The Malaysian regulators are currently working on developing a Waqf policy paper as part of a national Waqf masterplan in an effort to promote the development of idle Waqf assets and ease the government’s budget burden. In an interview with ISFI, Dr Mohd Daud Bakar, the chairman and founder of Amanie Group, recipient of The Royal Award for Islamic Finance 2022 and the previous chairman of Bank Negara Malaysia and Securities Commission Malaysia’s Shariah advisory board, shares his view on reconceptualizing Waqf to appeal to the contemporary demands through broadening the recognized Waqf assets. He also argues that we should reconsider the prohibition of capital guarantees for partnership-based Sukuk that fund the development Waqf assets.
How does Waqf contribute to developing the social economy in Malaysia?
Theoretically, Waqf should help the national budget, the government and the state to some extent, provided that Waqf is enabling in the function of fund collection in society, which is not the case at the moment. This is why we are still talking about what can be done to make Waqf a new source of power to collect funds from people to help society alongside the other contributions like taxes to the government.
We need to look into public policy, national policy and some new instruments that might be more appealing to millennials. The ‘old Waqf’ might not be appealing to them anymore, so we should look into something that is new in nature that suits their desire to help society in their own way rather than in the classical way of doing Waqf. Perhaps, they are more open to laptop Waqf or airtime Waqf.
How do the regulatory constraints inhibit the development of Waqf-based products in Islamic finance, specifically in Malaysia?
When we bring Waqf to Islamic finance, it complicates the matter further because Islamic finance is very much driven by profit to a certain extent; Waqf is not. Waqf is a kind of perpetual donation for perpetual rewards at the end of the day. So, this is a matter that we need to strike a balance on.
Waqf has been brought to the industry under the theme of corporate social responsibility (CSR), SDGs and the SRI framework, which is the starting point, but we need to go beyond that.
Waqf should be looked at as an independent product, meaning to say it is a stand-alone product that can have its own identity. We have to look at it from a different framework altogether, not under the framework of SRI. It is good but I think to sustain Waqf, it needs to have its own identity.
In a market like Malaysia, we know that Waqf is a challenge because of the state authorities’ role in administration. How do we overcome this?
The state and the federal government will need to be flexible and agile. We can’t be so confined to the cocoons of our jurisdictions because what is more important is not the jurisdiction; it’s not the power we have but the benefit to the people.
The lake water and land are under the state, but they have to communicate [among each other] to serve the people better. The same goes for Waqf. Waqf is small. The moment we make it segmentized, it becomes even smaller and less functional.
I’m not saying we have to review the jurisdiction of Waqf, but we need to open up our minds to work together: a collaboration. In the federal government, though they cannot ask the states to do what they want, they can facilitate and give incentives [to promote cross-jurisdictional cooperation]. They have to look at this from the budget point of view.
We need to have a steering committee at the government level: a national steering committee leading to public policy on Waqf.
Which jurisdiction would you say is handling the development of Waqf assets the best right now?
None on this planet. We need to work together … We need to see the best of the best lessons from the world to come up with a new framework that is modern, contemporary, fashionable and workable at the same time.
Indonesia has made significant headway and garnered international recognition for their Waqf-linked Sukuk. Is this an area of opportunity for the Malaysian market? What would be some of the challenges of implementing it?
As I understand, in Indonesia, Waqf is not governed by the state or the federal government; as such, it is up to the people to create their own Waqf. There are pros and cons, of course, so we have to look at this phenomenon differently.
Nowadays, people like to have some independence, so I think Waqf needs to give space to allow for creativity. Of course, registered with the government, but with less supervision by the government.
Family Waqf is not recognized in Malaysia. But nowadays, perhaps the demand and supply has changed; the middle class want to have their own Waqf for their children and grandchildren. What’s wrong with that?
This is something we need to look at because it can help the government. There would be no need for [the people] to ask for pity pittance because they have their own Waqf trust fund for their children’s education forever.
We have to open up new areas of Waqf to allow people to create their own Waqf for their family, for their own purposes, by giving them minimal supervision. We need to rethink the Waqf infrastructure in Malaysia where it can serve the greater validity of Waqf, the greater purpose of Waqf, to benefit society and reduce the government budget.
In contrast with Indonesia’s cash Waqf-linked Sukuk, would you say that Malaysia has approached the development of Waqf assets through equity rather than debt? Why do you think that is?
This is another issue that we need to solve: when we look at Waqf assets, we don’t think debt because debt might create the phenomenon of the asset being taken as a security where it can be collateralized and is subject to redemption.
In my point of view, from a Shariah perspective, we can create an exception because there’s no harm for Waqf assets to be collateralized for the sake of securing funding, provided that we have some mechanisms to replace it with some other asset.
Take the issue of Sukuk for example. By raising Sukuk to fund a Waqf asset, we can give a guarantee for the Mudarabah and Musharakah Sukuk’s dividend and capital redemption. In normal cases, this cannot be done; we cannot put a direct guarantee to guarantee the capital and the profit of Sukuk Mudarabah.
For me, there have been many precedents in the past where scholars have said that if you are managing the asset of an orphan, someone can guarantee that. In the case of the wealth of the orphan and the wealth of society through Waqf, for me, they are the same. So we have to open up a new Fatwa to allow Waqf Sukuk Mudarabah, Sukuk Musharakah with a capital guarantee.
Islamic law prohibits the Sukuk issuer to guarantee the capital because this is not permissible because we have to take risks and share risks: the risk-sharing between the issuer and the investor in Mudarabah and Musharakah. This is a purely commercial contract.
For Waqf, the purpose is different. The purpose is to take the money as equity or debt, for that matter, to develop the Waqf asset, not for any shareholder. There’s no shareholder for Waqf. The stakeholders are society at large. The purpose dictates the change of the Fatwa.
As far as I am concerned, I would argue that we need to look into this. I am not saying this is my personal point of view; there have been calls by the great scholars from the past to allow some amendments to the principle of the prohibition of capital guarantees where you manage assets which are vulnerable in society.