ISLAMIC WEALTH MANAGEMENT SEMINAR 27 November 2013

Family Waqf as a Wealth Management Tool by Assoc. Prof. Dr Ahcene Lahsasna International Centre for Education in Islamic Finance (INCEIF)

Concept of Waqf •

Waqf literally means ‘detention’ • Technically, it means the dedication of property (any charitable or religious object), or giving it away for charity either in expressed terms or by implication, or to secure any benefit for human beings. • It is the detention of a specific thing from the ownership of the appropriator, and devoting or appropriating its profits for charity for the poor or for other good objectives. • When a person places his property under waqf, it means that his ownership to the property has been relinquished and the property is held in the ownership of Allah s.w.t. 3

Types of Waqf •

Waqf Khayri /Public Waqf •

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Al-Waqf al-Ahli / Specific Waqf •

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It is an endowment made by the founder to support the general good and welfare of the poor and the needy in society.

al- waqf al-dhurri, waqf ‘al –awlad and al-waqf al-khass are all the same and refer to family waqf.

Al-Waqf al-Mushtarak /Combined Public and Family Waqf

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Family Waqf •

Section 2 of the Enactment of Wakaf of Selangor 1999 defines wakaf as the dedication of any property from which its usufruct or benefit may be used for any charitable purposes whether as wakaf am or wakaf khas according to Hukum Syarak, but does not include a trust which is defined under Trustee Act 1949 [Act 208] ; • The Prophet s.a.w. said: “When the sons of Adam die, their deeds come to an end, except charity with enduring benefits, their knowledge which benefits others and their virtuous sons, they pray for them (bless them).”

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The waqf instrument is important and it plays a significant role in Muslim societies. • It is used to support the aged, the poor, the orphans, charitable, educational and religious foundations.

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Family Waqf •

Wakaf khas means a waqf that is created for a specified charitable purpose according to Hukum Syarak;

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So, it is a specific waqf created for the purpose of generating benefit to family members or others as specified;

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The selected members will be entitled to get the benefits generated by waqf.

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Misconception of Waqf •

The waqf concept has been misunderstood, which has become a reason for its limitation in the market. Colonialism has resulted in the corruption of the waqf concept.

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The concept of waqf is corrupted: • • •

Waqf is only for religious purposes Waqf can be established in real estate only Lack of awareness that waqf can be a productive asset in the financial market

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Components of Islamic Wealth Management

Components of Islamic Wealth Management

Islamic

Shariah

Wealth

Al Mal

Management Management & Investment 8

Shariah Shariah

Concept

Shariah refers to commands, prohibitions, guidance, and principles that God has addressed to mankind pertaining to their conduct in this world and salvation in the next.

This World

The next / The hereafter 9

Wealth Wealth Concept

From the Shariah perspective, wealth is a creation of Allah in all its different forms, and it belongs to him.

Tangible

Intangible

Movable

Asset/ Property

Usufruct / IP

Cash Precious Metal

Immovable

Property / Lands 10

Management Management

Investment Investment in this world

Investment in this world

Account 1

Account 2

Generate wealth

Generate reword

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Purpose of Investment Investment in this world

Purpose is to generate wealth There are many different types of investments

• Short term deposits

1

2

4

• Property

• Debt instruments

• Shares

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Short Term Deposits 1. Short Term Deposits

Cash

Bank savings accounts

Bank fixed term investments

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2. Debt Instruments Debt instruments, which are sukuk and securities. The riskier the sukuk, the higher the return. Capital with return is paid on maturity.

3. Property

Real Estate

Rental Property 14

4. Shares

Stocks

Precious Metals

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Purpose of Investment Investment in the hereafter

Purpose is to generate reward There are many different types of investments

• Short term deposits

1

2

4

• Property

• Debt instruments

• Shares

3 16

Strategy in Developing and Empowering Waqf as a Tool for Wealth Management •

The best policy and strategy in developing and empowering waqf is to integrate the waqf into the Islamic finance system portfolio and don’t keep it isolated.

