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Abstract
Recently, the well accepted of waqf has contributed a
tremendous development of waqf mechanism globally.
The new leap of Malaysia in waqf practising had shown
the changing of mauquf from donating real estate to
contributing cash. Thus, it seems that there is a need to
institutionalize the financial mechanism in facilitating the
Malaysia waqf development. This paper offers an insight
of theoretical and practical consideration in establishing
the waqf bank in Malaysia. The needs of the
establishment were explored through the role and
opportunities of the financial institution in current Malaysia
waqf context. The paper also tries to highlight the
unfavourable scenario of waqf environment that need to
be taken into consideration in designing the waqf bank in
Malaysia. The findings from this study will portray the
missing link between waqf and banking in Malaysia within
the current context.
Waqf, Waqf Bank, Institutionalization, Banking Institutional
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Paper presented at 5th Global Waqf Conference Pekanbaru Indonesia,16-18 October 2017
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Corresponding author azlinphduthm@gmail.com
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1. INTRODUCTION
After more than 30 years, Malaysia Islamic banking and finance (MIBF) is
experiencing a rapid financial ecosystem growth. Interestingly, The Malaysia
Reserved3 revealed Islamic banking market share had increased from 7.1% in 2010
and reach 28% in 2016, yet, its growth rate dropped from 24.2% in 2011 to 8.2% in
2016. Thus, it reflects, new opportunities need to be explored for the growth
sustainability. On the other hand, most prominent waqf scholar and practitioner
proposed there is a need of establishing a waqf bank in Malaysia (Ab. Aziz & Yusof,
2014; Lahsasna, 2014). In fact, waqf has been put forward as the Global Islamic
Finance agenda in 2016 as an effort to create a shared prosperity and reaching the
Sustainable Development Goals (SDG).
Looking at the Ottoman history, the establishment of cash waqf institution from
13th to 20th century is the pioneering of waqf bank chronicle. The cash waqfs were
managed in fulfilling the needs of the society together with the endowments conditions
(Cizakca, 1995). After the long discussion on the legitimacy of cash waqf, zdemir &
zdemir (2015) noted several modes that were used in the Ottoman cash waqf
operations such as Mudaraba, Murabaha, Bidaa, Muamele-i eriyye / bey'ul-'yne,
Qard al-hasan, and Istilal. As a result, Ottoman cash waqf had become a resilient
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The Malaysia Reserved dated August 21, 2017
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Interview with Director of al akhyar Education Group, Dorset Hotel Putrajaya 31 July 2017
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Islamic Financial Services Board (IFSB 2015)
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financing source for the entrepreneurs, merchants and craftsmen for a long time. If
their operations look like the modern interest-free Islamic financial institutions, do we
still need an independent waqf bank? Baharuddin & Taufiq,( 2014) argued the Islamic
banking industry nowadays only focus on a small" group who could grant a collateral
for their loan. Meanwhile, Mohammad, (2011b) affirmed majority of the poor in Muslim
countries are unattended by the current banking system. The extension of Muslim
jurists on the validity of cash waqf and the permissibility of waqf bank is crucial. Even
most studies also highlighted the huge potential of the cash waqf donations and
proceeds to form as the capital for waqf bank. This paper tries to highlight the
readiness of Malaysian environment towards the establishment of waqf bank
theoretically and practically
Second one is the Grameen Bank a social investment bank limited (SIBL)
which focused on waqf- based micro financing. The founder, Muhammad Yunus
started this contemporary group lending microfinance initiative in 1970s. Grameen had
innovated fourteen different microfinance models to service clients without collaterals
(Ashta, Couchoro, & Musa, 2014). Although it seems that Grameen would suffered
high risk of default and bear high transactions cost, surprisingly, the loan repayment
rate of Grameen Bank is 98 percent and its gaining a profit by providing small loans
and saving on a large scale since 1980s(Ullah & Haq, 2017)
The third waqf bank that existed is Vakif Participation Bank (Vakif Katilim) which
launched on 26 February 2016 Vakif Katilim has already established 44 branches in
24 provinces across Turkey7. This first Islamic bank for Waqf foundations was the
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Vakiflar Bankasi Resolution Plan 2014
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During the visit of The President of Islamic Development Bank (IsDB) Group, Dr. Bandar Hajjar, ON 24 May2017
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collaboration effort between Turkey General Directorate of Foundations (GDF) and
Islamic Development Bank thru the start-up capital provision. Vakif Katilim is
categorized under participation banking in Turkish banking structure. Generally, the
function of participation bank is similar as deposit bank but its collecting and lending
methods of funds would be different8.
=.5
.0
+
8
www.tkbb.org.tr/Documents/Yonetmelikler/Participation_Banks_2014_ENG.pdf
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Was spoken during Islamic Development Banks (IDB) 1440H Vision deliberations March 2005
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4.2 Roles and Opportunities of Malaysia waqf bank
The developments in the waqf sector in Malaysia is encouraging. Therefore, it
seems, an ill-timed waqf collections system and management does not match with the
current development of technology and digital lifestyle of Malaysia. On 8 September
2017, six Malaysian Islamic banks have formed a waqf fund consortium to allow the
banking customers to contribute cash waqf through their banking channels. Is it fair
enough or should Malaysia introduce waqf window banking or even the full pledge of
waqf banking? This paper discusses, several current scenarios that explain the roles
and opportunity of the waqf bank. (perhaps)
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Cash Wakaf MAINS, Cash Waqaf MAIK, Cash Wakaf MAIDAM, Cash Wakaf YWM, Wakaf Fund MUIP, Wakaf
Fund Penang, Wakaf Fund Perak Ar Ridzuan, Wakaf Fund MAIWP, Wakaf Fund MAIM, Waqaf share Selangor,
Wakaf Share Johor, Wakaf fund Johorean as well as Infaq lil waqf ANGKASA.
