficial force of good within society. This is because Waqf enables societies to finance and support all kinds of non-profit charitable initiatives, which help achieve social balance and harmony between individual and collective interests. When societies perform this duty without totally relying on official entities, they become a viable source of values and ethics that can turn into actionable practices.
How does Waqf work?
Waqf usually starts with an individual who donates an immovable asset for the purpose of charity. This most common asset is usually a property — and the usufruct and income from it are held with the trustees who manage and develop the Waqf properties in collaboration with corporate entities who also provide the proceeds to beneficiaries or investors in the related projects. Other forms of donation include movable assets, such as donating cash or shares for charitable purposes.
Ultimately, financial sustainability is imperative for Awqafs. While the primary reason for donating or investing in a Waqf project is not meant to be for capital gain — as it is primarily intended for benefiting society and meeting the needs of the people — prudent Awqaf management can ensure that investors gain rewards for their kindness. More importantly, effective management can ensure the Waqf is able to preserve enough capital to maintain itself in perpetuity.
Today Awqafs extend globally in the form of either large, private entities, or government managed programmes. Large Awqaf infrastructures exist in every major Muslim country, including Turkey, Malaysia, Indonesia, Egypt, Pakistan and the GCC countries. There are also smaller Awqafs in countries with Muslim minorities, such as South Africa, New Zealand and the United States.
Managing Awqaf sustainably
In the UAE, a ‘General Waqf Authority’ for Islamic Affairs and Endowments, has been set up by government and regulators, to coordinate and streamline the functions of Waqf institutions.
The future growth of Awqafs require them to be managed in a sustainable way, hence, it is important to first decouple Awqafs investment activity from charitable activities and run them in structured way similar to a modern financial investment management company. This can be done by maximising the value of the endowments through effective asset management and being proactive when managing their assets for the long-term benefit of society.
A lot of Awqaf organisations in the UAE invest in properties and some have surplus liquidity. This surplus usually needs to be invested in other areas to maximise the yields on pools of liquidity that they may have. As a result, today Awqafs are also tapping the capital markets and there are various initiatives underway to issue Sukuks backed by Waqf land for mosques, schools and orphanages.
The Potential of Awqaf: Looking Forward
The practice of Awqafs in the UAE has great potential. The country’s wise leadership has created the perfect environment to instil a spirit of giving and charity in the public by launching countless initiatives that provide comprehensive frameworks and encourage creating new and unprecedented forms of charity.
There are also a number of entities in the UAE that specialise in the management of Waqf — to ensure that all parties benefit, and that its value is maximised. Noor Awqaf, for example, is a joint venture by Noor Investment Group and the Awqaf and Minors Affairs Foundation (AMAF) and helps Awqafs by providing value additions in banking services, in real estate services and investment management services.
The key differentiator of such entities is that these services are provided in accordance with Shari’a principles, for boosting financial inclusion and promoting social well-being. Future growth in this sector lies in introducing regulations that make its management easier. Going forward, it is important for robust corporate governance to be implemented for Waqf. This would lead to greater transparency on the way the Awqafs are run, and show their positive impact in greater detail.
— The writer is Head of Shari’a at Noor Bank. Views expressed in the column are the writer’s own and do not reflect those of the newspaper.