Malaysian Journal of Real Estate Volume 4 No 2 2009

ALTERNATIVE DEVELOPMENT FINANCING INSTRUMENTS

FOR WAQF PROPERTIES

Mohammad Tahir Sabit Haji Mohammad, Ph.D

Department of Land Administration and Development,

Faculty of Geoinformation Science and Engineering, Universiti Teknologi Malaysia.
Correspondence: mtahir@utm.my; mtahirhm@hotmail.com

Abstract
Finding a waqf financing method is a challenge that requires Shariah as well as waqf
law compliance. The alternatives to debt and joint-venture financing are securitisation
and in-house financing. What are these products? How they are operated and what are
the advantages of these products to waqf assets are explored in this article. The article
critically reviews the existing literature with some reference to the practice of the
waqf institutions. The article proposes the best method of financing for the
development of waqf properties.
Key Notes: Waqf, Islamic law, Islamic finance, waqf property development, financial
instruments

INTRODUCTION
Alternative development financing means one that substitutes the debt based
and joint-venture based financing. Alternative financing instruments includes
securitization and in-house financing. Securitisation does not need collateralisation of
waqf fixed assets. Through in-house financing methods, the waqf institutions raise
finance in terms of cash waqf or other waqf and non-waqf cash proceeds to develop
their waqf assets. The financing may come from the waqf institutions own resources
or those of other organizations operating within the structure of Majlis Agama Islam
or bank Negara. Securitisation is another alternative method of development financing
whereby the project is offered to members of the public to participate as investors or
subscribers to saham waqf.
Development of waqf assets through financial institutions financing is
relatively costly because the amount paid to these institutions would be higher
considering the amount of the expenses and time value. Additionally, the ownership
of the developed property or its instalments payable by waqf institutions may last for
twenty-five to thirty-five years. Losing partial income to non waqf entities, from the
developed property can be substantial. It should be the objective of waqf institutions
to avoid expensive long term financing projects by finding other means, if it is
possible. One way to achieve this is through securitisation and in-house financing.
Securitisation includes equity participation (including saham waqf) and bonds.
In-house financing comprises methods such as obtaining advanced rentals under the
concept of hikr, ijaratin, using substitution of land with its value (istibdal) for the
 Alternative Development Financing
Instruments for Waqf Properties

development of another waqf resulting in amalgamation of different waqfs, cash waqf,

and usufruct waqf. Discussion follows.

SECURITISATION OF WAQF LAND AND THE BUILDING

On the substance, securitization refers to a security the return of which is
ownership in assets as in the case of equity participation. Engku Rabiah (2008, p. 445)
explains it in terms of profit sharing or return of capital in the event of liquidation.
Securitisation also refers to the right to the income of underlying assets as in the case
of bonds or sukuk1( Zamir Iqbal and Abbas Mirakhor, 2007, p. 177). In the context of
waqf property financing, securitisation means participation of public, in either of the
above manners, in a given project and, thus, the securitization of the project only.
Securitization of a project is permissible which can be carried out by a waqf
institution provided it has the skill and professional know how of the project
management. The institution will solicit funds from the public together with an
agency agreement so that it can manage the project on their behalf.

Under this method, land or building can be securitised, and the securitisation may be
in the form of equity participation or by way of issuing Islamic bonds (sukuk). In the
equity and sukuk securitization the waqf institution can control the terms of
investment and will enable it to repurchase the shares easily.

Land securitisation

While the ownership of land is vested inalienably in waqf, it cannot be freely

offered for securitisation to public investment on the basis of equity participation
under the current Malaysian law. The institution of waqf can utilise it under the
current legal framework in three ways. Firstly, to be part of the development cost or
be leased for a period of time; this will be discussed later. Secondly, the land is
transferred to a newly incorporated Waqf Development Corporation, under leasehold
terms, who subsequently offers the project to public for equity participation. Any
claim in the land will be restricted to the terms of the lease. Thirdly, development
project is offered to public via sukuk which will be based on participation in the
income of the waqf assets.

