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Towards the betterment management and transparency of waqf institutions:

Lessons from the Charity Commission, UK.

Shahul Hameed Hj Mohd Ibrahim

(International Islamic University Malaysia)
Hidayatul Ihsan
(International Islamic University Malaysia)
Abdullah Muhammad Ayedh
(International Islamic University Malaysia)

This paper explores the issues of accountability and transparency in waqf institutions
among Muslim countries. Previous studies show that there is lack of management of waqf
in most of Muslim countries. There is no transparency and lack of accountability in
managing waqf assets. A comparison study between waqf with charities in the UK is
made in this paper. Through examining the Charity Commission’s proposals, we find
some aspects from the Charity Commission proposals could be adopted for waqfs.
namely internal financial controls, transparency and reporting, management of funds
and code of Good Governance.

Corresponding author: Mobile: +62166028903 (Hidayatul Ihsan)

E-mail addresses: (Hidayatul Ihsan) (Abdullah M.Ayedh), (Shahul Hameed)

Towards the betterment management and transparency of waqf institutions:
Lessons from the Charity Commission, UK.

1. Introduction

Waqaf (plural: Awqaf), used to be a significant element in the development of Muslim

society. It was laid down firstly by Prophet Muhammad (PBUH) and the sahabah
(Prophet’s companions). Later, during the period of Khilafah Islamiyah, waqf was still one of
the important parts in Muslim’s life. There were many famous awqaf created by kings and
wealthy persons. For instance, Al-azhar mosque which is still being used to date is one of
waqf property from the Fatimid Caliphate1.

However, with the passage of time, waqf become less popular among Muslim society.
Moreover, colonialism has made the situation become worse. Even though the activities are
still there, however, it is not as widespread as it used to be. In some Muslim countries, waqf
properties have been neglected as. not much attention is paid for it. Therefore, it is not
surprising if some of waqf properties are not recorded properly or even have been missing.

The main problem of waqf today is a lack of management in most Muslim countries. Besides,
the mutawallis2 (managers) who have the responsibility to manage waqf property have
insufficient skills to handle them. Mutawallis have to find alternative ways how to increase
the value of waqf properties.

Ironically, Western society pays attention to endowment activities, classified under charities.
Charities have become a part of European life. In their quest to create a better society, many
charities have been establishing in the European and Western society. Some of the best
charity management practices can be found in the UK. Their proposals for managing
charitable activity can be a good model for the betterment of waqf institutions.

The main objective of this paper is to examine the practices and standards of the Charity
Commission in the UK regulates charity activities as some of these can be implemented in
waqf institutions. To achieve that aim, we organize this paper as follows : the next section
will discuss the definition of waqf, it’s types and the development, followed by the portrayal
of charity activities and the development of the Charity Commission in the UK. Later we will
examine and propose some of the Charity commission’s proposal which can be adopted by
waqf institutions.

2. Waqf: An Islamic endowment

2.1. Definition of Waqf

According to Raissouni (2001), waqf in Arabic term means “habs” “locking up”, forbidding
movement, transport or exchanging something. The word waqf is used in Islam in the

Fatimid Caliphate is the Ismaili Shiite dynasty that ruled North Africa from A.D. 909 to 1171
In some references, manager of waqf also called nazer. These both terms are used interchangeably in
this paper.

meaning of holding certain property and preserving it for confined benefit of certain
philanthropy and prohibiting any use or disposition of it outside that specific objective so as
to seek the pleasure of Allah.

In line with above definition, Sadeq (2002) defines waqf as the locking up of the title of an
owned asset from disposition and allotment of its benefit for a specific purpose. In addition
he explains that waqf assets can not be disposed of and its ownership can not be transferred.
Rather, only its benefit (usufruct ) can be used for specific purpose.

Whereas, Kahf (1992) describes waqf as “holding certain property and preserving it for the
confined benefit of certain philanthropy and prohibiting any use or disposition of it outside
that specific objective”.

Moreover, Kahf (1992) explains that even though commonly waqf widely relates to land and
buildings, however, waqf can be in terms of books, agricultural machinery, cattle, shares and
stock as well as cash money.

