Dr Magda Mohsin, Associate Professor and Dr Aishath Muneeza, Associate Professor International Centre for Education in Islamic Finance (Inceif) write exclusively for Islamic Business & Finance about how crowdfunding and blockchain can aid Islamic finance.
Serving humanity must be an objective of all human beings. There are many ways in which humanity can be served. One of the most convenient ways to do this is via donation. The most critical challenge facing the donors is uncertainty in knowing whether the donation is spent on the intended purpose. The lack of transparency by trustees managing donation funds have created lack of trust among the donors when it comes to donating for humanity.
The Islamic concept of Waqf in which donations are made for noble causes faces the same issue as well. This is the main reason why Waqf is declining in today’s era, where finding donors is a challenge. According to reports, Singapore-based fintech firm Finterra has developed a crowdfunding platform that uses blockchain to create smart contracts that would be linked to specific Waqf projects.
The word Waqf (plural Awqaf) is Arabic for to stop, to prevent and to restrain. In English, the term Waqf can be translated as religious endowment, as Islamic term Waqf means holding and preservation of a certain philanthropic charity with the intention of prohibiting any use or disposition of the property outside the specific purposes to which the property is dedicated, in such a way that it cannot be bequeathed or sold.
There is a consensus among Muslim jurists regarding the definition of these terms to mean the confinement of the Ayn (property) from the ownership and the dedication of its usufruct to charitable purposes. Cash Waqf is a type of Waqf which is categorised as movable Waqf. It aims to promote service to mankind by establishing the endowment using money as opposed to using immovable assets.
Previously, cash Waqf was widely used during the Ottoman Empire era in the 16th century especially in the Anatolia and European province of the Empire. At the time, cash Waqf was used to finance the entrepreneurs in their businesses, and then the return was used for public services such as hospitalisation, education, water channelling, bridges, roads, etc. Cash Waqf had an important role in generating the economy within the Empire.
Unfortunately, the utilisation of cash Waqf and other forms of Waqf has declined since the end of 19th century due to mismanagement, colonisation and secularism. The situation, however, looks set to change. Recently there have been some efforts to revive the Waqf institution and the creation of moveable Waqf (cash Waqf) as an alternative way to solve the problems in economical dynamics. The existence of cash Waqf is expected to alleviate poverty and reduce the inequality in society.
In short, cash Waqf is the confinement of an amount of money by a founder(s), (individuals, companies, institutions, corporations or organisations private or public), and the dedication of its usufruct in perpetuity to the welfare of the society. Cash Waqf aims at mobilising public funds to be pooled as a Waqf asset (financial capital/ endowment) and managed in such a way that it can generate income stream besides maintaining its initial value to grow, or at least to preserve its perpetuity. The income generated from investing the funds will be distributed to the beneficiaries.
Cash Waqf plays an important role in providing public services needed by the community. It can be directed to achieve this under the condition that it is organised in such a way that reflects good governance. This would ensure that the donor/ waqif would be willing to donate to the fund. Though the term Waqf does not appear in the Qur’an, Muslim jurisprudents obviously deduced its legitimacy from “hadith” and “Ayat” which imply Waqf.
For example, from a hadith narrated by Abi Hurairah who quoted Prophet Mohammad (peace be upon him): “When a person dies, his deeds will separate from him except in three cases: recurring charities, beneficial knowledge and righteous child who prays for him/her”.
Direct cash Waqf is an endowment created by the founder in cash to be channelled directly for developing any Waqf property, whereas indirect cash Waqf is an endowment made by the founder in cash form, but to be invested first and only the revenue generated to be channelled to the beneficiaries. In the case of direct cash Waqf, the founders can create cash Waqf to redevelop any old Waqf property. Muslim scholar accepted (Istibdal) exchange in case of changing the state of movable liquid Waqf specifically money to immovable Waqf by rebuilding the old Waqf property.
A specified Waqf institution that acts as the trustee can call for founders to contribute to redevelop any of the old Waqf buildings. And the founders can then contribute directly to this specified Waqf institution, to rebuild the specified old Waqf buildings.
In this case, the trustee will channel the accumulated Waqf funds directly to rebuild the old Waqf buildings, without investment, into modern buildings such Waqf complex, which includes mosques, Islamic schools and colleges, commercial towers that has offices, bookshops, hardware stores, perfumers and a bakery, residential towers, and modern and specialised hospitals etc.
The second one is the indirect cash Waqf, in this case the founders can create cash Waqf in order to be invested and the revenue generated to be channelled to the beneficiaries. A specified Waqf institution that acts as the trustee can call for founders to contribute to different needs in the society or to certain beneficiaries. And the founders can then contribute as cash Waqf to meet those needs or those beneficiaries. Also, in this case the trustee will manage and invest the accumulated Waqf funds and the revenue generated will then be directed to the different needs in the society or to certain beneficiaries.
The beneficiaries can be mosques, universities, schools, hospitals, highways and other public amenities. The funds can also be used to feed the poor or needy, animals and for scholarships for deserving students. To ensure the perpetuity of cash Waqf, the trustee must invest the accumulated funds in any Halal project and only the revenue generated can be distributed in different proportions for the management’s expenses, for charity and to add to the capital as self-finance device.
INCEIF, the global university of Islamic finance based in Malaysia, is conducting research on the possibility of introducing Waqfcoin. The idea of Waqfcoin lies on the principles of cash Waqf. Both direct and indirect cash Waqf mechanisms will be practised via Waqfcoin. The underlying Shari’ah contract used to link Waqfcoin to humanity projects is by using the concept of Wakalah (agency) whereby the trustees of the Waqf will be the agents who will manage the donation activities and report the successful progress of these projects to the Waqfcoin holders (contributors/founders).
Blockchain technology can be used to build trust in Waqf management and to ensure accountability. The technology could also provide a comprehensive global database on Waqf which can be easily created and maintained in a transparent manner.
Waqfcoin basically can be defined as a dematerialised coin that is subscribed by the contributors based on the principle of donation or Tabarru’ where each coin represents a unit of the shares of the contributor towards the project in which the money received as contribution is spent. There will be no monetary return expected by the contributors, expect for being rewarded in the Hereafter.
However, the trustees will maintain a depository of the Waqfcoin holders and perpetually as long as the projects are on-going, the information about the project will be disclosed and shared with Waqfcoin holders. There is also an additional responsibility on the trustees to monitor the projects and manage the projects successfully.
Waqfcoin holders will be given assurance that the rules and regulations that govern the cash Waqf are in place. It is estimated that globally about $1 trillion worth of assets are held in Waqf. Waqfcoin will be a convenient mechanism for contributors to serve humanity, using technology especially blockchain. This would pave the way for a Waqf market.
Islam encourages using innovation in Muamalat activities and there is scope to enhance and modernise Waqf using Waqfcoin. Waqfcoin will be the trusted name to offer a more efficient way to manage, receive and raise funds for donations to different humanity projects. Definitely developing a whole ecosystem using Waqf (Waqf market) will eradicate poverty in the world by promoting the concept of affordable giving culture. Through Waqfcoin we can definitely open doors for affordable giving to serve humanity as the slogan it promotes is: “purchase your house in heaven through Waqfcoin!”