WAQF Bank: More than just charity

Written by Mohamed Ridza & Co, Kuala Lumpur, Malaysia

Waqf may be defined as “holding a property for the purpose of extracting the usufruct for the benefit of the Muslim society[1]. “ The word waqf is derived from Arabic root verb “waqafa”, which means causing a thing to stop and standstill.  It also takes the meanings of ‘detention’, ‘holding’ or ‘keeping.
Waqf properties consist of immovable assets such as land and buildings and movable assets such as money and shares. Nowadays, the concept of waqf also extends to the concept of cash waqf where the usage of cash money to be endowed as the waqf property instead of real estate which we have discussed in our December 2019 Firasat’s write up.
The concept of cash waqf gives more opportunity for the Muslims to endow their cash money into the waqf institutions in order to get various benefits not only for themselves, but also to other Muslims worldwide. Thus, it brings the idea of establishing a new alternative instrument of deposit and financing through waqf bank for Muslims. The act of giving cash money for the endowment can be done by depositing their money through the waqf bank as waqf money. The waqf bank can play its role as a trust fund to provide services for Muslim development.
Under this article, we will see the possible structure for waqf mechanism that can be implemented for the realisation of a waqf bank.
The person who is willing to endow the money into a waqf bank is called as a waqif or depositor. The money deposited by the waqif or depositor into the waqf bank is seen as cash waqf, subject to the fulfilment of the elements and conditions of waqf. The amount of money to be deposited is unfixed based on the willingness of the depositor. Then, a certificate of cash waqf will be produced as proof of the amount of money that has been deposited by the waqif or depositor. It is something similar to a bank statement which you receive monthly from your banks.
The role of a waqf bank is to supervise and monitor the collection of waqf fund, investments and also distribution of profit to the charitable activities. The waqf bank will collect the waqf money from the waqif and will act as a trustee for cash waqf. The waqf bank will manage and monitor the cash waqf which has been deposited by the waqif.
The waqf bank will convert the cash waqf into fixed assets such as buildings and land. Through this way, it will put the cash waqf into the original role of waqf, which holds a property from the consumption for the purpose of extracting the usufruct for the benefit of the Muslim society in general. The waqf property must be in immovable and in perpetuity. Hence, it is necessary to transform the cash money into fixed assets based on the current value of the assets presently. The waqf bank will develop and commercialise the fixed assets such as land and buildings to gain profits in the form of rental or income.
In respect to the development of waqf land, the waqf bank can made a joint-venture with another company for the development of waqf land for commercial purposes. It can be known as waqf-sukuk. The issuance of waqfsukuk becomes an innovative instrument in order to maintain and develop the waqf assets or waqf fund. With many of waqf assets or cash, sukuk issuance can therefore be regarded as a tool to finance the development of waqf properties or using them to be the underlying asset. The integration of sukuk and waqf in a single structure is an interesting development which can be explored.
The  profits gained  from the development of waqf land for commercial purposes will be distributed according to the terms and agreements executed between  the waqif and the waqf bank.
In this regard, it may be distributed in two ways.
The first one is for the development of Muslims in several major things such as education, health, agriculture, entrepreneurship and other development projects.
We can see that microenterprises and small medium enterprises usually do not have access to the fund from traditional financial institutions, especially those with no prior history. Therefore, the profits derived from the development of waqf land for commercial purposes can be used to finance productive microenterprises at subsidised rates.
The second way is some percentages from the profit will be allocated to the management including for maintenance, managerial expenses and also for the future development and capital enhancement. It is necessary for the survival of the waqf bank existence as it is an alternative for giving financing instruments for Muslims.
Currently, the conventional bank earns by collecting deposits, granting loans, providing liquidity, and transferring funds and payment system, selling insurance and investment products, and stock broking. They also charge transaction fees on financial or overdraft services and earn interest on lending. Islamic banks do earn the same but avoid usury, uncertainty (gharar), gambling, and investment in prohibited (haram) businesses. While a waqf bank would do the same, it also complies with the fundamental principles, rules, and values of waqf. A waqf bank’s focus is on social banking and activities pertaining to the poor in a bid to bridge the large gap between rich and poor in the Muslim community.
In order to implement waqf resolutions, applications and solutions of a waqf bank, a waqf bank needs experts, practitioners, financial managers, regulators, and policymakers in the fields of waqf, banking and finance. Perhaps State Islamic Religious Councils (“SIRC”) and Islamic bank could cooperate to establish waqf bank as this cooperation is essential in view of the fact that both organisations could regularly monitor any waqf related activity.
The recent initiative by the Association of Islamic Banking and Financial Institutions Malaysia (“AIBIM”) to call for Islamic banks’ participation to collaborate and standardise waqf fund initiative action plan between Islamic banks and SIRC referred to as “myWakaf” [2] deserve to be acknowledged and seen as an open door for more collaboration and teamwork in the future.
There are six (6) Islamic banks that have been involved in the implementation of myWakaf, which consists of Affin Islamic Bank Berhad, Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Bank Rakyat, Maybank Islamic Berhad and RHB Islamic Malaysia Berhad. Bank Negara Malaysia regulates those Islamic banks. Hence the collaboration by SIRC with those Islamic banks will bring along the best corporate governance culture in managing waqf fund. The joint forces of all six (6) Islamic banks will allow the collection to be made via various channels across the country i.e. pay online via JomPAY or internet transfer or contribute offline via participating bank branches.
BIMB Investment Management Berhad has also launched “Makmur myWakaf”[3] Fund earlier this year. While Johor Corporation Berhad has established “Waqaf An-Nur”[4] established to manage its waqf properties.
The corporate waqf institutions are growing more and more opportunity for the Muslims to endow their cash money into the waqf institutions. With the implementation of waqf bank and collaboration amongst the SIRC, corporate waqf institutions and existing Islamic banks, the waqf collection system may be streamlined and an alternative financial structure i.e. micro financing for small communities who do not have access to formal financial institutions may be initiated. 


Najwa Aqilah Mansor, Associate

Mohamed Ridza & Co, Kuala Lumpur, Malaysia 

[1] The Significance of Waqf for Economic Development, Mohammad Arif Budiman




Najwa Aqilah Mansor

Mohamed Ridza & Co

+60 3 209 24822