“WE ARE LIVING IN A PHENOMENAL AGE. IF WE CAN SPEND THE EARLY DECADES OF THE 21ST CENTURY FINDING APPROACHES THAT MEET THE NEEDS OF THE POOR IN WAYS THAT GENERATE PROFITS AND RECOGNITION FOR BUSINESS, WE WILL HAVE FOUND A SUSTAINABLE WAY TO REDUCE POVERTY IN THE WORLD.”– BILL GATES
A world without poverty is still a challenge, which the global community cannot ignore. The United Nations Development Program (UNDP) claims that over 650 million people in the world are living under the poverty line, i.e living on less than US$1.25 per day. This is equal to 11% of world’s population. Data released by the International Monetary Funds (IMF) revealed that African and Middle Eastern countries ravaged by war and famine remain the poorest in the world. The IMF ranking of countries based on the purchasing power parity per capital shows that the top five poorest countries in the world in 2018 are predominantly Muslim-majority countries.
Poverty is still a major issue that remains unresolved due to several factors such as war, corruption, occupation, bad governance and crisis. However, United Nations (UN) takes on a different viewpoint when looking at this contemporary predicament. In a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity; the UN had announced 17 Sustainable Development Goals (SDGs), which is defined as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. To attain these goals, UNDP focuses on helping countries build and share solutions in three main areas: eradicate poverty in all forms and dimensions, accelerate structural transformations and build resilience to shocks and crisis.
ISLAMIC FINANCE AND SDGS
From an Islamic finance perspective, SDGs are linked to the concept of maqasid al-shari’a (objectives of Shari’a), which consist of protection of faith, life, intellect, progeny and wealth. In this sense, Islamic finance is concerned with the realisation and establishment of human well-being as well as a just and fair order of society, which embodies socially responsible development. Comparing SDGs with maqasid al-shari’a, we find that SDGs 1,2,3,6, and 10 are aligned with protection of faith. These goals (including zero hunger, good heath and well-being) focus on reducing vulnerability, which in turn is believed to help strengthen faith. Prophet Muhammad (peace be upon him) once said poverty is near to ungrateful to Allah swt. Hence, to protect his/her faith, a muslim must not be trapped under the poverty line.
As for the preservation and protection of intellect, SDGs also focus on the provision of high-quality education and the promotion of innovation and infrastructure. It is well established that lack of essential nutrients can cause stunting and affect intellectual capabilities. Wealth protection under maqasid al-shari’a is aligned with SDGs in areas of reducing inequalities, promoting decent work and economic growth.
Islamic finance, through its social instruments such as zakat (Islamic tax) and waqf (Islamic endowment), can be utilised to help the poor and ultimately overcome social problems while at the same time fulfil basic human needs. The 17 developmental goals of the SDGs comfortably match with the long-term objectives of Shari’a and hence, provides good scope for a waqf-based development plan in line with the framework of SDGs.
CONVERGENCE OF WAQF TO SDGS
A prominent Islamic economist, Monzer Kahf, defines waqf as holding asset and utilising it in a productive activity for the purpose of repeatedly extracting its usufruct to performing charity activity out of the goodness. In principle, the founder of the waqf (waqif) determines the type of management of the waqf, i.e. the objectives of the endowed assets and distribution of its proceeds. Meanwhile, the waqf manager (nazer/mutawalli) is responsible for the administration of the waqf property to the best interests of the beneficiaries. Waqf may include both immovable assets (land and real estates) and movable assets (cash, livestock, books, agricultural products).
Being predictable, benefits from waqf assets are meant to flow to the community at large on a sustainable basis. Income or revenues derived from waqf properties can be used for charitable social, economical and educational upliftment, including to deal with environmental issues such as climate change and animal from extinction. From the explanation above-mentioned, there is clearly a convergence of waqf with some of the fundamental goals of the SDGs as proposed by UNDP, which are also congruent with the maqasid al-shari’a.
However, the success of SDGs is as much dependent on the contribution of the philanthropic sector as it is on the active involvement of private and public. According to the 2017 Funding Compendium Report issued by UNDP, achieving the SDGs programme will take between US$5 to $7 trillion, with an investment gap in developing countries of about $2.5 trillion based on the current levels of investment in SDG-relevant sectors.
Even though there has been an increase in private resource amounting to 1%, from the regular resource (53 country-government and non-government organization) in 2017, the contribution decreased by US$6 million to US$612 million as compared to 2016.
Recent estimates by the Sustainable Development Solutions Network indicate that the SDGs will require an additional US$2.4 trillion of annual public and private investment into the low-carbon infrastructure, energy, agriculture, health, education and other sustainability sectors globally. Hence, funding the SDGs will require significant investment and new sources of capital.
Even though there has been an increase in private resource amounting to 1%, from the regular resource (53 country-government and non-government organization) in 2017, the contribution decreased by US$6 million to US$612 million as compared to 2016.
Recent estimates by the Sustainable Development Solutions Network indicate that the SDGs will require an additional US$2.4 trillion of annual public and private investment into the low-carbon infrastructure, energy, agriculture, health, education and other sustainability sectors globally. Hence, funding the SDGs will require significant investment and new sources of capital.