From the definitions given, we can highlight the idea of waqf as an abstention of assets from
consumption in order to keep them available for repeated extraction of usufruct.

2.2. The history of Awqaf in Islam

According to Raissouni, (2001), waqf activity had begun in the life of Prophet Mohammad
PBUH when there was waqf for worship purpose, i.e. Quba’ mosque in Medina. Later on, it
is considered as the first religious waqf in Islam3. Beside religious waqf, there was also
charitable waqf which aimed to help the poor and for social purposes. For instance,
Mukhairiq (one of Prophet’s companions) gave his seven orchards in Medina as awqaf to
help the poor and the needy.

During the period of second Caliph i.e. Omar bin Khatab, the Islamic state developed and
extended awqaf activities. Further, waqf activities had achieved it’s highest stages during the
Ottoman Empire4 . Additionally, in the early of seventh century, mosques and religious
education were the largest form of waqf and voluntary contributions.

Throughout the time, waqf had a significant role in the development of Muslim’s societies,
especially in social and economic aspects. Raissouni (2001) reveals that Islamic awqaf had a
substantial contribution to the promotion of mutual support and solidarity among Muslim
individuals and institutions, as well as the social and economic development. In fact, awqaf
were the richest charities institutions. For instance, in Egypt awqaf were owned around 24%
from total agriculture lands (Kahf, 1992). In addition, Raissouni (2001) portrays that awqaf
institutions in many Islamic countries were exclusively limited to mosques and some related
facilities to them, and shrank in social welfare, cultural activity and educational development

There is different opinion regarding the first waqf in Islam among scholars. Some consider that the
first waqf was by Omar bin Khattab, when he gave a piece of his land in Khaibar. However, it will be a
subject of waqf history.
Ottoman Empire (Ottoman Turkish) existed from 1299 to 1922

Moreover, during the nineteenth century in the colonial time, awqaf management was
subjected to colonial system. Later, after the independence of Islamic countries which most
of the leaders were secular, as a consequence of that awqaf properties were adding to public
sector such as in Syria, Egypt and Turkey (Al-Jaowhary, 2001). Nevertheless, nowadays
there are some countries such as Lebanon, Jordan, Iran, Turkey and Algeria have enacted
laws of awqaf property in order to develop and revitalize awqaf property as well as encourage
Muslims in those countries to create new awqaf.

2.3 Types of Waqf

Farfor, (2001) classifies waqf based on it’s purposes, namely:

1. General Waqf: or public waqf whereby its usufruct is specifically for the public
interests. It is for public in wide-ranging such as public bathrooms, hospitals and
2. Family Waqf (posterity waqf): usually it is the same as general waqf unless there are
some conditions which specify that waqf revenue will be addressed to the waqif ‘s
(founder) children and their off-spring, but they may not sell the property. In the other
words, their family only has right of the usufruct, not on the property. Therefore, in
case there is surplus generated from waqf, it should be distributed to the poor.
3. Private Waqf (Philanthropic): this private waqf is charitable, but for specific purpose,
such as waqf for poor people in Africa and waqf for another waqf, for instance: waqf
building or land for mosque or schools. Thus, any revenue from the building and land
will be used for first waqf.

Kahf, (1998) categorizes waqf into two types based on nature of its output. The first type are
assets that generate consumable services to be utilized by the beneficiaries, for purpose of
providing philanthropy (Direct waqf). Second type of waqf asset is intended for investment
for awqaf properties. It produces marketable goods and services to be sold in order to
generate a net income, this income utilizing to reconstruction awqaf properties or to fulfill
philanthropy purposes (Investment waqf).

While Raissouni (2001) classifies waqf based on it’s functions and roles into: worship waqf
(mosque and such facilities for worship rites), science and education (schools universities,
wages of teachers and such facilities of it) and social welfare (helping the poor and needy
people; health and medicines services; public facilities such as providing water resources;
marriage and needy married couples).

2.4.Contemporary Waqf

Unfortunately, waqf today is not as it used to be. It hard to believe that even more in some
Muslim countries, such as Pakistan, Bangladesh, Maldives, etc the number of waqf property
can not be identified properly (Rashid, 2002). In line with this fact, Abdul Rahim et al (1999)
find that there is no systematic administration regarding waqf property in Malaysia. More
recently, Rokyah (2005) concludes that most of waqf trustees in Malaysia do not have proper
waqf financial procedures.