Building securitisation

Securitisation of building may be possible under Malaysian law. Under the

Islamic law, land need not necessarily include building (Sarakhsi, d. 483 AH, vol. 7, p
148; Al-Shirazi, d.476 AH, vol. 1, p. 386); land may belong to waqf while the
building may be owned by another party. Often, this scenario arises when the land is
leased by a nazir to another party or when the waqf land is unlawfully possessed by
another party. Malaysian civil court (Majlis Perbandaran Pulau Pinang v Syed
Ahmed a/l MM Gouse Mohamed [2007] 1 MLJ 42, at p 44) has allowed such a split of
ownership. Under this rule the land should be rented or leased and the building shall

1
Zamir Iqbal and Abbas Mirakhor (2007) describe sukuk as that representing a proportionate risk and
beneficial ownership for a defined period of time. Beneficial ownership is the right of the sakk-holder
to the usufruct or the return of an underlying asset.
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be erected on the land with the permission from the landlord. In light of the above
case , building can be offered for equity participation or sukuk in Malaysia. Both
types of securitisation are discussed in the following section.

a. Public issue: equity participation

The waqf institution through its subsidiary (e.g. single project-based waqf holding
corporation - WHC) must issue a prospectus that assigns the subsidiary as a project
manager. The assets assigned to the waqf holding corporation and the project can be
unitised, and each unit would be given a nominal value (e.g. RM 1 per unit),
representing, not a debt, but a share in the physical assets of the project. Such units
will be offered to the public for subscription. The title in the prescribed unit would be
transferred to the unit-holder upon subscription. The issue of the units will be then
listed on the Stocks Exchange, where the units would be a tradable security.
Following the issue and listing, the shares can be sold and purchased in the
open market by the interested public. This provides liquidity in the said investment,
and thereby the investors can sell their shares in the project easily. Listing also
provides easy and simple mechanism to the waqf institution to increase its equity
shares in the project. Other time, it can be used to amortise the nominal value of the
unit reflecting the realistic value of the shares. The institution can also classify some
shares as waqf shares, that either be named so from the very beginning or at a later
stage. (Sabit et al, 2006).

Waqf Institution
Retransfer of title

Transfer
of title
{Transfer of title}
Waqf project

Waqf Registration {Certificate proceeds}

Holding house Investors
Corporation (1) Purchase
price
{Appointed WHC as agent}

{Dividends and repurchase of shares}

{Transfer of unsubscribed shares} Underwriter Bank

Stock exchange

Figure 1: Project Securitisation

Source: Sabit et al, 2006

The capital raised through public issue will be spent on the project. The Waqf Holding
Corporation shall be the manager of the project and its principal task is to manage the
project until completion. Once the project is completed and starts to generate income,
the income therefrom will be used forpaying: (1) the rental of land to waqf institution,
(2) management fees to the Waqf Holdings Corporation, and (3) costs for

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maintenance, (4) the share-holders of the balance, if any. This will represent the real
profit since costs, overheads and operational expenses are deducted from the income.
Equity participation by way of public issue can be implemented in two Shariah-
compliant modes of transactions, namely mudharabah and musharakah. Each of them
are briefly discussed below.

Mudarabah Equity
Kahf (1998) proposed that a Shariah-compliant mudarabah mode may be
achieved if the mudarabah similar to muzaraah mode of financing is applied. Kahf
contended that [t]his mode of financing is based on muzara in which the landlord
provides the land (and may be machinery) to the farmer. A muzaraah mode
mudarabah according to Imam Ibn Hanbal is one where one party provides equipment
and the other provides labour and expertise. For instance, if one has a fishing net and
the other promises to do fishing and the catch will be shared between them, this is a
mudarabah transaction. Both examples do not involve trade. This method of financing
is criticised by Imam Abu Hanifah and Zufar that it suffers from uncertainty of the
subject matter of contract. It is not certain that the mudarib can catch fish. But the
practice of muzaraah has been established since the time of the Prophet (p.b.u.h) and,
therefore, based on the need and practice of society it should be permissible even
though it is against the analogical reasoning (qiyas) (Sarakhsi, d. 483 AH)). The
analysis by al-Sarakhsi of muzaraah, mudarabah and muamalah is illuminating:
muzaraah and muamalah are the types of partnership the same as mudarabah. As
mudarabah is permissible muzaraah and muamalah should be too. In mudarabah,
one contributes capital (cash) and the other party contributes labour (amal/service).
Similarly, in muzaraah one contributes land, while the other labour. In muamalah
one contributes non-landed and non-cash property, and the other his labour. In all
three, the parties share the income (produce of labour) and not the principal (al-
Sarakhsi, d. 483 AH, 23:17-18). It is, therefore, a matter of substance which the
English term output sharing used by Kahf can include all three types of
transactions. If such is correct, then the bonds will be permissible under all four
schools.
In the present scenario, mudarabah based on muzaraah may not be the exact
term; it could be based on the substance as explained by al-Sarakhsi; a hybrid. As
acknowledged by Kahf the transaction involves land and services by waqf as
represented by nazir, and cash by the public. This is not the same as in muzaraah
where the land is provided by land owner and labour and services are provided by the
other party. Land is provided by waqf (through waqf institution), cash by the public to
construct the building. The result will be the completed building which would be
rented out and the output i.e. rental will be shared between parties. The management
of construction project, management and maintenance of the completed building and
the distribution of the profits will be the responsibility of the waqf institution. For this,
it is proposed that the waqf institution has to delegate power to another person (e.g.
Waqf Corporation) to construct a building on given waqf land financed through
mudarabah/muzaraah equity shares. The corporation then can offer to the public the
purchase of output shares with the condition that they authorise the corporation to use
their money for the construction of a building on waqf land. Under this method, the
building will belong to the shareholders and waqf and therefore they will share the
output of the building. Following this model, Kahf proposed the following
procedures:
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1) A permit from the waqf nazer of shareholders to construct specific construction on the waqf land.