“A PROMINENT ISLAMIC ECONOMIST, MONZER KAHF, DEFINES WAQF AS HOLDING ASSET AND UTILISE IT IN A PRODUCTIVE ACTIVITY FOR THE PURPOSE OF REPEATEDLY EXTRACTING ITS USUFRUCT TO PERFORMING CHARITY ACTIVITY OUT OF THE GOODNESS.”
WAQF AND BLOCKCHAIN
There is huge potential for waqf development in the Muslim world. For example, waqf collection in Singapore – a muslim minority country- can reach up to US$6 million in a year, which is directly collected by Islamic Religious Council of Singapore. Moreover, Mohsin (2014), in her book entitled Corporate Waqf from Principle to Practice, revealed the practice of waqf in several countries. In Malaysia, a corporate waqf namely Waqf An-Nur is operated by J-Corp, a state-owned company in Johor with an endowment of RM250 million worth of private listed company and unlisted shares. The waqf conducts several social empowerment activities in public facilities, economic empowerment and health care.
In India, Pakistan and Bangladesh; the most prominent waqf story institution is the Hamdard Foundation. The Foundation has 600 over-the-counter (OTC) clinics certified by ISO 9001, which are all waqf assets and its profit are utilized to social purpose activities benefitting thousands of people in health and education. In Turkey, 75 out of 105 universities are based on waqf, which are mostly family endowment. An example is the Sabanci Foundation established by the Sabanci Family. The Foundation has built over 120 institutions in 78 residential areas and provided over 44,000 scholarships to create equal opportunities in education. In 2010, the Sabanci Foundation was managing a total waqf fund of about US$1.3 billion.
Indonesia, one of the largest Muslim country, is reported to have 1,400 square km of waqf land as reported by IRTI and Thomson Reuters (2013). The assets are scattered across 42,300 location throughout the country and valued at about IDR800 trillion. The Indonesian government predicts that cash waqf in the country has the potential to reach of IDR20 trillion per year, as compared to the annual waqf collection of only IDR22 billion are present. This represents not more than 1.1% out of potential. On top of that, a considerable amount of waqf assets (mostly in form of land and building) are still underutilized.
Given this untapped potential of waqf, many experts in Islamic finance are exploring new opportunities and possibilities available through the use of blockchain technology to facilitate in the development and sustainability of waqf.
THERE IS HUGE POTENTIAL FOR WAQF DEVELOPMENT IN THE MUSLIM WORLD. FOR EXAMPLE, WAQF COLLECTION IN SINGAPORE – A MUSLIM MINORITY COUNTRY- CAN REACH UP TO US$6 MILLION IN A YEAR, WHICH IS DIRECTLY COLLECTED BY ISLAMIC RELIGIOUS COUNCIL OF SINGAPORE.
Arguably, blockchain technology has been around for about nine years, but the real applications have only been around for the past four years, when the ethereum blockchain was introduced.
Since then, many real use cases for blockchain technology have been developed, especially after the ripple blockchain was launched. The World Economic Forum predicts that by 2025, 10% of the world’s GDP (currently about US$100 trillion) may be on blockchain.
By definition, blockchain is essentially a distributed database of records or public ledger of all transactions or digital events that have been executed and shared among participating parties. In other words, blockchain is a digital ledger that holds almost any kind of information that can be stored in a digital format, be it transactions, contracts, assets or identities. Entries in the digital ledger are safe, transparent and searchable.
There are several reasons why blockchain technology can be beneficial to the management of waqf assets. Firstly, entries in the digital ledger are safe since the system built by blockchain is incorruptible and unalterable. Copies of the ledger are distributed to a community known as nodes. If the nodes do not agree on any of the changes, then they cannot be made. Moreover, the public ledger follows a “51% rule”, which means that if more than 51% of the nodes do not agree with a transaction, it will be deleted. Additionally, as it is distributed, there is no one point of failure. If a hacker wants to manipulate the blockchain, he will have to attack all of the nodes at once.
Secondly, is transparency. As a part of the fintech breakthrough, blockchain also shares the same prevalent features of fintech products including transparency and easy-to- use, which are equally relevant with Islamic finance principles. Unarguably, transparency leads to trust. Trust is essential to build good relationship among society and/or between society and government. Bank of England defines blockchain as a technology that allows people who don’t know each other to trust a shared record of events. In this case, blockchain enables aid organizations including waqf institutions to receive funds instantly from many individual donors and then distribute these funds efficiently and effectively to people who can prove their identity without a piece of paper.
Another benefit is the easiness to track transactions. Blockchain offers a solution for the better management of underutilized waqf assets, which require to be pledged to specific goals making it difficult to repurpose a waqf. Here, blockchain could create smart contracts that will be tied to specific waqf projects in the hope of providing a more efficient way to raise funds as well as manage and transfer the ownership of waqf contributions. The smart contracting engine must be built in accordance with Shari’a principles. Unlike bitcoin’s blockchain, which allows anonymity, every transaction on the endowment chain will require compliance with know-your-customer and anti-money laundering regulations. Thus, blockchain could track each contract electronically across the lifespan of the investment, increasing the efficiency of the potential of the asset.