The lack of administrative and management of waqf indicates that waqf institutions have been
neglected by Islamic community. Rashid (2002) opines that the influence of colonialism

could one of the causes. Whereby in some Muslim countries which were occupied by British,
there was an abolishment of institution of qadi5 which deprived awqaf of all the supervisory

Whereas Rokyah (2005) argues that the ignorance of the waqf institutions among Muslim
society might be due to a more materialistic world, whereby people consider that waqf has no
economic contributions to their life. Therefore, waqf activities has become less popular in the
recent time.

However, the main point from these evidences is there are many problems with regard to
waqf institutions nowadays which need to be solved. We try to outline some or the main
problems which are faced by waqf institution today.

Management aspects

There is a call for improvement regarding managing and monitoring awqaf activities. In fact,
there are mismanagement, corruption and fraud in waqf institutions, especially the family
awqaf (Raissouni, 2001). Mismanagement and illegal transfer of waqf property can make
degradation of public’s confidence to the manager (mutawalli) of waqf. Therefore, there is a
strongly need for modifications to the management of awqaf.

Moreover, there is lack of accounting procedures of awqaf assets, revenues and expenditures
(Abdul Rahim, 1999). For instance, in the Malaysian scenario the awqaf income
transactions were recorded under general resources account. Therefore, there is no
differentiating between awqaf and other charitable resources and no differentiating among the
various types of awqaf themselves. Basically, the unique nature of awqaf which makes it
different form other Islamic resources such as sadaqah (donation) is in terms of it’s
permanent endowment. Thus, awqaf indeed needs different accounting treatments.

Similar with above evidence, Rokyah (2005) identifies that waqf institutions in Malaysia did
not maintain proper accounting reports. Disclosure and transparency is therefore one of
waqf institution issues.

Additionally, there is a need of strong internal and external audits of waqf institutions to
inform users of awqaf financial statements (waqif or founder, court and public) that the awqaf
management (mutawalli) is properly mnaging it (Raissouni,2001). In fact, Rokyah (2005)
discovers that there is lack of internal control system in waqf institutions, whereby the
financial staffs were handling and responsible for more than one account. Therefore, she
suggested having experienced accountants and assistants to account for awqafs.

Qadi is an Arabic term meaning "judge", whose duties are outlined in the Sharia. The responsibility
of a Qadi is restricted to issues connected to religion, involving marriage and divorce, and inheritance,
including waqf of which a qadi was often the trustee.

The investment of awqaf properties also needs specials skills of the manager of awqaf. This
will reduce incompetence by the awqaf managers and to increase the effectiveness and
productivity of the awqaf properties ( Kahf, 1992). Further, Kahf (1998) argues that the value
of waqf property should not be idle; rather it should increase over the time.

Ironically, many of waqf properties are unproductive. Rokyah (2005) finds that there are
many acres of waqf land in Malaysia rented at at below the economical rates. Thus, it seems
that waqf property can not generate satisfactory income. Therefore, there must be qualified.
Mutawallis to manage awqaf investments .

Legal aspects

Some countries are still following outdated waqf acts, eventhough it is a heritage from the
Colonial law (Rashid, 2002). Furthermore in certain country such as Maldives, there is no
waqf legislation . This will be problematic for the waqfs as some of the regulations could be
inappropriate and not in line with Islamic rules. For instance, waqf al alaulad (family waqf)
is excluded from the definition of waqf in some countries such as Bangladesh, Sri Lanka and

Hence, there is a need for a new and complete legal framework for waqf including clear
definitions identifies waqf’s functions, objectives, types of waqf and regulates waqf socially
and economically. In addition, there is a need for legal actions to review the previous records
of awqaf properties and to return back the awqaf properties that have been taken by
government or by individuals (Rahim 1999).

In addition, Abdul Wahab (2002) suggests that the call for establishment of an independent
body or board which is responsible to regulate waqf institutions should be considered by
Muslim governments.