2) An appeal from the waqf nazer as an entrepreneur/mudharib to the public to buy output shares at a
given price and conditions as follows:
a) The existence of a permit from the Waqf to the share holders to erect the specific construction
with all necessary conditions, specifications, etc.
b) An agency contract given to the waqf management to utilise resources thus mobilised
from the sale of output shares to establish the said project.
c) Appointing the waqf as a mudarib to hold the fixed asset of the project after completion
for management and investment. [emphasis by author]
d) An agreement on the ratio of distribution of gross output of the project after completion of
construction and the beginning of return giving period, between the owners of the construction,
as rab al maal, and the waqf as mudarib, according to an agreed upon ratio. This distribution
does not specify any income to the land since the return on the waqf land should be implicitly
included in the share of the mudarib.
3) The nazir takes charge of the construction by virtue of the power of attorney on behalf of the
owners of output shares.
4) After completion of construction, the nazir receives it and starts investing and managing it as a
mudarib.
5) The nazir actually distributes gross returns according to the agreement.

To understand the above proposal by Kahf, there must be authorisation of public to

construct building on waqf land, and then there shall be appeal to the public to buy
share in the project with conditions enumerated above including the existence of
permit to the public by the waqf institution for construction of the building.

In our scenario of hybrid contract, the waqf corporation shall obtain authority from
waqf institution (the Majlis) and the public. The institution shall authorise it to
construct building on its land, while from the public to use their money for
construction of the building. The prospectus (termed as appeal by Kahf), which shall
be a legal contract, binding on the shareholders as investors, the waqf corporation as
fund and property manager and the waqf institution as the proprietor of the land. The
contract shall include terms such as that land is part of costs; that the building and the
income derived there from would be shared between waqf institution and shareholders
while the corporation will be entitled to management fees; that the corporation is
authorised by waqf institution and the investors to construct, manage and maintain the
building.

The dividends and expenses from mudarabah shares, unlike those from musharakah,
are calculated based on the gross income of a project and not the net value of the
assets. Then the distribution of these dividends is based on the price of land and the
liquid capital provided by the waqf institution and shareholders. The institution of
waqf will also be entitled to management fees.

Though Kahf mentions the output shares, it is to be noted that he also mentions about
shareholding in the building. This should not be confused with sukuk form of
securitisation. In terms of muzaraah, the land cannot be shared with investors but the
completed building can, as it is the outcome of the venture.

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Musharakah equity
Following Kahf (1998), the musharakah equity has the same procedure as that of
mudarabah in the issuance of stocks to the public. The basic difference of musharakah
from mudarabah is that, in the former, the dividends are determined based on the net
profit. This is because musharakah entitles shareholders to the asset and also to the
income of the asset including net profit and capital appreciation. For this, the
management shall ascertain the market value of the assets and amortize the value of
the shares. Another distinguishing feature of musharkah is that, unlike mudarabah
shares where the maintenance fees were not deducted from the revenue before
distribution, in musharakah all costs including management, land use, and
maintenance are deducted first and the balance is then distributed according to the
share in the equity.

An appropriate mode of this contract requires a pre-existing master lease to another

party i.e. waqf corporation or that the construction of the building should be permitted
on waqf land provided annual rental is paid to the waqf. The share of waqf institution
in the building and income should be based on services it has provided before and
after completion of the project. The shares in the building can be purchased by waqf
or that the building being declared as waqf at certain point of time.

Islamic bonds (Sukuk)

Sukuk is an Islamic bond issued by Islamic banks and financial institutions.

