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Nur Azlin Ismail2

Ismail Omar, PhD
Universiti Tun Hussein Onn Malaysia

Mohd Noor Ropiah Abu Bakar

UDA Holdings Berhad

Recently, the well accepted of waqf has contributed a
tremendous development of waqf mechanism globally
including Malaysia. The new leap of Malaysian waqf
practising had shown the changing of mauquf from real
estate towards receiving cash by many means. Thus, it
seems that there is a need to institutionalize the financial
mechanism in facilitating the Malaysia waqf development.
This paper offers an insight of theoretical and practical
consideration in establishing the waqf bank in Malaysia.
The needs of the establishment were explored through the
role and opportunities of the financial institution in current
Malaysia waqf context. The paper also tries to highlight
the unfavourable scenario of waqf environment that need
to be the concern in designing the waqf bank in Malaysia.
The findings from this study will portray the missing link
between waqf and banking in Malaysia within the current
Waqf, Waqf Bank, Institutionalization, Banking Institutional

Paper presented at 5th Global Waqf Conference Pekanbaru Indonesia,16-18 October 2017
Corresponding author azlinphduthm@gmail.com
After more than 30 years, Malaysia Islamic banking and finance (MIBF) is
experiencing a rapid financial ecosystem growth. Interestingly, The Malaysia
Reserved3 revealed Islamic banking market share had increased from 7.1% in 2010
and reach 28% in 2016, yet, its growth rate dropped from 24.2% in 2011 to 8.2% in
2016. Thus, it reflects, new opportunities need to be explored for the growth sustained.
On the other hand, most prominent waqf scholar and practitioner proposed there is a
need of establishing a waqf bank in Malaysia (Ab. Aziz & Yusof, 2014; Lahsasna,
2014). In fact, waqf has been put forward as the Global Islamic Finance agenda in
2016 as an effort to create a shared prosperity and reaching the Sustainable
Development Goals (SDG).


Waqf is a well-connected philanthropy which much greater compared to other
voluntary institution in Islam (Ali and Khanom 2014; Saifuddin et al. 2014; Masahinaa
and Kijas 2012; Islahi,1996). It is merely neither religious nor philanthropic instrument.
The role of waqf is cuts across the social and economic end. Hence, it urges waqf to
be a vision as an effective socio-economic capital structure. Chowdhury, Shahedur,
Ghazali, & Ibrahim, (2011) asserted waqf need to be managed with structured
management system underlying the total guidance of the Islamic tenets.
Consequently, an investment company or banking institution are the two-possible
founding that fit to address the waqf character. Gundogan & B.G (2014) asserted
banking is a” debt-based monetary system (DBMS)”, an unjust mechanism that
helping the bank creating money out of nothing through the Fractional Reserve System
(FRS). Nevertheless, banking is still outstripping as it able to provide a full range of
products and services as well as an access to the regional and capital market4. Its
regulated services also would become an effective marketing strategy. Thus,
integrating waqf with Islamic banking institution will might create a more impactful

The Malaysia Reserved dated August 21, 2017
Interview with Director of al akhyar Education Group, Dorset Hotel Putrajaya 31 July 2017
Islamic Financial Services Board (IFSB 2015)
Looking at the Ottoman history, the establishment of cash waqf institution from
13th to 20th century is the pioneering of waqf bank chronicle. The cash waqfs were
managed in fulfill the needs of the society together with the endowments conditions
(Cizakca, 1995). After the long discussion on the legitimacy of cash waqf, Özdemir &
Özdemir (2015) notified several modes were used in the Ottoman cash waqf
operations such as Mudaraba, Murabaha, Bida’a, Mu’amele-i Şer’iyye / bey'ul-'îyne,
Qard al-hasan, and Istiğlal. As a result, Ottoman cash waqf had become a resilient
financing source for the entrepreneurs, merchants and craftsmen for a long time. If
their operations look like the modern interest-free Islamic financial institutions, do we
still need an independent waqf bank? Baharuddin & Taufiq,( 2014) argued the Islamic
banking industry nowadays only focusing on a “small" group who could grant a
collateral for their loan. Meanwhile, Mohammad, (2011b) affirmed majority of the poor
in Muslim countries are unattended by the current banking system which allows the
extension of Muslim jurists view regarding the validity of cash waqf and the
permissibility of waqf bank. His view is consistent as most studies highlighted the huge
potential of the cash waqf donations and proceeds to form as the capital for waqf bank.
This paper tries to highlight the readiness of Malaysia environment towards the
establishment of waqf bank theoretically and practically with some reference possible


Mohammad ( 2011) alleged waqf bank is not violating the Shariah principles
since almost all waqf issues are ijtihadi. Hence, the waqf bank operation and utility is
permissible on grounds. Technically, there are three banks that fit in under the name
of waqf bank; first is the “Vakıflar Bankası” a reborn of Ottoman cash waqfs that has
been incorporated in 1954 with a different organisational structure (Cizakca, 2004).
Although, its initial objective was managing the cash revenues and expenditures of
certain governmental charitable foundation but currently the operation of this bank is
similar with other conventional bank in Turkey6.

