Awqaf: The Quiet Achiever

Hisham Dafterdar, CPA, PhD
Chairman
Awkaf Australia Ltd

The recent surge of interest in awqaf is due to the increasing awareness of the role of the waqf in social and economic development. Awqaf is omnipresent in all facets of life ranging from education, healthcare to social services, art and recreation. Awqaf organizations are not part of government, although many perform a public service. Major universities, hospitals, libraries, museums, orphanages, homes for the elderly, animal shelters and sanctuaries are prime examples of awqaf. Awqaf investments are also in agriculture, industry, and infrastructure. Awqaf constitutes a distinct economic sector, neither government, nor private – a non-profit sector with its own distinctive rules and characteristics.

Despite the sector’s awesome size, awqaf remains one of the most misunderstood areas of the Islamic financial system. You won’t hear much about awqaf in economic fora or read much about them in the financial pages of daily newspapers. Management training when it is provided to the nazirs, is often piecemeal and drawn from a confused mix of models and practices. Because of awqaf’s private and usually esoteric nature, and lack of certainty how awqaf are governed and regulated, the sector appears to work in isolation from other sectors. For too many years, we taught ourselves that awqaf is a corrupt and careless sector with loose accountability over loose assets. We appear to find it easier to talk about corrupt awqaf nazirs whose unethical and careless behaviour led to the loss of many awqaf, than to talk about those who are good and kept awqaf alive and thriving. For over 1400 years, awqaf has not only survived, but thrived. The popular perception of awqaf as amateur organisations run by enthusiastic volunteers is disappearing. Awqaf is rapidly emerging as a vibrant social enterprise sector unique in its synthesis of financial and social goals.

Awqaf, like all organisations, need revenues to fund their operations. They have to generate sufficient cash from assets in custody, or appeal to donors who may have different views of what objectives and strategies the organisation should be pursuing and what services it should be providing. Donations are uncertain and inherently unpredictable. There has been mounting pressure on corporations and individuals who now have less to give. Some awqaf organisations are denounced as hotbeds for radicalism and many Muslim donors are painted as financiers of terrorist activities. With reduction in receipts, many awqaf organisations have to find new ways to raise funds from more reliable sources such as revenues from investments and commercial activities to ensure financial independence and long term sustainability. This spills over into the increasingly competitive environment of the marketplace where awqaf have to compete with the private sector. The nazir has to wear the hat of an investment specialist and navigate a complex and changing set of financial and legal rules and grapple with pressure from regulators and stakeholders. He has to understand exactly where the threats and opportunities lie, where to invest, and how to allocate valuable resources. This takes awqaf nazirs away from their comfort zone and complicates their duty of care to the waqf.

Awqaf organisations are not-for-profit; but also are not-for-loss. Losses don’t fund missions. The engagement of awqaf in business necessitates competition with the private sector, and this means selling goods and services and be profitable. There is no difference between profits for the waqf and profits for a commercial company. The fundamental difference is that a waqf organisation does not have as its primary objective the generation of a return for shareholders. Surpluses are spent on its social programs or are reserved for future services.

Awqaf by its goals is changing the way business does business. Awqaf’s aim is to make their businesses profitable instead of making profit the business of awqaf. An obsession with continual pursuit of profit and growth is unsustainable and threatens to compromise many invaluable work pursuits. Awqaf’s business ventures can be a powerful complement to other activities as they advance the awqaf’s social mission and the community’s financial sustainability by creating jobs, alleviating poverty and growing the economy. Awqaf businesses are becoming recognised as the enterprise that directly ties investment with awqaf’s ultimate goal of creating social value.

Over the years, awqaf have rejected commercial companies’ preoccupation with growth and profitability. There’s a misconception among some that because an organisation is a waqf, it should not return a surplus or distribute the surplus if there is one. An awqaf organisation that is highly effective in meeting its operational objectives, but which is inefficient financially soon finds itself unable to continue delivering services as its resources drain. Responsible awqaf organisations do try to derive a surplus to ensure that they are long term financially-viable entities that can realise their mission well into the future. Imagine, for example, an orphanage established by a waqf. If it does not have any surplus funds to meet ongoing operational and future capital costs, the orphanage may be forced to close down. The inability to access any surplus funds from its own reserves could result in the withdrawal of much needed community service.

The most basic requirement for financial sustainability is the adoption of sound financial practices. In this area, awqaf can borrow some of the concepts from commercial companies in how to manage and run their businesses. Their main challenge is to implement elements of corporate governance that deal with being more transparent and accountable in their program operations, asset and resource management, financial management, fund raising and disbursement strategies. Greater accountability means putting the primary responsibility on the nazirs and executives of waqf organisations and hold them accountable for managing the waqf reliably, effectively and efficiently. These days no organisation is immune to public scrutiny, not even a shelter or an orphanage that does not have a blemish to its name. A key issue in relation to corporate governance in the awqaf sector is the need for transparency and assurance in the way assets and resources are used, to ensure that the waqif conditions are fulfilled and the expected outcomes are achieved, and that the organisation is able to pursue its mission and mandate over the long term.

Along with the present surge of interest in awqaf, a number of legal and administrative issues have appeared which necessitated the re-alignment of awqaf’s operational and administrative processes with modern developments. This can only be facilitated by adopting professional management based on the best practices of corporate governance and quality assurance. Awqaf core principles are enshrined in Shariah and the sector shows great concern for ethical values such as honesty, integrity trust and compassion. These values are very important and are beyond dispute, as it is through this sector where social impacts are more visible.

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