According to accounting and Auditing Organisation for Islamic Financial Institutions
(AAOIFI), sukuk (plural of sak) are certificates of equal value representing after-
closing subscription, common title to shares and rights in tangible assets, usufructs
and services, or equity of a given project or equity of a special investment activity. In
the context of our discussion, sukuk refers to those contracts which have similar
characteristics of a conventional bond, the difference being that it is asset-backed and
represents proportionate beneficial ownership in the underlying asset or its usufruct.
The return on sukuk will be derived from the yield generated by the clients asset (see
Dubai Islamic Bank, 2006).
Bonds representing the ownership of usufruct (manfaah) are compliant with
the nature of waqf law. In the context of waqf development financing, the state of
Negeri Sembilan recognises this financial instrument (Sabit et al., 2006).
Internationally, in addition to the ijarah bonds, sukuk intifa are developed. Recently,
the King Abdul Aziz Waqf, Saudi Arabia, has developed a multiplex of high towers,
Zam Zam Towers near to Masjid al-Haram, on the basis of sukuk intifa, where the
waqf awarded a 24-year reversionary ground lease to the developer. The ground
belongs to the waqf, the building to the developer, and the manafaah (usufruct) was
sold to the sukuk holders. The concept is similar to a time-share vacation facility with
a fraction of ownership in the lease (Abdulkader et al., 2005).

The Malaysian Guidelines on the Offering of Islamic Securities, 2004 recognises

acceptable shariah concepts and principles for Islamic securities. The primary
contractual principles for such securities vary. They comprise bai al-wafa, bai al-
salam, bai al-istijrar, bai al-inah, bai bithaman ajil (BBA), ijarah, ijarah thumma
bai`, istisna, mudarabah, murabahah and musharakah. Among these, sukuk
mudarabah and ijarah are suitable for the nature of waqf. Sukuk which represents debt
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for purposes of tradable security in a secondary market is not advisable. Such a bond
may be issued, as in the case of Malaysian BBA (murabahah) and others. They are,
however, rejected by the majority of Muslim jurists, due to non-compliance with fiqhi
principles. Sukuk musharakah (Malaysian ICM, 2007) are also suggested for the
development of waqf, but such certificates are confusing. If it is meant to be real
musharakah sukuk then the title in waqf property will be subject to partnership which
is against the nature of waqf.

Following the established principles of fiqh, this study suggests three asset-backed
bonds namely ijarah bonds, sukuk al-intifa and muqaradah or mudarabah bonds.
They are discussed below.

Ijarah bonds
Sukuk can be structured on a bundle of ijarah transactions especially where the ability
to trade on a secondary market is required (Lovell, 2004). This can be used for waqf
property development financing as well (Shariq Nisar, 2008).

Under this model, a sukuk certificate is issued by the nazir (through its newly
incorporated development and management entity) to investors or shareholders. The
proceeds will be used by the nazir to develop a income-generating real property or
other cash-generating assets such as rented building. The nazir then leases the asset to
either a third party or a waqf institution, for a period corresponding to the duration of
the tenure of the sukuk certificate. The asset is held in trust for the sukuk holders by
either the issuing company or a separate trustee. As rentals can be paid in advance, the
payments to the bondholders may be fixed as when and how much to be paid (Kahf,
1998; Lovell, 2004). The waqf institution is obliged to repurchase the bonds from the
bondholders upon maturity of the certificates.

Sukuk al-intifa (usufruct bonds)

This bond is a lease derivative developed in Islamic finance for the first time
(Abdulkader et al., 2005, pp 84- 85). Under this contract, the land belongs to waqf
institution, the building to the developer and time-share to bondholders. The contract
between the developer and the waqf institution can be formed on a build-operate-
transfer (BOT) basis. The waqf institution leases the land for a period of time to the
developer who, in turn, constructs the building through a third party (i.e. a contractor).
The developer finances the construction of the building by selling the usufruct (e.g.
vacation or time-share for a period of time) in the building to the public. This can be
implemented by way of securitisation of the fractional ownership of the rights to use a
specific building (e.g. the time-share) for a specific period. The price of the shares
would be determined based on market research, according to season, location, and
other property attributes. The rights to use the property unit would be guaranteed for
the lifetime of the lease (e.g. 24 years) for a specific time and for a pre-specified
space. The time-share can be sold up to the last day of the ground lease.

