Note On Development Of Waqf Land Economics Essay

Note On Development Of Waqf Land Economics Essay Introduction 1. There is no doubt that the existence of waqf since the time of the prophet s.a.w is meant for the humans to do good deeds for the society and should benefit the Muslims. Waqf or endowment has been embodied in Islam as one of the good deeds in which the spiritual deed rewarded by Allah with 70 times returns.  [1]  In another verse, the act of philanthropy by disposing out property as an act of charity is encouraged in Islam.  [2]  From economic point of view, waqf is a powerful mechanism in developing the nation in form of charitable instruments which is very unique and beneficial for poverty alleviation programmes. 2. In Islamic tradition waqf is very important. Its potential in future development should not be underestimated. The average rate of return on investments made in developing waqf properties came to a minimum of 20-25% (Rashid, 2012)  [3]  . Besides religious purposes, waqf land has also been used for infrastructure development, education sector, healthcare and public amenities. For example, among the prominent education institutions that were founded and maintained using waqf lands are the Al-Azhar University in Egypt, University of Cordova in Spain, Universitas Islam Indonesia in Jogjakarta, Indonesia  [4]  and AlBukhary International University in Malaysia. While in the healthcare sector, the hospital (Al Noori Hospital) in Damascus and clinics (Klinik Nur) in Malaysia.  [5]   Review of Development in Waqf 3. Recently, there is an increasing interest in reviving the waqf institutions. Several international conferences on waqf have been held in recent years (i.e. Harvard, 2006, 2008; South Africa, 2007; Singapore, 2008; Kuwait, 2008; Iran, 2008, Malaysia, 2010).  [6]  These conferences and seminars have discussed how waqf institutions have been revived by means of interviewing relevant authorities and conducting surveys on waqf land rules and regulations in many parts of the Muslim world. Box 1 provides the example development of waqf lands and properties in Malaysia and Singapore. However, despite various efforts by the governments to enhance the benefits, the utilization of waqf lands is still not being optimized and in fact there are a lot undeveloped waqf lands which have potential to be invested through various instruments. 4. From the perspective of research, the literatures discussed the different usage of Islamic modes of investment for waqf institutions (Kahf, 1998; Hasan and Abdullah, 2008). There are also a few literatures dedicated to the topics of waqf land development. Most of these have discussed the historic development of these lands and their legal aspects (Perai, 2005; Hasan and Abdullah, 2008). There are writings that have classified waqf lands according to how they have been used, for example agriculture, construction, mosques, cemeteries, etc. (MAIS, 2008). There is, limited literature that has categorized waqf lands according to their strategic locations and uses let alone matching them with Islamic investment modes (Noor and Mohamed, 2009). 5. There is no recent news of any worth-mentioning waqf development project except in Malaysia during the last two years (20 major and 70 minor waqf projects have been completed, worth over US$100 million)  [7]  . On the other hand, the number of properties sponsored by the Awqf Properties Investment Fund of IDB (APIF) was not up to the mark. During 2002-03 only 8 projects were developed, while 7 projects in 2009 and 5 projects in 2010. The distribution of dividend from the funds was relatively low at only 2.5% compared to Harta Tanah PNB Trust in Malaysia at 6-7% of income distribution annually  [8]  . In addition, World Waqf Foundation has been very inactive as there is no publication from the foundation since 2004. Box 1. Development of Waqf Lands in Malaysia and Singapore The development of waqf in Malaysia and Singapore especially land is fundamentally aimed at generating more income to waqf institution that could be benefited by the beneficiaries. In the context of Malaysia, there are over 35,727 hectares of registered waqf lands in which may be invested to benefit the Muslims society.[1] One of the recent large scale investments of waqf land in Malaysia was initiated by the Federal Territories Islamic Religious Council together with Tabung Haji, TH Technologies Sdn. Bhd. and Bank Islam Malaysia Berhad involving a project for the construction of a 34-storey building at a cost of RM151 million. Regardless of this development, it is observed however that the utilization of waqf lands is still not being optimized and in fact there are a lot undeveloped waqf lands which have potential to be invested through various instruments. There are various model of investments of waqf land could be adopted by the waqf authority either they are depending on funding from the federal or state government or statutory bodies or financial institutions. The utmost important is that the ability of the waqf institution to choose the most appropriate and suitable methods of financial schemes for any of its investment project. In Malaysia, the instruments of investment of waqf land namely debt-based instrument, equity-based instruments, self-finance instrument and Islamic securities instruments. However, the existing waqf lands have not been strategically