Educational aspects

Since the waqf is no longer popular among Muslim societyas it used to be, it is an
imperative to educate people in order make them care about creating a better society. Thus,
education will make people aware that waqf is one vehicle to achieve a better ummah.

Moreover, according to Rahim (1999), there is a need for academic researches of the
structure, functions and authorities of proposed department or ministry which is responsible
of awqaf affairs. This is inline with Raissouni (2001), who suggests that academicians to do
more scientific researches about awqaf affairs.

Furthermore, Kahf (1998) suggests that Fuqaha (jurists) academicians should make Ijtihad
in terms of the new vision of awqaf and in terms of awqaf investment in the modern stock
market system,). Also there is a need for more academic researches in terms of techniques of
managing awqaf and accounting procedures of awqaf.

The above review shows that many things have to be done in the improvement of waqf
institutions. Of course these problems can not be solved overnight. There is a need for
continuous and gradually effort.

In the next section we will highlight the endowment activities among Western society
especially in the UK,.. This could enable us to manage and improve charity activities and
learn whether their methods can be used for improvement of waqf institutions.

3. The portrayal of charity sector in the UK

The charity activities have become significant elements in public life in the UK. It operates
alongside the public sectors to make contribution to the well-being of the society. Further, the
way how the charity activities are being regulated in the UK could be a good lesson for awqaf
management in the Muslim countries. It does not mean that waqaf can be compared with
charity, since the nature of them is different. However, in terms of management, the Charity
Commission in the UK could be a prototype of better management in endowment activities.
Before we examine which part of the Charity Commission’s model can be adopted by waqf
institutions, we will highlight the history of charity activities in the UK and the establishment
of the Charity Commission and some of their accounting practices in order to get a better

3.1. The definition of charity

Basically, the word of “charity “ ( Latin : caritas) is a term in Christian theology (one of the
three theological virtues) meaning loving kindness towards others; it is held to be ultimate
perfection of the human spirit, because it is said to both glorify and reflect the nature of God.
Further, in its most extreme form charity can be self-sacrificial ( ).

In line with this definition, McCants (1997) mentions that the reason why individuals are
motivated to behave charitably is due to the Christian spirit. He explains that as a Christian,
one should sincerely wish good, pray for good, and act for good to all men. Yet, he does not
deny that the spirit had shifted to what a Dutch historian called as “the logic of charity “,
whereby for elites, poor relief held out the promise of a number of social and economic
benefits, namely : (1) maintaining a reserve of workers, (2) confirming the proper place of the
poor in a static and hierarchical society, (3)maintaining the public order, (4) control the
epidemic infections and (5) the moral improvement of the poor.

Compared to Islamic terms, actually there is no classical Arabic word which corresponds to
charity. Words such as ihsan (doing good) or karama (generosity) cannot be translated to
charity (Sabra, 2000). Qur’an uses the word infaq, saddaqa, and zakat as perfect synonyms
of ways for spending in the way of Allah ( Hassan ,1986) (as cited in Haniffa &
Hudaib,2002). While, the terms waqf is used for Islamic endowment and bequest. However,
in the following sections the term of charity will be associated to waqf. Since some writers
consider waqf as the perpetual charity in Islam (Sadeq, 2002)

3.2. The history of charity in the UK

To date, charities are part of British life. They range from small groups with few resources to
well-known big charities with millions budget. The history of charity in the UK dated back to
the sixteenth century, when poor harvests and a long war with Spain resulted in a large
increase in the number of poor vagrants. Then, a statutory system of poor relief was created

as a means of reducing the risk of violent insurrection by hungry mobs, and individuals were
also encouraged to give voluntarily (The Charity Commission, 2005a).

Due to the money given was not used properly, the statute of Elizabeth was passed in 1601 to
gave commissioners power to deal with most forms of breach trust, and to ensure that
property given to charity was used as the donor intended.

From the 1780s onwards charity began to be shaped by the economic and social demands of a
rapidly industrializing society. The industrial revolution gave impact to the social crisis,
whereby there was social deprivation between the rich and the poor
( ). The number of people in urban areas lived in poverty,
bringing new problems of environmental health, housing, and, especially, education. As the
result, many people felt that the benefits of education had to be opened to the poor. Provision
of mass education was initially undertaken by charity. Later, the introduction of income tax
in 1799 also saw the introduction of tax benefits for charities.