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This means moving away from the traditional way of handling waqf.

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It is time to upgrade the waqf to a level where it becomes a sustainable source of funding, whereby the waqf is able to generate income by itself to meet future obligations without depending on third party donations. 17

Strategy in Developing and Empowering Waqf as a Tool for Wealth Management •

This a very important strategy to look at.

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The waqf should move to the next level, where it becomes a robust financial instrument, not only to contribute towards the welfare of the individual and society, but also to be an important financial component in the Islamic financial system as a whole.

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Family Waqf as a Wealth Management Tool •

There are three variables in our selected topics: • •

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Family waqf Wealth Management

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The core component in the equation is wealth.

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The question addresses how this wealth should be managed.

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The means selected for the asset/ wealth management is family waqf. 19

Features of Family Waqf as a Tool for Wealth Management •

A Shariah compliant tool

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Flexibility in managing the wealth of waqf

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Flexibility in dealing with the stipulated conditions

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1. A Shariah Compliant Tool •

There is a consensus on the Shariah compliance status of waqf.

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Waqf is encouraged by provision of the Prophet. “When a child of Adam dies, his/her deed comes to an end except for three things: a running sadaqah, knowledge that benefits (others) and a righteous child who prays for him/her.”

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2. Flexibility in Managing the Wealth of Waqf •

From a Shariah perspective, the founder (waqif) has the right and power to determine: • • •

The objectives for which waqf is created, provided there is no violation to Shariah rules; The way the revenue of the waqf can be used and channeled; The management of waqf.

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Family Waqf as a Tool for Wealth Management •

A tool to accommodate the dual investment structure

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A tool to serve the personal desire of the person

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A tool to serve the religion desire of the person

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A tool to serve the social desire of the person

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A tool to serve the family desire of the person

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A tool for retirement plan

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A tool for education plan

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A tool for investment in the market

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A tool for investment in the hereafter

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A tool for debt management

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Areas Covered by Family Waqf •

Family Empowerment • • •

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Eg: Rehabilitating the handicapped Helping the poor Rehabilitating beggars

Education and Culture • •

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Educational development Eg: Supporting local culture & heritage Student scholarships Education in neglected areas Support centre of Islamic business education 24

Areas Covered by Family Waqf •

Health and Sanitation • • • •

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Eg: Village health care & sanitation Supplying pure drinking water Establishing hospitals, clinics etc. Research in health sector

Social Utility Services •

• • •

Legal aid to deserving women Protecting anti-social activities Mosque development project Public utility services 25

Areas Covered by Family Waqf •

Business & Finance Activities • • • • • •

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Support the medium sized companies in the industry Assist the entrepreneurs in the business Enhance the equity investments in the industry Provide Qard Hassan in the industry Enhance the economy by engaging in high risk investments Engage in mega projects

Other Channels • •

Particular channel for waqf General channel – no specific request 26

Cash Waqf in Family Waqf

Bringing Cash Waqf as a Tool for Wealth Management 27

Definition of Cash Waqf •

“Cash Waqf” means "the devotion of an amount of money by a founder and the dedication of its usufruct in perpetuity to the prescript purposes”

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“Cash Waqf in Islamic bank“ is an integrated solution offered by the IFI that provides seamless collection services and financial advice to the non-profit/charity sector with the aim of creating a benefit to both the donor and the organization involved in charity

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Cash waqf is the act of waqf by using cash as the initial/intermediate asset for the purpose of collecting waqf fund which will eventually be changed/converted into non-perishable assets. 28

Objectives of Cash Waqf •

To provide banking services as facilitator to create Cash Waqf and to assist in the overall management of Waqf;

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To assist in mobilization of social savings by creating Cash Waqf with a view to commemorate alive or deceased parents and children, and to strengthen the integration of the family relationship of the well-off people and the rich;

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To increase social investment and to transform the social savings into capital; 29

Objectives of Cash Waqf •

To benefit the general public especially the poor sections of the people out of the resources of the rich;