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Noted by Muhammad Ali Don at Seminar Pembiayaan dan Pembangunan Wakaf Institut Pengajian Tinggi
(IPT) in Universiti Malaya23-24 May 2017.
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4.2.2 Abundant numbers of unimproved waqf land
In Malaysia, the Waqf Land Transformation 2015-2030 provides guidelines and
projects that waqf land development in Malaysia would be stimulated succinctly. In
2015, the report highlighted that only 12 per cent of 30,000 hectares of waqf land had
been improved and developed successfully. The rest 88 per cent is left undeveloped
and remained scattered throughout the country. Three difficulties of waqf property
development were identified; legal and administrative, economic and financial and
socio-political elements of waqf land supply constraints (Omar, 2015; Omar & Md
Yusof, 2014).
Omar & Ismail(2016) claimed the financial rules in securing fund for
development from banks and financial institutions had dampened the initiatives to
develop waqf land. This is because the nominal value of waqf land is 0 which mean
waqf landt is not a security for collateral. Thus it hindered the waqf lands development
investment facility and markets which affected the waqf land remain underutilized
(Tahir, 2008 ;Chowdhury et al., 2011).. Most of the current waqf land developments
are funded by cash waqf, government funding (waqf irsod), Built operates and transfer
(BOT) or joint venture (JV) In fact, in the case of Wakaf Setee Aisah(JV) project, the
appointed contractor used their internal financing of approximately RM24 million to
fund all the development project cost. The question is how many parties are willing to
contribute such a huge amount in developing waqf land? If we do, is the number
enough to cater to the remaining 88 percent of the undeveloped waqf land?
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The leased instead of sales and purchased contract was used as to maintain the character of waqf.
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For WSA the end-financing only comes from Ar Rajhi bank & Bank Islam Malaysia Berhad
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This scenario occurred as the Malaysian banks reluctant to offer credit facility (end
financing). Again, the issue of non-collateral of waqf asset was being raised up14. In
the few years ahead, approximately another 2500 houses on waqf land would be
completed. As in Malaysia, residential housing financing is provided by banking
institutions (85%), government housing loan (13%) and the remaining 2% by the
private-sector housing loans15. The questions are which bank would offer the end-
financing facilities? If the existing bank wouldnt, does it mean Malaysia need to
establish waqf bank that cater all the waqf development financing facilities?
14
Interview with banking officer on 26 May 2015
15
CAGAMAS report 2013
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Bank Negara Malaysia(BNM)
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those structured by the conventional banks (Ariffin, Kassim, & Razak, 2015). The waqf
bank is expected to actualize the equity-based financing (EBF) or also known as profit
and loss sharing (PLS) .(Askari, Iqbal, Krichene, & Mirakhor, 2012; Seho & Masih,
2015; Seho, Alaabed, & Mohammed Masih, 2016) In the EBF mechanism such as
mudharabah and musyarakah, funds are provided as capital exposed to profit or loss.
Although, it is much riskier as the liability remains with the fund provider up to his
capital portion but no debt is created (Sadique,2015).It was expected that this PLS
instruments would be implemented to increase the funding channel to the poor. In
addition, the dominant murabahah scheme is not so fit in waqf asset transaction. In
fact, a purchase of a Waqf property is not acceptable as waqf properties are restricted
from being sold17. Even most of the Islamic scholar are promoting the PLS modes,
(Abdul-Rahmana, Latif, Muda, & Abdullah, 2014) argued that in the New Institutional
Economic Theory, PLS having difficulties to grow even in the Islamic banks
environment except if the Islamic banks is practices the purely entrepreneur
character.
17
Draft of Shariah Parameter of BNM
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Guidelines On The Establishment Of International Islamic Bank, Item 4
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net working fund of RM10 million; and an annual licence fee of RM50,000. If the cost
of establishing is greater than the benefit that could be distributed to the beneficiaries,
is it worth to have the waqf bank? Does these transactional cost be burdening the waqf
bank as it has the accountability toward mauquf, mauquf alaih as well as to waqif
Being an additional market segment in financial market, waqf market will be treated
and structured as the existing segment; Islamic banking, Takaful and Islamic capital
market the composition of Islamic finance. The central bank and securities commission
are regulatory body that supervising, monitoring, issuing guidelines, standards and
other related mandate that govern the business operation of the waqf market.
Currently waqf is under the jurisdiction of the state. Thus, it requires a great deal of
effort to create an enabling legal and regulatory environment between central bank,
securities commission and MAIN. This will ensure that the role of the supervisory body
should not be directly involved in handling the waqf business and operation in the waqf
market, unless it is related to the public or is mandated by the government. Even in
such cases, the supervisory body should not be directly involved in the management
of the waqf but have the authority to appoint a third party to manage it.
5. CONCLUSION
The concept of waqf development institution modelled that requires an
establishment of waqf bank has arrived for serious consideration. It has been shown
that there is a demand for establishing waqf bank as it might have influenced the
initiative to revive of waqf land development in Malaysia Thus the introduction of waqf
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Issue 16/2016
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market is beneficial for both entities. Waqf could be manage in a highly regulated and
governed with identified guidelines, standards and regulations whereas for the
banking, this new financial market segment will help to sustain their growth rate.
Despite the various challenges in establishing the waqf bank, it is hoped that the
discussion from this study could provide an insight whether waqf bank is qualified as
one of solution to optimize the waqf land ability. There is need for comprehensive
discussion on considerable strategic scope for waqf bank and its framework
development as one of the new solutions in meeting the needs for Waqf
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