In 1818 the Parliament of Great Britain launched a detailed and elaborate investigation into
the administration of educational charities. In the following year, the Charitable Foundations
Act 1819 was legislated to cover all charities. The Charity Commissioners were set up as a
permanent body in 1853, and in 1860 they were given all the powers enjoyed by judges of the
Chancery court in relation to charities

The charities proceeded to the first world war, when many people were keen to contribute to
the war effort , and The War Charities were established to relieve the distress and suffering
caused by the war. Moreover, the 1916 War Charities Act sought to protect donors.

In the following years, a number of charity acts had been issued to regulate charities such as,
the Charity Act 1960, the Charity Act 1985, the Charity Act 1992 and 1993 which shapes
today’s Commission.

However, the significant change occurred in the late 1980’s, when Sir Philip Woodfield
undertook some developments such as a new office in Taunton and the computerization of
register. Further, commissioners with business and voluntary sector backgrounds were
appointed to answer the need for more external influence.

More recently, the Commission’s ongoing Review of the Register of Charities has led to the
redefinition of charities. For example, Relief of Unemployment, Urban and Rural
Regeneration and Community Capacity Building being accepted as charitable purposes in
their own right. and more recently, conservation of the environment was accepted as a
charitable purpose in March 2001.

The above history about charity and the Charity Commission in the UK shows that the
society in the UK are aware about social improvement. They have been continuous
improvement in managing charities. Unfortunately, this spirit has been degraded among
Muslim society in the recent times.

3.3. The roles and responsibilities of the Charity Commission

The aim of the Charity Commission is to maintain public confidence in the integrity of
charity (the Charity Commission, 2002a). They do that by encouraging the development of
better methods of administration, giving advice to trustees and correcting abuses of charities.
Nowadays, the Charity Commission for England and Wales is regulated by Charities Act
1992 and 1993.

Up to five Commissioners are appointed by the Home Secretary. They are responsible the
Home Secretary and Parliament for the effective performance of the Commission as the
statutory organization that regulates charities. The Commissioners are required to make an
annual report on their operations during that year to the Secretary of State and a copy to both
houses of parliament. There should be at least three Commissioners, two of them to be
qualified lawyers. Prior to the Charities Act 1992 and 1993, the powers of Charity
Commission were limited. Currently, the powers and functions of Commissioners are set out
by the Charities Act 1993 which can be summarized as follows:

 Allowing the Commissioners to institute an inquiry, to call for documents and to

search for records;
 Allowing the Charity Commission to exchange information with other
Government departments, local authorities, any constable or other public body;
 Making it an offence to knowingly or recklessly provide the Commissioners with
false or misleading information;
 Allowing the Commissioners to suspend a trustee /officer/agent / employee of
the charity or to appoint additional trustees or a receiver /manager to protect
 Allowing the Commissioners to disqualify an individual from acting as a trustee
of a charity.
(Lock, 1998, p.407)

However, the Commission has some limitations in their roles. They do not have power to
administer charities and may not interfere with the trustee’s exercise. It means that the
Commission can not change decisions properly made by the trustees. Moreover, Commission
has no power to make grants to charitable organizations and can not make decisions for

Even though the roles of the Charity Commission in managing charities seem very effective
and significant, however, prior to the Charity Act 1992 and 1993, they were being criticized
by public. There was lack of investigation of the Charity Commission to two charities
companies, i.e. War on War and Oxfam which went insolvent. ( Lock,1998). However, this
critique led to the revaluation of the roles of the Charity Commission in the UK.

3.4. Charitable companies: Roles and classification

A charitable company is any charity established as a corporate body, including a charity

registered as a company under the Companies Acts. To date, many charitable companies have
established in England and Wales, either in individual or corporate types.

All charities in England and Wales which are not specifically exempt or excepted from
registration are required to register with the Charity Commission. Exempt charities are

charities that Parliament has specifically decided do not need to be supervised by the
Charity Commission, typically due to other arrangements already exist to supervise and
regulate them. For instance, universities, many maintained schools, and many national
museums and galleries. In addition, no charity is required to be registered if it is a registered
place of worship.

