Investing waqf assets refers to increasing the wealth of endowments, both the underlying assets and the income, using Shariah-compliant methods.
By DR LAYACHI FEDDAD / Pic By MUHD AMIN NAHARUL
An asset that the endower has specified should be used for the direct benefit of the stipulated beneficiaries.
A house for residence, a mosque for prayer, or a graveyard for burial — such endowments cannot be invested. The beneficiaries, whether they have been identified personally or by attributes, should be allowed to make use of the property as per the instructions of the endower (IFA, 2004).
As for the maintenance and repair of an endowment asset of this type, if the endower earmarked funds for maintenance, they should be used accordingly. If he did not make any provisions, then the most reasonable policy is for the maintenance to be the responsibility of the beneficiaries, if they have been specified. That is because they are the ones deriving benefit from the asset. Therefore, they have the duty of fixing whatever stops working in it (Al-Kubaysi, 1977: 2/193).
If the person having the right to reside in a house declines to pay for its maintenance, the judge shall lease it out and spend the rental income on the maintenance (Al-Sarakhsi, 1993: 6/221). If the beneficiary cannot spend resources upon the endowment due to his inability or absence, and it cannot be rented out, the property should be sold and the proceeds spent on another endowment property. The justification in this case is necessary because of the lack of alternatives (Al-Ruhaybani, 1994: 4/242-243).
If the beneficiaries are not specific persons — for example, the poor in general — the most suitable opinion is that maintenance is the obligation of the public treasury (Al-Ruhaybani, 1994: 4/242-243). If the endowment property becomes useless, the administrator can exchange it for another asset that fulfils the objective and stipulations of the endower. That is in line with the juristic opinion that allows substitution in endowments. It is also possible to restore a non-functional waqf property by using the surplus of other endowments that have the same objective (Ibn Bayyih, 2005: 15-16).
An asset set up as a waqf that gene- rates proceeds is to be spent according to the endower’s instructions.
Jurists agree that the primary duty of the waqf administrator is to keep an asset functional, whether or not the endower stipulated it. Moreover, his actions regarding it must be limited by the consideration of securing benefit for the intended beneficiaries. That is why we see many jurists giving the administrator the right to act to realise their benefit, even if it means changing the features of the waqf, as long as the intention is to increase the benefit of the beneficiaries (Al-Tarabulsi, 1902: 62).
The administrator will not be able to realise the objective of the endower in making the asset inalienable and spending the proceeds on the intended beneficiaries unless he makes it productive. That is what will realise the social and economic benefits of the waqf. Jurists drew upon an assortment of evidence to support the permissibility of investing waqf assets, and these can be found in the books of fiqh.
The endower’s stipulation that a portion of the asset’s proceeds be invested in the asset to maintain its productivity.
This stipulation is recognised by the Shariah and does not conflict with the nature and implications of waqf. It is similar to an endower’s stipulation that the endowment asset be replaced with a productive asset in case it becomes non-functional.
This has been confirmed by the re- solution of the International Islamic Fiqh Academy of the Organisation of Islamic Cooperation (IFA-OIC) and the resolutions and recommendations of the First Seminar on Waqf Fiqh Issues (IFA, 2004; First Seminar, Investment, item 4).
The surplus waqf revenue is what remains after the proceeds have been distributed to the beneficiaries, and the expenses and allocations have been deducted (First Seminar, Investment, item 6). The basic rule for waqf revenue is that it should be distributed among the beneficiaries according to the stipulations of the endower.
However, a surplus in the waqf revenue can arise resulting from the magnitude of the proceeds, a drop in the number of beneficiaries, the disappearance of a stipulated channel for charitable spending, a sharp drop in administrative and maintenance expenses, or for some other reasons.
These factors can result in proceeds that are not fully distributed. The question thus arises: Is it possible to invest such funds by purchasing assets similar to the assets of that waqf to create another waqf whose proceeds are spent for the same purpose as the original waqf? Alternatively, should they be spent for other general charitable purposes, which could also be considered an investment of the surplus?
Jurists have a number of approaches; however, the prevailing approach is that the surplus should be invested even if the waqf is for the benefit of a mosque. The administrator should use it to purchase real estate, and if the ruler decides it should be turned into a waqf for a stipulated group of beneficiaries, it will become a waqf.
This opinion has been transmitted from Imam Al-Ghazali (Al-Manawi, 1998: 2/316-317). The resolution of the First Seminar on Waqf Fiqh Issues stated that it is permissible to invest the surplus proceeds after the proceeds have been distributed to the beneficiaries, and the expenses and allocations have been deducted (First Seminar, Investment, item 6). The previously mentioned resolution of the IFA-OIC affirmed the same (IFA, 2004).
Parameters for Investment of Waqf Assets, Proceeds
To ensure efficient and equitable investment of waqf assets and proceeds, the IFA-OIC in its First Seminar in 2004 stipulated the following parameters:
1) The investment avenue should be Shariah-compliant.
2) Due consideration should be given to the instructions of the en- dower which restrict the endowment administrator in the way the waqf assets are invested.
3) Risky investments should be avoided.
4) The investment portfolio should be diversified in order to reduce risk.
5) Economic feasibility studies should guide the waqf projects.
6) Investment formats should be chosen that are consistent with the nature of the endowment in order to achieve the interests of the waqf and avoid the beneficiaries’ loss of their rights.
7) Efforts should be made to realise social benefits from the waqf investments without sacrificing the profits that benefit the intended recipients.
The Shariah sets flexible and proactive measures to investing waqf assets. However, it has put in place comprehensive parameters in order to ensure prudent investments of these assets especially assets of public and charitable (orphans’) institution. This shows that all innovative approaches to investment are welcomed and well supported by Shariah as long as they adhere to these maqasidi parameters.
- Extracted from the Islamic Commercial Law Report 2018 published by International Shariah Research Academy for Islamic Finance, Thompson Reuters and Islamic Research and Training Institute (IRTI). Dr Layachi Feddad is a senior Shariah specialist at IRTI.