Considering all of the above benefits and potential, a Singapore-based financial technology company, Finterra has proposed the use blockchain technology to modernize the management and investments of waqf aimed at tapping into the vast but underutilized pool of assets across the Muslim world. The company started developing its blockchain platform in October, with pilot projects currently being studied from endowments in Singapore, Malaysia, Indonesia; followed by Dubai, Qatar, and others. Finterra’s plans reflect the interest that a number of fintech companies have in broadening their footprints to include core Islamic finance markets in the Middle East and Southeast Asia.
WAQF FOR HUMANITARIAN NEEDS
The vast number of organizations involved in development aid around the world, from NGOs and private foundations to national governments and international bodies, is indicative of the variety and scale of the issues they are working so tirelessly to address, i.e. bridging the gap between growing humanitarian needs and budgets. IFRC (International Federation of Red Cross and Red Crescent Societies) as a worldwide humanitarian aid organization forecasted that each year at least US$1 trillion is potentially raised through Islamic social financing. As one of the development of technology which is closely linked to Islamic social financing, crowdfunding coverage is estimated to be around US$90 billion (World Bank, 2016).
“BY DEFINITION, BLOCKCHAIN IS ESSENTIALLY A DISTRIBUTED DATABASE OF RECORDS OR PUBLIC LEDGER OF ALL TRANS- ACTIONS OR DIGITAL EVENTS THAT HAVE BEEN EXECUTED AND SHARED AMONG PARTICIPATING PARTIES.”
Such forecasts are made against the background of growing awareness of humanitarian needs around the world.
Similarly, part of the reason that the SDGs have found such broad-based support in the global community is because they emphasize improvements in the lives of individual citizens and communities. Affordable energy, economic growth, poverty reduction – these are all goals that hold governments accountable to the constituents they serve. Blockchain can serve as an infrastructure and tool for that accountability. It can help bring together different organizations, engender powerful new partnerships between public and private sector organizations, and allow their joint initiatives to grow quickly and effectively. If that turns out to be the case, then the SDGs may be a starting point – not an endpoint – for broader collaboration, exchange, and transparency around the world.
Although there have been few talks on blockchain and SDGs with Islamic compliance and Islamic commercial finance, public discussion on the possibility of blockchain with Islamic social finance particularly waqf is very limited. Many Muslims are still unaware on the social advantages and potential of blockchain technology. That is why International Waqf & Blockchain Forum (IWBF) has been initiated and hosted for the first time in Dubai, May this year.
It successfully attracted interest from stakeholders around the world and brought together the best minds to showcase new opportunities and possibilities available through the use of blockchain technology to help in the development and sustainability of waqf. The second leg of IWBF is planned to be hosted in Malaysia next year. The overall objective of this forum is to establish clarity and a collective understanding of the potential of blockchain technology for supporting the facilitation and development of waqf assets on a global scale, whilst also promoting new economic alternatives to enhance Muslim unity.
However, there are several important points to note given the rise in innovations and disruptions happening in the financial and technological terrain, Islamic finance, including waqf principles.
We are required to manoeuvre carefully and reinvent this advancement especially in terms of governance and regulations to remain relevant since they constitute a major socio-economic institution in today’s financial market.
Although the current implementations of blockchain technology for waqf are still in their infancy, as a form of pilot project, we have to think of its development in the foreseeable future. Widespread adoption of any records-based system requires standards, agreements and regulatory frameworks as well as systems for interoperability. Regulation and standardization may determine the extent and speed of progress.
In the next phase of waqf development, we may witness more Muslim countries encouraging trade in waqf as even today corporate waqf is used to generate income for the benefit of society in the form of cash, shares, sukuk (Islamic bond), ibdal (sale) and istibdal (exchange). Many waqf assets such as sukuk issuance can be used to finance the development of waqf properties, and both the investor and the property benefit besides public. The combination of waqf and sukuk in a single structure when added to blockchain technology makes global transactions available for financing and investing.
In a nutshell, securing funding for work can sometimes seem as difficult as the work itself. Identifying inefficiencies, optimizing effectiveness, and combating corruption is therefore central both to winning the confidence of existing and potential supporters as well as to achieving their own immediate goals. The verifiability, resilience, and transparency of blockchain-based systems can help agencies assess, improve, and scale their models, reassure donors, and make receiving aid easier and more dignified.
“IN A NUTSHELL, SECURING FUNDING FOR WORK CAN SOMETIMES SEEM AS DIFFICULT AS THE WORK ITSELF. IDENTIFYING INEFFICIENCIES, OPTIMIZING EFFECTIVE- NESS, AND COMBATING CORRUPTION IS THEREFORE CENTRAL BOTH TO WINNING THE CONFIDENCE OF EXISTING AND POTENTIAL SUPPORTERS AS WELL AS TO ACHIEVING THEIR OWN IMMEDIATE GOALS.”
