Innovative Modes of Financing the Development of Waqf Property

By
Dr. Mohammad Tahir Sabit Haji Mohammad
Department of Land Administration and Development,
Faculty of Geoinformation Sciences and Engineering
University Technology Malaysia

Innovative Modes of Financing the Development of Waqf Property 1

Innovative Modes of Financing the Development of Waqf Property 2

1.Introduction 2

2. Credit-based financing 3

2.1. Build and Transfer _ Murabahah / BBA (bay’ bi thaman al-ajil) 3

2.2. Forward Sale _Istisna’ / Salam Mode 6

2.3. Leasing and Hire Purchase Mode (ijarah thumma Bay’) 8
2.3.1. Build, Lease, and Transfer (Ijarah Thumma Tamlik) 9
2.3.2. Build Sale and leaseback (Mersad) 11

3. Institutional financing: Joint ventures 12

3.1.Mudarabah 13

3.2. Partnership (Musharakah) 15

4. Corporate financing: Securitization of project (saham and sukuk) 18

4.1. Public issue: equity participation 18
4.1.1. Mudarabah Equity 20
4.1.2. Musharakah equity 20

4.2. Islamic bonds (Sukuk) 21
4.2.1. Muqradah or mudarabah bonds 22
4.2.2. Ijarah bonds 22

5. Self-Finance 23

5.1. Land ascapital 23

5.2. Lump sum rentals obtain through Long lease (Hikr) 24

5.3. Substitution (ibdal and istibdal) of Waqf 24

5.4. Waqf shares 27

5.5. Cash and usufruct waqfs 27

6. Conclusion 28

Innovative Modes of Financing the Development of Waqf Property

By
Dr. Mohammad Tahir Sabit Haji Mohammad
Department of Land Administration and Development,
Faculty of GeoinformationSciences and Engineering
University Technology Malaysia

1. Introduction

This paper is based on the presumption that the institutions of waqf (e.g. Majlis Agama Islam) are avoiding dependence on funding from Government, by seeking development financing from private sector. Also it is thought that the waqf institutions are not exposing their assets to liabilities arising from a particulardevelopment project and therefore the development financing is a project based funding. Additionally, the paper presupposes the grant of hikr (long lease)[1] by the waqf institutions to their development arm i.e. Waqf Holdings (corporations authorized by law to do business on behalf of the waqf institutions), which in time may incorporate its own subsidiary and sublease a particular parcel of landto the newly formed corporation.
The intended development may be either for the purposes of revivification of waqf property, or advanced in the sense of investment. Where it is a matter of need as in the case of revivification, the institution of waqf possibly has no capital and therefore may seek 100 per cent financing while in the case of investment when the institution acts as a financier itmay need financing partners in return for a small share in the completed project. The application of Shariah compliant Financing Instruments is easy in the latter, but a challenge in the former. To deal somehow with this challenge, this paper discusses the new financial schemes, in contrast to the classics, as proposed by modern jurists. The paper also looks at the practicality of such instrumentswhere the nazir (i.e. any one in charge of development for the benefit of waqf) of waqf has zero funds. The paper also has new proposal to complement the existing.
This paper is not about the financing itself but a fiqhi framework that can avoid legal constrains on waqf properties to use them as collateral and show that financing such financing remain attractive to financers and privateinvestors, while at the same be beneficial to the preservation and better utilization of waqf property. The reader therefore will find financial modes and instruments suitable to Waqf Real Estate Development Investment bodies authorized under Malaysian law as Waqf development corporations.
The writer also takes note of the restraints limiting development finance which may not be so if the institution…