categorized and the modes of Islamic investments have been used arbitrarily. In the case Singapore, although many waqf were still managed by the private trustees, all awqaf created are vested in Majlis Ugama Islam Singapura (MUIS) and required to be registered in MUIS. The effective and efficient management of waqf assets and properties by MUIS had enabled waqf revenue to increase exponentially. MUIS also adopted joint venture and partnering approach to develop waqf properties (i.e a S$28 million development of the 20 units of massionette and selling for 99 years lease). This approach and method proved to be an effective way to develop waqf properties, particularly with property prices spiraling upwards and land scarce Singapore. There are many creative solutions in the development of waqf properties. In current properties investment, Real Estate Investment Trust (REITs) instrument is a popular route to owning properties as the structure highly appeals to the investors. MUIS has creatively made an internal REITs for its waqf properties (i.e the purchase of a 6-storey office building with a pool of waqf properties). As at 2006, MUIS manages waqf properties and assets worth about S$341 million.[2] As far as financial resources are concerned, cash waqf scheme and modern financial mode of Sukuk Musharaka bond have been introduced to fund waqf development activities. [1] According to a survey conducted by Jabatan Agama Islam Malaysia (JAKIM) in 2000. [2] WAREES PTE LTD (2007). Source: MUIS (2006), Hassan and Abdullah (2008). Binding Constraints to Development of Waqf Land 6. In practice, a wide range of applications of the waqf idea have emerged over time and space, including for purposes of markets, guilds and other civic endowments, usually under the administration of a mutawali, as well as for mosques, schools, cemeteries, housing for the poor and general welfare. In this respect, waqf occupies the ambivalent zone of many charities and philanthropists along with other institutions. However, significant issues facing waqf institutions need to overcome when it comes to process of developing the waqf lands. For instance, the waqf administration is accused of giving less than impartial and just decisions and complaints of bribery against the waqf officials are not uncommon.  [9]  There are also many examples of disputed waqf lands that now in the process of court hearing around the Muslim world. 7. The binding constraints faced by the development of waqf land, among others are: i) unregistered waqf lands without land titles registered in the name of the waqf authority, the land cannot be developed and they remain undeveloped; ii) unexplore option of Istibdal on non-prime land or sale Istibdal or substitution would be a suitable alternative to non prime land being exchanged for prime or more suitable lands for identified development initiatives or refurbishment; iii) waqf on leasehold land and properties classified as national heritage waqf authority may encounter obstacles developing waqf land that are leasehold (till lease expires) or classify under the category of national heritage under the auspices of respective local authority; iv) legal framework to understand different legal frameworks of waqf administration and waqf matters; and v) security for financing route for project financing, the concept of waqf may not allow exceeding to the requirement for land becoming collateral which is a basis for financing. 8. In term of waqf institutions, it is undoubtedly unsatisfactory. In many areas, there has been a devastating evidences of awqaf. The awqaf institutions are not given proper attention and therefore, vast awqaf properties are ill-managed. The inevitable consequence is much dilapidation and disrepair. Even the best wqaf buildings, with tremendous commercial potential, are not getting basic repairs and maintenance (Ahmad and Khan, 1998). Indeed there is a general feeling that waqf properties of the highest quality, is now some sort of cheap commodity, available in the commercial market. On top of which the virtual collapse of institution of awqaf has resulted in a vacuum which, in most Muslim countries have failed to fill in the gap. The reasons for this include: i) poor legislative framework; ii) administrative lapses; iii) lack of political will; iv) indifferent attitude of the management committee of the awqaf; v) lack of funding; and vi) lack of honesty and integrity. Proposed Framework for Waqf Land Development 9. There are vast un-managed assets of awqaf in the world where Muslims also represent a huge amount of social wealth. In the development process, these can be combined to produce necessary facility of social services especially for the poor people (Bellhachmi, 2004). The institution of awqaf could play a better role in the process of social and economic development. In order to achieve this stage, there is a need to give special attention to the development of the vast under-used awqaf properties to reactivate its functions and ability to provide those important services they used to carry out in the past. One of the major problems in relation to reviving awqaf is a lack of funds for regenerating the productivity of the waqf land/properties as well as other moveable and immovable assets. 