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HomeISFIRE Vol 10– Issue 4 August 2020Voyaging Innovation: Decoding (Fintech) Waqf For New Age Halal Micro Financial Solutions

Voyaging Innovation: Decoding (Fintech) Waqf For New Age Halal Micro Financial Solutions


In the age of sustainable development, poverty alleviation, financial inclusion and economic diversification, it is estimated that emerging markets and low-income countries (the home of poorest of the poor) face an annual gap of up to USD1.5 trillion a year in development and infrastructure finance. The picture becomes more disconcerting in countries facing oil prices glitch. On the other hand, there are trillions of dollars of funds currently earning very little, looking for higher returns, and opportunities for public-private partnerships in emerging markets could substantially boost global economic growth. Traditional development aid and usual economic path from productive agriculture to light manufacturing and then to large scale industrialisation are often the possible means resorted to. However, it is becoming apparent that technology and financial innovation could fundamentally disrupt this pattern. In recent years, the impact of globalisation and financial innovation has swept through the world in magnitude unprecedented, altering the very fabric of society and the quality of life. Mechanisation and the arrival of technology have not only disrupted traditional industrial production but upended manual jobs and called time on the work that has been done by generations of families. A research based on the World Bank data has predicted that the proportion of jobs threatened by automation in, for example, India is 69 per cent, 77 per cent in China and as high as 85 per cent in Ethiopia.

If technology and financial innovation are set to lead the fundamental transformations in the approach of economic growth, resorting to a diverse, modern and resilient financial and investment behaviour will hold the key in providing the necessary means to meet the required end. This entails increasing focus to prioritise investments in energy, scientific fora, information technology and automation, research and innovation, and mainly people, those who are not only ready to embrace the new age financial order but are suited to adapt to the same: a theme labelled as developing the “Soft Infrastructure”.

It can be argued that the physics and the mechanics of financing and investment patterns based on the Islamic norms could provide the global panacea; ideally suited for the “new age, technological and innovative, financial order”. The proposition becomes more plausible given the divine, supportive, institutional scaffolding the Islamic system enjoys. Whereas over the last three decades the global arena has witnessed the rejuvenation of Islamic economics, there appears to be present a ‘cognitive dissonance’ as well as a ‘cognitive deficiency’ in decoding the Islamic financial and investment behaviour. Islamic modes of financial transactions provide a number of desirable avenues that could not only deliver sustainable economic prosperity but could also best fit the purpose of adapting to new-age financings. Distinct, and highly untapped, among those is the institution of waqf.

Waqf (endowment) is one of the economic sources where the potential social funds are closely related to the welfare of the people. Rich in historical practices, waqfs have been strongly connected to the economy and social institutions, from small projects to big assets, such as mosques, estates, houses, schools, farms and plantations. These objects are kept to be perpetual so that their revenues and benefits are disbursed to the poor, needy and for the public good. Similar economic schemes are also available in other economic paradigms, for example, the western concept of endowment and trust. Nevertheless, what distinguishes Islamic Waqf are:

(i) The charitable notion is driven by religious motives;

(ii) As a result, property vests with Allah;

(iii) The ultimate objective is to benefit mankind rather than fulfilling any lawful purpose or the stated objective;

(iv) Manager/trustee only provides management skills and unlike the conventional version, carries no larger power; and

(v) Moreover, Waqf is perpetual and irrevocable.

Although it is difficult to estimate the present size of global Waqf assets, current estimates range from USD100 billion to 1 trillion (IDB, 2014). Research has argued that the potential of the impact and benefits of waqfs for economic and social welfare are very high. Historians Marshall Hodgson and Murat Cizaka (2013) convincingly stated that waqfs had been productively financing Muslim societies for ages. Particularly in the Middle Eastern societies where the practice of waqfs have been strongly connected to the economy, commerce, and other social welfare, which supported Muslim communities. However, in recent times, due to different reasons, most of the waqfs have degenerated — both as a concept and in reality. Estimates reveal that the global trends of the utilisation of waqf, over the last decades, have generally emphasised in the form of big assets, such as estates, mosques, buildings that are mainly managed in a traditional way.