The securities can be sold before the construction begins. The developer can sell the
shares on a forward sale basis and would run the risk of refunding the shareholders in
case of project failure. Among the rights offered to the shareholders are: staying in the
unit for a specified time, time exchange through an affiliate of the developer, allowing

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the developer to sublease the unit to a willing tenant for a specified period, and even
selling his time-share for profit or loss to a willing buyer who then will acquire similar
rights to the property (Abdulkader et al., 2005, pp 84- 85).

This model is adaptable in Malaysia in case where waqf institutions plan to get
involved in hospitality facilities such as vacation homes, chalets, time-share
accommodation, hotels, motels, travel lodges, hostels, or apartments in their
respective places of jurisdiction.

Muqaradah or mudarabah bonds

Despite early reservations, muqaradah bonds can be used for the development
of waqf properties (Walid Khairullah, 1994, p. 149, al-Amin, 1989, p. 136; Nazih
Hamad, 1993, p. 178; Kahf, 2000, p 275). In muqaradah bonds, as a mudarib (fund
manager), the nazir accepts cash deposits against issuance of certificates given to the
financer (rab al-mal), thus, making him the shareholder in the project. However,
unlike the mudarabah shares, bonds do not entitle bondholders to the capital
appreciation but instead give them the right to usufruct (benefit/manfaah) of the
attached assets.

Under this mode of financing, the waqf institution (through WHC) utilises the
proceeds for the development of the waqf land as agreed upon with the investors. The
distribution of profits should commence once the project is productive but where the
rentals are secured from an existing lease agreement with a third party, the payment of
profits may commence in advance. The net return would be proportionate and
periodical until the end of the mudarabah agreement which could be for a short-,
medium- or long-term. It must be noted that the distribution of profit and repurchase
of bond may be guaranteed by a third party who is not signatory to the contract of
muqarada bonds, e.g. the government. In case of the waqf institution being unable to
pay dividends to bondholders, the government will pay the amount to the waqf
institution (through WHC) for the given purpose on a basis of benevolent loan (Nazih
Hamad, 1993, pp.187-188).

On maturity of bonds, say after 5 years, the waqf institution is required to return the
principal cash to bondholders and retrieve the bonds they had. Muqaradah bonds may
also come to an end by either transferring the property into a waqf or buying it from
the market by the waqf institution.

LUMP SUM RENTALS OBTAINED THROUGH LONG LEASE (HIKR)

The term hikr means monopoly or exclusivity. Instead of selling the waqf property,
the nazir can sell a right through a long-term lease, for a large lump sum, the
equivalent of the value of the waqf property, paid in advance, followed by a nominal
periodical rent. The purchaser of the right under long-term lease can then develop the
property using own resources and at own risks as long as she/he pays the periodical
rent to the nazir. It is cautioned that this financial method should be used a last resort
for the development of the waqf property. Once it is taken, according to Al-Zarqa
(1994, p. 194) the same sum can be utilised for the development of another property.
In return for the development undertaken by the leaseholder, he has an exclusive right
over the property for a long period that usually goes beyond his life time or it may be
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permanent. This right can be marketed, transferred and inherited (Ibn Abidin, d.1252
AH, 4:391), as it can be sold, subleased, made gift inter-vivos or through will, and
donated (Kahf, 1998; Al-Zarqa, 1994, p. 192). The building or plantation developed
on the land would be the property of the lessee (al-Zarqa, 1994, p. 195).
This mode is allowed by Shafii, Hanbali and Hanafi jurists. Contemporary Arab
jurists and Shariah advisers to financial institutions have also approved it. Al-Zarqa
(1962, pp. 40-41) considered it as tool that can be used for the development of waqf
land or for the investment of its assets.
As a mode of self-financing, hikr can be used in two ways: for the development of the
same site or another waqf property (Kahf, 1998). In the first case, the advanced lump
sum can be used for the development of the same site. In the second case, a piece of
land can be offered for a long-term lease in return for a desired amount of the lump
sum. The lump sum obtained from the long-term lease then can be used as capital in a
joint-venture for the development of another land.
Hikr should be applied on case-to-case basis. The classic law permits the granting of
rights in waqf property perpetually. This is, however, not in the interest of waqf. To
act in the interest of the waqf, a hikr contract should not be granted for more than a
maximum period of 99 years (Al-Mawsuah al-Fiqhiyyah al-Kuwaitiyah, vol. 18) as
recognized by Shafiis. This is the same as the current leasehold land alienation
practised under the Malaysian National Land Code 1965. This could be, perhaps,
further modified by the economic life of a development project, say 30 years where
the investor can get his capital plus reasonable profits. Where the waqf institution
needs cash for the development of another land, hikr on long term (e.g. 99 year)
would be the solution, otherwise it could be for short-term if the development through
this method better.