While an excepted charity is a charity which is excepted from the duty to register either by
Regulation made by Ministers or by an Order made by the Commissioner. A charity also
excepted from registration if it has neither:
 Any permanent endowment, nor
 The use or occupation of any land (including buildings);nor
 An annual income from all sources of more than £1,000.

To date, there are 190,000 registered charities in the UK and Wales with £32 billion annual
income (the Charity Commission, 2005d) . The Charity Commission classifies those charities
based on size and activity whereby, the classifications are as follows:

Table 1: The classification of charities by the Charity Commission

Small Income less than £10,000

Medium Income £10,000-£249,999

Large Income £250,000-£999,999
Very large Income £10,000,000 +
Financial assistance Providing financial assistance

Buildings Providing building / facilities / open

Services Providing services (e.g. care / counseling)
Umbrella body Acting as an umbrella / resource body
Research Sponsoring or undertaking research.

The classification made upon charities in the UK assists the Charity Commission to regulate
them. It helps the Commission in administrating such categories of charities. The way of the
Charity Commission administrated them could be a good model for waqf institutions.

3.5. Trustees and their duties and responsibilities

Charity trustees are the people who responsible under the charity’s governing document for
controlling and managing the charity. They may be known as trustees, directors, board
members, governors, or committee members. The main duties and powers of charity trustees
are set out by the Trustee Act 2000.

As summarized in the Charity Commission Publication CC 3 (a), a charity trustee must fulfill
his responsibility to the charity and must:

 Act together with his fellows and not delegate control of the charity to others. In case
there is delegation of work, should under trustee’s control.
 Act strictly accordance with the charity’s governing document
 Act in the charity’s interest only without regard to his private interest
 Manage charity’s affair prudently and take a long-term as well as short term view
 Not derive any personal benefit or gain from the charity
 Take professional advice on maters which he / she is competent.

Besides above responsibilities, charity trustees are also responsible in managing charity’s
finance and income, as well as charity’s property. The most important one of trustees’
responsibility is to protect the charity properties. If funds lost due to trustees negligence, they
have to repay to the charity the funds lost. This restriction is to protect the charity’s property
and funds can avoid misappropriation or misapplication of the funds.

In the next section, we will investigate some of the Charity Commission’s proposal regarding
how they manage charity companies in the UK. Some of it’s model might be applicable for
waqf institutions. However, it should be noted that not all of charity regulations in the UK
comply with waqf institutions, since their nature is different.

4. Lesson from the Charity Commission, UK

Internal Financial Control

The Charity Commission provides guidance regarding the basic internal financial controls
which have to be considered by trustees in managing charities (The Charity Commission,
2003). The guidance is provided as the trustees are responsible to protect the property of their
charity. Therefore, it is essential to have adequate internal control over the charity assets and
it’s use.

The Charity Commission outlines three basic internal controls which should be owned by
charity, namely: (1) segregation of duties, (2) qualification of staff and advisers, and (3)
budgetary control.

One of the main controls is the separation between those who record transaction and those
who process the transactions. The segregation of these duties becomes more important with
regard to both income and expenditure, and capital transactions. Further, the segregation will
reduce significantly the level of errors and oversights, as well as manipulation or abuse and
builds in additional checks.

In addition to segregation of duties, the Charity Commission recommends the trustees to have
independent professional advice. Besides, the trustees are required to ensure that their staffs
and volunteers are competent, properly trained, and qualified to perform their tasks.
Moreover, trustees should give attention for any advice from accountant or independent

Trustees are also advised to work within an agreed budget and to undertake full financial
planning. For each financial year, they should make proper and realistic estimates of expected
income and expenditure.

As well as ensuring that they have basic controls, trustees also have the duty to institute some
other controls which should be considered, i.e. controls over incoming funds, control over
expenditure, and control over assets. The aims of these controls are :
 To ensure that charity receives all money to which it is entitled,
 To ensure that all expenditures made are properly authorized
 To ensure the safe keeping of charity’s assets so that they can be effectively used to
promote the charity’s objects.