According to the study by the Indonesian Waqf Board (2013), out of total registered waqfs, on average 65%-70% are for mosques, 12% for social institutions, 8% for schools/madrasas, and rest for other Shari’a-compliant purposes. Commercial waqfs, however, are not many and only started mushrooming in discourses and movements in the reformation period. As a result, waqf is experiencing a major revival as an important tool for financial inclusion via commercial viability. This could be supported by the development of waqf (endowments) for social welfare and economic improvement through financial innovation by adapting to modern and contemporary economic trends. Fresh examples of such new kind of waqf institutions include the allocation of waqf funds through issuing certificates of cash waqf by way of Social Investment Banking models as well as the amalgamation of waqf with the new-age financing schemes like crowdfunding (as is recently achieved in WIEF, 2016), venture capital, angel investing and FinTech.


Fintech waqf will be a source of funds that can be dedicated solely for economic empowerment, entrepreneurial preferences, research and innovation enhancement. Funds could be used to extend financing and other halal products to the users. However, the other dimension of a new-age waqf will be “Services Waqf”, provisions for Investment Risk Reserve, in case an investment suffers a loss, the model can be operated via an online platform where surplus meets deficit as per suitability and best choices. The rest of the business operations could be complemented/performed via AI and Robo-advisory, blockchain and smart Islamic contracts: support tools to configure a congenial ecosystem. The envisaged fintech waqf would not only essentially contribute but would also catalyse the attainment of the UN SDGs, desired financial inclusion and economic diversifications for many countries.

There can be two ways in which this Fintech Waqf model can be set up or structured.

  1. Waqf funds/services from the Government: States and local governments can choose to allocate a certain amount of funds to set up microfinance operations in certain parts of the areas. While this option might provide a steady stream of resources if ever implemented, it is highly unlikely that the State will give patronage to microfinance institutions in this fashion.
  • Waqf funds/services directly from the populace: Microfinance institutions can set up cash boxes and other donations for people to contribute to their institutions. While one cannot determine a definite amount that this activity can generate, it can be a source of income that an individual organisation can utilise at its discretion.

Many opportunities lie ahead for the new-age waqf model which, if properly utilised, can help address the concerns that currently exist in microfinance. This model can be a great tool for SDGs in eradicating poverty via economic empowerment in a “Halal Tayyab” way. Islamic microfinance currently makes up for less than one per cent of the microfinance borrowers across the world. New-age waqf can give the impetus to Islamic microfinance and the industry, in general, to enable it to expand operations, which are being held back by a lack of funds and innovation. It will afford an opportunity for Halal finance to meet the needs of customers who require cash instead of assets financing.

Muslim countries in the world, such as Turkey, Kuwait, Bangladesh, Malaysia and Singapore, are already seeing preliminary success in implementing innovative management of waqf through property investment. The results have not only enhanced economic empowerment but have also proved to be a source of promoting Islamic economic culture. This has led to a few non-Muslim countries to either contemplate or adopt the institution of waqf. While the innovative reformation toward ‘productive’ waqfs is promising to flourish, the pace required to achieve the same remains slow. Obstacles to meet the desired end are the lack of best-suited means and public awareness in the expanded economic and commercial prospects of waqf. The problem is to build public trust that the productive waqf could overcome poverty (sometimes, as the public does not believe that the management of waqf could have expanded functions). This can then directly bring to attention the proper and innovatively skilled endowment managers. No matter how big the asset endowments could be, if not managed reliably and professionally, the expanded commercial and economic value to increase and share prosperity cannot be achieved.


Mughees Shaukat is the pioneer Head of Islamic Finance in the College of Banking & Financial Studies under the Central Bank of Oman, Muscat, Oman. He is a Fintech specialist from MIT, USA, PhD Scholar (Malaysia); Vice Chairman Education Board, AAOIFI, Bahrain; Member, Society of Advancement of Socio-Economics (SASE), France; Member of The Western Economic Association International (WEAI), USA; Member, High-Level International, Expert Panel, the Central Bank of Bahrain, for creating Profit Rate Benchmark, Bahrain; Mem­ber of the Blockchain Society, Oman; Certified Shari’a Advi­sor and Auditor, AAOIFI; Vice Chairman Advisory Board of Fingel Global Inc. Toronto, Canada; Advisory Board Member, Brand Ambassador, The Halal Chain (HLC), UAE/China. He has published over 50 articles and research papers and has so far delivered over 100 policy talks, expert sessions, high-level presentations, and executive lectures, globally.


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