SUBSTITUTION (ISTIBDAL) OF WAQF FIXED ASSET WITH CASH

The term substitution stands for two Arabic words, ibdal and istibdal. The lexicons
and jurists use them interchangeably, but, covenant writers of waqf have used istibdal
to show the sale of one piece of land and purchasing with its proceeds another
(Mawsuah al-Kuwaiti, vol. 1). One may suggest that istibdal is to liquefy the fixed
waqf assets. The permissibility of this type of substitution is discussed by classic and
contemporary jurists.
Istibdal as the sale of all or part of a waqf land and to purchase with its proceeds
another piece of land dedicated as waqf for similar purposes (Kahf, n.d., Tamwil, p
36) is not allowed by Imam Malik at all (Mawwaq, d. 897, vol. 6, p. 42).
Nevertheless it is reported that Rabiah from Malikies allowed the sale of waqf
property, called muawadah, provided the proceeds of the sale are used to purchase
another piece of land and then declared as waqf, the same as the previous (Ibn Rushd,
d. 520 AH, vol. 12, 204). Shafii jurists allowed the exchange of piece of land (Al-
Khatib, d. 968, Mughnial-Muhtaj kitab al-waqf. p. 392.), a horse for jihad can be sold,
and according to Ramli from the same school, the mosque if impossible to rebuild,
can be broken, the items sold, and kept the proceeds if there is hope for its
reconstruction, otherwise the proceeds can be spent on another mosque (Al-Subki, d.
756 AH, vol. 15, p. 361). According to Hanbalis, if the benefits of waqf are not
obtainable, such as where a house is ruined, a land is turned barren, or a mosque, for
some reason, is not used by people for prayers, and cannot be developed due to lack

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of finance, the land can be sold provided the purchased land is considered waqf too in
the same category as the first, or the money is used to improve another waqf. The
Hanafi jurists have unanimously approved the process of istibdal (Ibn Abidin, d.1252
AH, vol. 4, p. 387). Ibn Nujaim (d. 970 AH) and Ibn Abidin (d.1252 AH), however,
prohibited the sale of waqf without substitution by another for the reason that it is
open to abuse and misappropriation by the nazir (Ibn Nujaim, d. 970 AH, 5:222-223).
Nazih Hamad (1993) sums the discussion on the permissibility of istibdal as he writes
that in principle, the majority of jurists allow istibdal, if it is needed and benefited
waqf. Jurists, however, differ on the flexibility and rigidity of their application, among
whom the Hanafis are liberal as they allow substitution if that is needed, or is in the
interest of waqf or its beneficiaries, whether conducted by the waqif, nazir, or
government, irrespective of whether the property is productive, ruined, immovable or
chattel, as long as the compensations are not below market price (Nazih Hamad, 1993,
p. 182).
Despite Kahfs (1998) misgiving about this mode as a financial means for
development, there are two modes of financing through istibdal.
Nazih Hamad (1993) proposes a joint waqf (waqf mushtarak) where different waqfs
of similar or different objectives have small estates in the city, the development and
management of which is not within the capability of waqf institution or its
management is not economical, istibdal can be used. That is, all of the small estates
could be sold, the proceeds of which can be used to purchase another piece of land
[perhaps in a strategic area] and building be erected on the land. Similarly the
proceeds can be used for purchase of another estate [perhaps a building] with a
potential for higher income. The new property can be a substitute for all the sold
estates, and the income of the new property should be distributed according to the
capital generated by the old estates (Nazih Hamad, 1993, pp. 186-187). This proposal
is practiced in Singapore (Kahf, 1998).
The second method is to sell a portion of a given waqf land and use the proceeds for
financing the development of the remaining portion of the same waqf land (Bahuti, d.
1051 AH, 2:514-515; Ibn Qudamah, 6:225). This is a partial substitution which allows
liquidity that is needed for the operational activities of a waqf. It is a means of
financing, especially, in case of urban lands whereby the price of a part of the
property may be sufficient to construct a building on the remaining land and therefore
increase its revenues (Kahf, 1998).
The above is possible if one accepts the views of Hanafies, provided that the donor
allows the said change of the waqf property or it is so due to necessity which is also
the view of Hanbalies, and an opinion in the Malikies and Shafiies with an exception
of mosque (Al-Amin, 1989, p. 135).

