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Cash Waqf - Can we redefine the old era?

Updated: Jul 12, 2022

Our Creator says:

Who is it that would loan Allah a goodly loan so He may multiply it for him many times over? (Qur’an 2:245)

The Prophet (s) said:

"When a human being dies, all of his deeds are terminated except for three types: an ongoing sadaqah, a knowledge (of Islam) from which others benefit, and a righteous child who makes du'a for him.

The Hadith just mentioned formed the theological basis of the institution of Waqf or endowment.

Waqf is any property given away for the perpetual benefit of creation. For example, someone may endow his orchard which bears fruits each year. Now as long as the intended beneficiaries (say orphans) continue to gain from this farm, the endower will continue to gain virtues from this ongoing concern.

Historically Waqf has played a huge part in Muslim societies, some of the largest universities and hospitals that operated in medieval lands and were fundamental in the functioning of society were given as waqf.

But, endowments were not always in the form of such assets. The Ottomans came up with the concept of Cash waqf.

The earliest origin of cash waqf can be traced back to Imam Zufar’s fatwa on the permissibility of cash waqf. The Ottomans began establishing cash waqf from the fourteenth century on.

The essence of an Ottoman cash waqf was to invest the capital endowed and to channel the returns thus generated to charity. Investment occurred in the form of sale/leaseback and resale. Istiglal was designed such that the borrower first sold his house to the waqf and obtained in return the capital he needed. The borrower usually kept this capital in his possession for a year. Meanwhile, he asked the waqf for permission to stay in the house, and the permission was granted on the condition that the borrower becomes a tenant and pays rent for as long as he kept the capital in his possession. When the borrower returned the capital he had borrowed and repurchased the leased asset, the deed of the house was returned back to him.

For the waqf, the borrower’s house had two functions: it serves both as collateral and a source of rental income during the period when its capital was loaned out. The borrower, on the other hand, was able to raise cash by utilizing his real estate. In this way, a passive asset (real estate) was transformed into cash.

The rent paid by all the tenants/borrowers was pooled and this pool constituted the total annual profit of the cash waqf. After the management expenses were deducted from the total rent, the remainder was then channeled to the charity declared in the endowment deed.

This was a highly controversial arrangement, and according to one scholar, obeyed the prohibition of riba (interest) in the letter but not in spirit. But on the brighter side, they played an important role in financing the spread of Islam in south-eastern Europe.

This practice ceased during the later period of the Ottoman empire and completely abolished by the Republic of Turkey.

What has followed since then is a completely new and transformed system of cash Waqf. With the evolution of corporate laws, we now have the concept of joint-stock companies and other such innovations which has allowed the scholars of Islamic Economics to come up with models for cash Waqf which no longer has the previous issues of Shairah Compliance.

The present-day cash waqf models can be primarily divided into two types:

1. Direct Cash Waqf

Direct cash waqf is an endowment created by the founder in cash to be channeled directly for developing any waqf property.

An example could include collecting cash and then establishing a school. Although the original form of the endowment was cash, it was converted into a tangible institute which will benefit the society. Now, this school has the freedom to charge a minimal fee from students so that it can sustain itself and continue to serve its purpose.

2. Indirect Cash Waqf

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 channeled to the beneficiaries.

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An easy to understand example of indirect cash waqf can be an endowment fund which maintains a portfolio of Stocks.

The returns form the portfolio is divided into three parts.

One part is reinvested, the second in paid to the management, and the third goes to support various activities for which the fund was formed.

In conclusion, we can say that Cash Waqf has and will open new doors for societal reform and upliftment as it gives the institution of waqf a broader spectrum of operation and allows for higher public participation leading to increased capital collection resulting in the higher circulation of money across society.

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