By FARRUKH HABIB
Giving charity is one of the noblest acts in Islam, for which the reward is immensely huge. Islam encourages people to get involved in charity and altruistic acts, no matter big or small.
And Shariah provides a complete ecosystem for Islamic philanthropy to ensure that wealth does not revolve among only the rich of a society.
One of the major pillars of that eco- system is waqf. Waqf is a voluntary irrevocable dedication of a portion of one’s wealth — in cash or kind — to Allah. Once given, a waqf corpus never gets gifted, inherited, or sold, as it should always remain intact, because it belongs to Allah.
In this way, waqf is institutionalised by Shariah, and has become very popular from its early stage.
The institution of waqf always played a pivotal role of sustainable economic development in a Muslim society throughout the history of Islam. It was an integral element of the financial empowerment pro- gramme of the people which actively contributed in the financial inclusion, poverty alleviation and fruitful mutual community initiatives.
However, recently, this important institution has been generally neglected by the Muslim community for various reasons. There is an array of issues and challenges facing waqf in the contemporary world.
Even with the inception of Islamic finance a few decades ago, waqf has been struggling to rejuvenate its past glory.
Many reasons are collectively responsible for this dilemma. For instance, there is lack of availability of comprehensive data and historical records. This situation leads to weak transparency and public disclosure of the waqf institution.
Subsequently, there is little scope for proper audit and compliance practices. Moreover, most of the time, good governance structures and well-planned development and business strategies are ignored in such institutions.
In addition to that, legal and regulatory challenges in every jurisdiction are considered to be some of the major issues with the waqf institution in the contemporary world.
Can Blockchain Help?
The advent of technological advancements, particularly the introduction of blockchain, has offered a ray of hope for the revival of the waqf institution in the modern world.
Blockchain is a decentralised digital ledger technology to record anything of value. Having transparency at the core of its system, it possesses various attractive features which are naturally required by the waqf institution.
For example, data entry is done through a decentralised consensus system which can provide more reliability and trust among the parties involved.
Once the data is entered, it is immutable. Since the records in blockchain are unalterable; it is very difficult to corrupt or manipulate those records or data entries.
Blockchain, though still at its infancy stage, has already proved itself as a game-changing breakthrough for the global financial sphere. In fact, its utilisation is not limited to only the
financial sector, but it also affords promising features and usage for non-financial sectors.
Similarly, the waqf institution could be invigorated with the innovative and efficient use of blockchain. Blockchain and waqf are naturally a perfect match because, interestingly, the for- mer addresses many, if not all, of the issues and problems currently facing waqf in the contemporary world.
Nick Szabo introduced the idea of “smart contracts” in 1994 to establish contract law through electronic commerce protocols and to design business practices through computer pro- grammes on the Internet among strangers.
He stated: “A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises (Szabo, 1996, Smart Contracts: Building Blocks for Digital Markets).”
It is actually a computer programme or algorithm that automatically executes when pre-defined conditions are met. In other words, it is a general-purpose computation which typically takes place on a distributed ledger or blockchain. In this respect, it is more generic than a traditional contract, because it can be any kind of algorithm.
A smart contract can easily satisfy common contractual conditions and minimise exceptions both malicious and accidental. It does not need intervention; hence, it minimises the need for trusted intermediaries.
Subsequently, its usage would reduce fraud loss, while lowering arbitrations, enforcement and other transactional costs.
It can be effectively used in waqf. For instance, a waqf deed can be converted into an algorithm or code. The algorithm or code then can be inserted in the blockchain platform in the form of a smart contract. The execution of the smart contract is automated.
The smart contract can avoid the usage of waqf property against the stipulations of the waqf giver. In this way, the waqf deed can be protected and adhered to. This is a simple example where waqf can benefit from smart contracts.
From a macro perspective, the use of smart contracts could further enhance the performance and efficacy of the waqf institution. Incorporating smart contracts could also reduce the cost, while further increasing the security and adherence to the waqf stipulations.
It is strongly believed that the firm fiqhi foundations of waqf — an innovative approach consisting of technological advancements like blockchain — towards its restoration will ensure that the waqf institution could dynamically partake in the societal and economic development of the whole Muslim world.
Such remarkable initiatives will also crystalise the ethical and social dimensions of Islamic finance in a robust manner.
- Dr Farrukh Habib is a researcher at the International Shariah Research Academy for Islamic finance and a senior advisor at HalalChain. The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and editorial board.