WAQF SHARES
Waqf shares or saham waqf is not the donation of equity share in a corporation. It
may appear as cash waqf but, in fact, it is not. It is the offer of a specified share to
members of public in a project for construction of a specific building. The public will
be requested to buy a share in the proposed building for a specified price. The
purchasers of the share have to declare that they will not demand income that the
share in the given asset will be waqf for a specified purpose. Various waqf
development projects have been so far funded in this way. It is the best waqf financial
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product so far suitable to the development of waqf property. Though originated in

Malaysia, it is accepted now in some Arab countries. The fundamental weakness of
this method is that it ultimately ties liquid waqf donation to fixed assets and
henceforth remains static as such. This will only become the best option for waqf
development financing particularly if there is already a specific project in place or
about to commence.
Should this method be aggressively promoted, it has certainly a great potential for the
development of waqf properties. This will be further enhanced if the procedure for it
is improved. For example, the requirement of sighah to be witnessed in the Majlis
may be an obstacle to the growth of saham waqf. Should there be no such a
requirements, it is presumed, more individuals could contribute to it. There is need to
promote this novel option through various ways and with an easy way of
performance. An aggressive campaign may provide waqf institution with good source
of financing.

CASH WAQF
Cash waqf should not be confused with saham waqf. The latter may be project-based
where a project is created or proposed and then money for it is raised. It is attracting
cash from the public but at the end, it is fossilised in real estate. The real estate is the
principal waqf. Cash waqf can be accumulated in the same manner, however, it will
not be project based. The accumulated funds will remain as principal capital, and as a
liquid waqf. Real estate may be purchased with these funds. It however can be freed
from real estate anytime it is needed. This is because the real estate will not be the
capital of the waqf rather a commodity intended for liquidation. Such liquidation will
be used for realising profits or to save the waqf capital from suffering losses.
Despite tremendous efforts made by waqf institutions to minimise the costs of
development through adoption of various strategies for obtaining development
financing, financing through market players is expensive in time and reduces waqf
revenues. As the majority of waqf properties are fixed assets, partial financing of
development projects may not be sufficient through hikr or istibdal. Therefore,
besides saham waqf, another instrument of financing needs to be considered. A cash
waqf should be accepted in Malaysia and, therefore, joining a list of countries that
recognise cash waqfs. At present, countries which accept and practice cash waqf are
Egypt, Iraq, Syria, Iran, Turkey, India, Pakistan, Burma, and Singapore (Sayed Khalid
Rashid, 2003).
Recognition of cash waqf is not new. Imam Zufar has allowed cash (Ibn Abidin,
d.1252 AH; Shawqi Dunya, 2003, Shihatah, 2004) without attaching any condition.
The majority of Malikis (Azhari, d. 1335 AH, 2:306; al-Qurafi, d.684 AH, 6:312-313)
allowed cash and food stuff as waqf (al-Kashnari, d.1397AH, 2:221), though some of
them held such a waqf to be reprehensible (makruh) (al-Hattab, d. 954 AH, 6:22). The
Hanbalis (e.g. Ibn Qudamah, d. 620 AH, 5:373) are deemed to have not allowed cash
but according to Ibn Taymiyah, the various rulings on the invalidity of cash waqf are
based on the opinions of al-Khiraqi and those who followed him. There is no opinion
of Imam Ahmad on the point, and hence according to Ibn Taymiyah (d. 728 AH,
31:234), cash may be a valid subject of waqf. According to Imam Shafie and Ahmad,
anything that can be used and utilised recurrently is suitable for waqf (al-Qurafi, d.684
AH, 6:312-3). Some Shafii jurists, therefore, allowed the dedication of dog for