Generally speaking, the guidelines provided by the Charity Commission regarding internal
financial control are in line with the issue of good corporate governance, i.e. management
assessment of internal control (Vinten, 2000). Further, effective internal controls will reduce
the risk of mimanagement. It is therefore, waqf institution should look forward to create
better internal control of waqf funds. It is crucial to be implemented, due to many waqf
institutions having poor control system on waqf assets In fact, mutawalli should be aware that
waqf assets is amanah, and should be kept and managed properly.

Transparency and Reporting

Trustees are required to prepare the annual report as a concise but comprehensive review of
the activities of the charity for each accounting year (The Charity Commission, 2002c). The
report is essential to meet the consistent and transparent public accountability for the
resources held by charities. All charities, either charitable companies, or non - company
charities should prepare their annual report.
Moreover, in order to set out how charity should report annually, there is guidance namely
Statements of Recommended Practice (SORPs) issued by the Accounting Standards Board

In addition, the basic requirements for charities are to:

 Prepare and maintain accounting records (such as cash book, invoices, receipt, etc)
and retain them for at least six years.
 Prepare accounts. The accounts are a report in financial terms on the activities and
resources of the charity. The accounts should comprise: statement of financial
activities, summary income and expenditure account, balance sheet, cash-flow
statement, and notes.
 Make the accounts available to the public on request

The purpose of preparing a charity’s annual report and accounts is to discharge the charity
trustees’ duty of public accountability and stewardship. Therefore, the report should be
transparent, disclosure fully as well as give a true and fair view (the Charity Commission,
2000). Moreover, accounts must be subject to outside scrutiny by external auditor.

In fact, transparency and disclosure are integral to corporate governance. Higher transparency
and better disclosure will reduce the information asymmetry (Patel et al, 2002). Therefore,
charities with higher transparency and disclosure are valued higher than charities with lower
transparency and disclosure.

Adopting these requirements is necessary for waqf institutions. Since most of waqf
institutions have lack of transparency and no sufficient accounting reports. In fact, Islam
encourages Muslims to maintain proper record and give full disclosure (Al-Qur’an , 2:282)

Management of funds

All charity trustees have a duty to protect the assets of their charity and to apply them
properly for the object of charity. Besides, they have a duty to make investments
to generate income for current needs and to preserve the value of the investment, so that the
charity can operate effectively in the future (the Charity Commission, 2004b).

In addition, charity trustees should manage the risks which charity faces, balance those risk
against the potential returns from particular investment. In making investment, trustees are
not liable in terms of loss simply because an investment made by them is unsuccessful.
Nevertheless, they are liable in making unsuccessful investment if they acted outside the
scope of their power.

Additionally, charity trustees have to manage and use charity’s resources and optimize its
potential. Trustees need to consider appropriate methods of controlling cost, as well as
generating new funding. Besides, they are also required to have a- fund raising strategy
which appropriate for the charities.

This is interesting to be considered by mutawalli of waqf institutions. Since the nature of

waqf property value can not be idle, but should be increased, it is therefore, muatawalli
should be creative in finding the model of financing for waqf. Of course the investment or
financing of waqf should comply with shariah rules. However, there are parts of the Charity
Commission guidelines which can not be adopt by waqf institutions. For instance, in CC14
regarding basic principles for investment of the charity funds, it is mentioned clearly that the
charitable companies can invest in interest-bearing loans. In addition, the Charity
Commission guidance is not very strict regarding trading alcohol in charitable companies (the
Charity Commission, 2002b). They just stated that it is not responsibility of charity to
provide alcohol / bar business, and trustees need to be very careful regarding it. However, if
the governing document allow charity to provide alcohol, then they are permissible to do so.

The idea that should be noted is mutawalli has a responsibility to protect waqf assets and to
find various ways in managing waqf funds.