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To create awareness regarding social responsibilities to the society;

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To assist in developing a social capital market;

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To assist in overall development efforts of the country and to make a unique integration between social security and social peace. 30

Areas for Family Waqf •

Waqf can be implemented in different areas: • •

• • •

Investments Islamic capital markets Islamic finance business activities Takaful Microfinancing

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1. Waqf & Investment

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Investment of Waqf •

Waqf assets can be developed to become an investment instrument that generates a consistent income. • •

Waqf properties investment fund (very prominent area for investment locally or internationally) Built-Operate-Transfer (BOT)

Investment Management for Waqf •

Waqf & endowments are one of the seven significant investor segments in Islamic markets accounting for some US$105 billion at end of 2009

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Waqf & endowments typically focus on long term Shariah compliant real estate and cash holdings

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University endowments have become more prominent, with the main aim of achieving long term capital growth

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Several Waqf funds have also been structured as endowment funds with the principal aim of developing academic institutions; 1.

The International Islamic University Malaysia (IIUM) Endowment Fund aims to raise funds to help students in their studies.

2.

The King Abdullah University of Science and Technology (KAUST) Endowment Fund has an endowment fund of US$10 billion, considered to be the 6th largest endowment fund in the world.

3.

Bahrain’s Waqf Fund for Research, Education and Training in Islamic Finance was established in March 2008 with a capital of US$5.8 million.

Source : 3rd annual edition of the Ernst & Young Islamic Funds & Investments Report (IFIR 2009) 35

Investment Management Trends in Waqf •

Shariah sensitive investments

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Long term assets holdings

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Hold large amounts of real estate used for religious & philanthropic purposes

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Long term capital growth rather than active investment policy

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Asset allocation not so affected by market movements Source: Ernst & Young Islamic Funds & Investment Report 2009-2010 36

2. Waqf & Islamic Capital Markets

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Islamic Capital Market •

Sukuk al Intifa’a as prominent structure for waqf • • • •

Zamzam Towers in Makkah Waqf land leased to Binladin Group for 28 years on BOT to build complex (4 towers, mall & hotel) Binladin leased the project to Munshaat Real Estate Projects for 28 years Munshaat raised $390 million issuing sukuk al intifaa (time-share bond) for 24 years by selling usufruct rights

3. Waqf & Islamic Finance Business

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Services and Consultancy of Waqf Entity Services and consultancy can be provided and managed by institution of Waqf •

Financial planning services

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Asset management services

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Custody and safekeeping services

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Estate management services

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Lease services

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Investment management services

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Shariah advisory services

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Waqf in guarantee business 40

Waqf in Guarantee Business •

Guarantee business is an important area of Islamic finance.

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Guarantee is a gratuitous contract, some Shariah scholars have allowed fees for providing guarantees.

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Waqf can provide guarantee to the market through waqf funds based on cash waqf where profits can be generated.

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4. Waqf & Takaful

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Takaful Based on Waqf •

Takaful is using different models such as Mudarabah, Wakalah, and Waqf.

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Waqf-based model is used in South Africa, Pakistan, and recently in Malaysia.

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Waqf can be used for: • • •

Takaful Re-takaful Mirco-takaful

5. Waqf & Microfinancing

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Waqf in Microfinancing •

Microfinancing is an important area which is in line with the objectives of waqf and zakat because its objectives are to help the non-bankable people and bring welfare and prosperity to the micro business entities that need financial support.

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Cash waqf can be a source of funding, where the cash waqf can be structured to supply the microfinancing market.

Contact Details Dr Ahcene Lahsasna Assoc. Prof. Email : [email protected] International Centre for Education in Islamic Finance (INCEIF)

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Assoc. Prof. Dr Ahcene Lahsasna E: [email protected]

Thank You

Disclaimer

This presentation should not be regarded as offering a complete explanation of the matters referred to and is subject to changes in law. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Labuan IBFC cannot accept any responsibility for loss occasional to any person acting or refraining from action as a result of any material in this presentation.

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