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purposes of waqf, as the benefit (manfaah) from the dog for protection is recurrent
(al-Subki, d. 756 AH, 15:320).
There are two ways in which cash waqf can be utilised: micro-financing and
investment. The maliki and hanbali scholars allowed cash waqf for micro-financing.
The founder of the cash waqf would dedicate a specified sum of money for being used
as benevolent loan (qard hasan) to the poor. Once the loan is repaid, it can be loaned
to another. Such a process will repeat as time passes again and again. The hanafis
nevertheless, allowed cash waqf to be used for mudarabah transactions. The founder,
according to these jurists, is allowed to dedicate a specified sum for the benefit of
poor and needy. The sum so dedicated will be used as a capital for mudarabah
transaction. Once the profits of the transaction are determined to have accrued, the
said income will be distributed among the specified beneficiaries of the waqf. The
capital can be reinvested in the same manner. The proposed mudarabah transaction
might be considered as the mode of appropriate business transactions in the time of
the early jurists. It is possible to capture the spirit of the mudarabah transaction and
utilise the cash capital for any investment suitable to the nature of waqf; that is to
allow the cash capital of waqf to be invested in Shariah and waqf law compliant
business transactions. Once the revenue is determined it will be distributed among the
beneficiaries of the waqf.
In the context waqf property development, cash waqf will be used to finance such a
development. The cash capital of waqf will liberate the development of waqf
properties from the complexities mentioned under the various financial instruments.
There would be a waqf mushtarak. The land would come from one waqf and the
financing from another. There would be no restriction as to who should own the land
or the building. Similarly, there would be no fear of losing the waqf property to a non
waqf person or entity. Neither there would be concern for the income to be going
outside waqf. Yet, there would be no harm to keep the waqf mushtarak for ever, or be
on a temporary basis. The temporary waqf mushtrark would be on the basis of any
investment mode (i.e. ten to thirty years). At the end of the transaction, the cash waqf
can be separated and invested in other business ventures similar to the first (waqf
property development) or ordinary businesses. There is no doubt, therefore, that cash
waqf will not only solve the current financial problems of waqf institutions but will
also result in transforming these institutions to successful non-profit business
enterprises. As a whole, this will enhance the capability of the waqf institutions to
contribute more positively to the sustainability of national socio-economic
development programs.
Raising cash waqf may not be very difficult. Muslims are generous and know their
socio-religious duties. Time and time again they have contributed to various charities
by millions. An effort may be needed. Raising the cash waqf would require publicity
and influential sponsors and patrons in terms of personality, wealth, and efforts.
Consistent promotion and ease of contribution will strengthen the drive. Innovative
methods of promotion and contribution are needed to be developed for that purpose.

WAQF AMALGAMATED DEVELOPMENT FUND

An amalgamated fund may be formed by a waqf institution from all cash obtained and
available to the institution. This fund may comprise cash received in one or a
combination of few.

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The institution may acquire benevolent loans from the government, Bank Negara, the
institution of zakat, the baitulmal, and government-linked companies or international
financial organisation for the development of waqf properties.
Sabit and Hamid (2006) have proposed that a new approach is needed to the concept
of waqf properties. All revenue-generating properties are valued and such a value is
considered the capital of the waqf. This is proposed because contemporary waqf needs
cash as much as it needs fixed assets. Assuming the ulama agree with the above
proposal for the recognition of cash waqf, usufruct waqf (including waqf
amal/services, labour and skill) as well as using cash proceeds from other waqfs in
the manner described above, the waqf institution can have liquid resources plus skills
whereby it would be able to finance part or the whole of the development costs on
their own.
A waqf institution may establish its own in-house or national development fund (e.g.
Yayasan Waqf) comprising of all the above liquid assets. With this, in a long term, it
is hoped that the institution would not only be self-sufficient but also can establish its
own investment funds that can participate actively in the Malaysian Islamic capital
market. It is possible if cash waqf is promoted properly, and the cash capital of
existing waqf are not converted to fixed assets, the institution of waqf can establish a
waqf bank, attracting investment deposits form public including corporate investors,
and investing waqf capital. This will make the institutions of waqf independent and
will be able to help the public in a more Islamic and socially responsible manner.

CONCLUSION
As an alternative to debt and joint-venture modes of financing waqf property
development, this paper explored the viability of securitisation of the project, in-house
lump sum financing by way of long term leases, substitution of land with cash
(istibdal) waqf shares, cash waqf, usufruct waqf and waqf amalgamated development
fund. Each of them has its own advantage, but, if one has to prioritise, preference
should be given to cash waqf plus usufruct waqf. The ease of attracting cash waqf and
its liquidity makes it the best choice for the financing waqf development project.
Usufruct waqf (waqf amal) which is the dedication of effort, skill and labour is
distinct but greatly assists the waqf institutions in cutting their costs.
Acknowledgment
This article is the amended version of a paper presented at the National Waqf
Convention 2006 which was based on the report of a research project (an Ideal
Mechanism for the Development of Waqf Properties) sponsored by MOHE, 2004-6.
A word of thanks goes to Associate Professor Dr. Abdul Hamid Mar Iman and
Associate Professor Dr. Ismail Omar for their co-authorship of the research report.
This work will not also exist if it was not for the encouragement, assistance and
efforts of the colleagues and friends in the faculty especially Prof Dr Abdul Hakim,
and the staff of the Research Management Centre, UTM, Malaysia.

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