The code of Good Governance

Most recently, precisely in June 2005 the Charity Commission issued the code of Good
Governance for Voluntary and Community sector. This code is joint work the Charity
Commission with ACEVO6, Charity Networks, ICSA7 and NCVO8. The development of this

ACEVO (Association of Chief Executive of Voluntary Organizations) is a support organization for
senior executives of charities, voluntary and not for profit organizations

code is to set out the best practice of voluntary and community sector in the UK. Basically, it
is not mandatory, but the Charity Commission encourages all charities- from large to small-to
use it. The code is based on seven key principles which have been designed to be applied by
any charity 9 , namely:

 Board leadership
Every organization should be led and controlled by an effective Board or trustees
which collectively ensures delivery of its objects, sets its strategic and upholds its

 The Board in control

The trustees as a Board should collectively be responsible and accountable for
ensuring and monitoring that the organization is performing well, and complies with
all its obligations.
 The high performance Board
The board should have clear responsibilities and functions, and should compose and
organize itself to discharge them effectively.
 Board review and renewal
The Board should periodically review its own and the organization’s effectiveness,
and take any necessary steps to ensure that both continue to work well.
 Board delegation
The Board should set out the functions of sub- committees, officers, the chief
executive, other staff and agents in clear delegated authorities and should monitor
their performance.
 Board and trustee integrity
The board and individual trustees should act according to ethical standards and
ensure those conflicts of interest are properly dealt with.
 Board openness
The Board should be open, responsive and accountable to ensure its users,
beneficiaries, members, partners and others with and interest in its work.

Basically, waqf institutions deserve the good governance since good governance will lead to
social responsibility (Knight, 2005). A well governed corporation is expected to adhere to
the values and norms of the community. Therefore, Islamic corporate governance is
embracing the spiritual needs of Islamic community (Lewis,2005). However, the set of code
of corporate governance could be another subject of research.

Given these facts, it can be summarized that there are four main ideas regarding management
of charity which considered could be applicable for the betterment of waqf institutions,

ICSA (Institute of Chartered Secretaries and Administrators) provides professional qualifications
and governance guidance for businesses or Leading business/administration qualifications, corporate
governance guidance
NCVO (National Council for Voluntary Organisations ) is the umbrella body for the voluntary sector
in England
This is extracted form the Summary of A Code for the Voluntary and Community Sector. The full
code is available at www.

namely: internal financial control, transparency and reporting, management of funds and code
of Good Corporate. Table 2 shows it in briefly:

Table 2: The charity Commission’s proposals regarding management of charity

Items Descriptions
Internal financial control  Segregation of duties,
 Qualification of staff and advisers
 Budgetary control.

Transparency and reporting,  Prepare and maintain accounting records

 Prepare accounts
 Make the accounts available to the public
Management of funds.  protect the assets
 controlling cost,
 generating new funding
Code of Good Governance  Board leadership
 The Board in control
 The high performance Board
 Board review and renewal
 Board delegation
 Board and trustee integrity
 Board openness

Besides that, it is crucial for Muslim countries legislators to consider legal reform of waqf by
revaluating or to establishing waqf act / law in order to makethe regulation of waqf effective.

As the role of education will be significant in educating Muslim society to be more conscious
about creating better society, academicians should take the lead in educating and researching
on waqf.

5. Concluding remarks

Waqf has a very long story in Islam. It used to be a very significant element in the
development of Muslim society. However, nowadays waqf has become less popular among
Muslim society. In some Muslim countries, waqf properties have been neglected. Waqf does
not serve the needs of the ummah anymore as many. problems are faced by waqf institutions
today, such as lack of management, unskilled manager of waqf, as well poor recording.

In contrast, in the Western society, people are aware about social betterment. Thus, the
charity activities have been growing there well. In the UK, charity becomes part of British
life. Many charitable companies have been established and give benefit for the public. To
ensure public’s confidence upon charities, the Charity Commission was formed. Later, the
way how the Charity Commission regulate charitable companies in the UK is considered
advanced and can be a good sample for improving waqf institutions in the Muslim countries.

With regard to management of waqf, there are four main ideas from the Charity Commission
which considered can be applied for the improvement of waqf institutions, namely internal
financial control, transparency and reporting, management of funds and code of Good
Governance. Besides, there is a need concerning legal reformation of waqf, whereby the
government of Muslim countries should consider to reevaluate waqf acts. Furthermore,
educational institutions have a role pertaining to educate people to be aware of creating better
ummah. Then the attention to waqf institutions gradually can be improved. Hopefully, this
proposals can improve the performance of waqf institutions in the future and they will be able
to serve the need of ummah again as it used to be.
Wallahu a’lam


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