10. The intended development of waqf lands/properties may be either for the purposes of revivification or advanced in the sense of investment. There are several mode of financing can be employed for development of awqaf lands such as issuing output share, partnership share, leasing etc. Sabit (2006) has divided the development of waqf assets into three (3) main methods: i) credit based finance; ii) joint venture or equity and income sharing; and iii) self-financing. The combination of these three methods of financing or two of them may also necessary based on the requirements of the waqf assets. 11. Based on the recent studies and practices, this study proposes for establishment of waqf assets as an offer of alternative investment through the issuance of sukuk, complemented by cash waqf fund. In order to develop awqaf projects, creating cash waqf fund (i.e Malaysia and Singapore) and sukuk mode of finance (Singapore) will build up trust between investors, depositors and the awqaf institutions for enhancing the financial benefit. It is expected that these two sources of Islamic investment funds will allow the Muslim ummah to invoke waqf contributors motives by financing into the awqaf projects so as to fulfill the objectivities of the awqaf. The details of these two sources of funding for the development of awqaf institutions are discussed below: Before undertaking the development of waqf lands, IDB needs to fulfil three basic requirements: i) develop a co-ordination mechanism between IDB and waqf authority for the purpose of compiling waqf lands information; ii) identify and profile strategic waqf lands for the purpose of commercial activities (i.e hospitals, educational and training institutions, real estate); and iii) form a potential partnership in the form of SPV- IDB as a partner (sharik) with the potential waqf authority to undertake specific waqf projects/investments. Many wqaf institutions simply do not have the funds to develop new capacity while keeping their existing work going on. Waqf assets, through the issuance of sukuk (Islamic bond), offer an alternative investment. Most important point is that sukuk as a product is linked the returns and cash flows of the financing to the assets purchased, or the returns generated from an asset purchased. Therefore, sukuk can be used as a tool to finance for development of the waqf properties. The main objective is to provide long-term support with a focus on building capabilities and showing results. There are several types of sukuk but two, ijara sukuk and musharakah sukuk, are most popular in the real estate financing and for creating funds for construction of new complexes. The development of waqf assets through the issuance of sukuk may be most suitable by using the musharakah financing principle, due to three elements: i) it represents new source of funds on basis of profit and loss-sharing; ii) it is vital to developing awqaf lands; and iii) there is a great deal of surplus cash sitting in Islamic financial institutions. Figure 1. Illustration for Waqf Land Development Source: authors illustration Figure 1 summarizes the cycle for waqf land development via sukuk. The waqf management board creates a musharakah venture. Waqf management board also will also appoint a Waqf Asset Manager as an agent to develop the land. In order to mobilise the fund through musharakah sukuk the following mechanics can be employed  [10]  : i) the waqf asset manager and special purpose vehicle (SPV) enter into a musharakah venture to develop waqf land for a period with pre-determine profit sharing; ii) the waqf asset manager enters into a two-year forward lease agreement with construction company; iii) on behalf of the waqf management board, waqf asset manager contributes land to the musharakah venture; and iv) the SPV contributes cash as capital to build commercial building on the waqf land. The musharakah sukuk can be complemented by cash waqf fund. Cash waqf has become increasingly popular among Muslim, particularly because of its flexibility, which allows distribution of the waqfs potential benefit to be benefited by the poor. Cash waqf fund may be opened for soliciting cash waqf with the intention to support services to mankind in the name of God. The donors (waqifs) of this fund will give their cash money for the purpose of financing the development of awqaf land/building/properties. The waqf mutawalli will manage this fund and the fund will be utilized for providing revolving loans for development of awqaf properties. This loans that are payable to the fund, to be utilized again for financing other awqaf properties. Conclusion 12. This note examines briefly the nature of waqf land development, review recent literature and practices on waqf land development and propose a solution to undertake waqf land development for ISFD. The development of waqf lands is an important milestone for ISFD given the fact that there are large amount of undeveloped and ill-managed waqf lands in the Muslim world. By providing the expertise on enhancing the awqf institutions and develop waqf land in member countries, it is expected from this undertaking that the institution of awqaf could play a better role in the process of social and economic development but also generate additional source of income for ISFD to combat poverty in member countries. This note proposes ISFD to consider undertaking waqf land development through the issuance of sukuk and developing cash waqf fund together with member countries.