Vakiflar Bankasi Resolution Plan 2014
Second one is the” Grameen Bank” a social investment bank limited (SIBL)
which focused on waqf- based micro financing. The founder, Muhammad Yunus
started this contemporary group lending microfinance initiative in 1970s. Grameen had
innovated fourteen different microfinance models to service clients without collaterals
(Ashta, Couchoro, & Musa, 2014). Although it seems that Grameen would suffered
high risk of default and bear high transactions cost, surprisingly, the loan repayment
rate of Grameen Bank is 98 percent and its gaining a profit by providing small loans
and saving on a large scale since 1980s(Ullah & Haq, 2017)

The third waqf bank that existed is Vakif Participation Bank (Vakif Katilim) which
launched on 26 February 2016 Vakif Katilim has already established 44 branches in
24 provinces across the Turkey7. This first Islamic bank for Waqf foundations was the
collaboration effort between Turkey General Directorate of Foundations (GDF) and
Islamic Development Bank thru the start-up capital provision. Vakif Katilim is
categorized under participation banking in Turkish banking structure. Generally, the
function of participation bank is similar as deposit bank but its collecting and lending
methods of funds would be different8.


The idea of establishing a bank to support Malaysia Waqf development was
initially articulated by the former Malaysia Prime Minister Tun Dr. Mahathir Mohamad
in 20059. He had highlighted the need of having a specialized bank that could support
a strategic waqf movement and facilitate the waqf institutionalization so that waqf
ought to play some vital roles in socio-economic growth. On top of that, Lahsasna
(2014) asserted waqf should be added and structured as another market segment in
the current Islamic financial markets (figure 1). Therefore, waqf market will be
regulated by the purview of the central bank and the securities commission together
with the State Religious Islam Council (SRIC). He also added by having this structure,

During the visit of The President of Islamic Development Bank (IsDB) Group, Dr. Bandar Hajjar, ON 24 May2017

Was spoken during Islamic Development Bank’s (IDB) 1440H Vision deliberations March 2005
the waqf market would be opened to the private entities to have the right in establishing
waqf entity business operation under their own management subject to the licensing
granted by the regulatory body.

4.1 The supporting banking Environment

Malaysia has a very comprehensive market place together with a sound legal
infrastructure that could accommodates the waqf market. On top of that, the readiness
and willingness of Malaysia government and regulators embark on amendments and
improvement would facilitate a new platform to welcome the waqf market. Being
acknowledge as a hub in Islamic finance also will attract many high net worth
international market players to engage with Malaysia waqf products and services in
waqf market. The availability of in Islamic finance and Shariah expertise and talent
also will support the Malaysia waqf market

4.2 Roles and Opportunities of Malaysia waqf bank

The developments in the waqf sector in Malaysia are encouraging. Therefore,
Improper waqf collections system and management is no longer suitable with the
development of technology and digital lifestyle of Malaysian nowadays. On 8
September 2017, six Malaysian Islamic banks have formed a waqf fund consortium to
allow the banking customers contribute cash waqf thru their banking channels Is it fair
enough with the channel or should Malaysia introduce waqf window banking or even
the full pledge of waqf banking? This paper discusses, several current scenarios that
explain the roles and opportunity of the waqf bank.(perhaps)

4.2.1 The well acceptance of cash waqf

The acceptance of cash waqf as an accessible medium in Malaysia also be one
of the opportunity in establishing Malaysia waqf bank. Most of the Majlis Agama Islam
Negeri(MAIN) had creating their cash waqf instrument10. Thus, the tremendous growth
of cash waqf has urge waqf asset management and administration to replicate the
corporate culture of accountability, good governance and transparency. In fact, to

Cash Wakaf MAINS, Cash Waqaf MAIK, Cash Wakaf MAIDAM, Cash Wakaf YWM, Wakaf Fund MUIP, Wakaf
Fund Penang, Wakaf Fund Perak Ar Ridzuan, Wakaf Fund MAIWP, Wakaf Fund MAIM, Waqaf share Selangor,
Wakaf Share Johor, Wakaf fund Johorean as well as Infaq lil waqf ANGKASA.
ensure these matter, several MAINs had been put in place collaborations with bank
such as Bank Mualamat with Perbadanan Wakaf Selangor (PWS- the wholly owned
company by Majlis Agama Islam Selangor (MAIS)) and Malayan Banking (MAYBANK)
with Majlis Agama Islam dan Adat Melayu Perak (MAINPp). By having such
partnership, the waqf fund are managed by the high skill and expert personnel that
could leads to increase the public confidence and number of cash waqf donors.

On the other hand, another justification of waqf bank establishment is the fruitful
cash waqf collection by the Malaysian universities. One of the shift in Malaysia Higher
Education Blueprint 2015-2025 is generating income. Thus, nine Malaysia universities
had already launched their waqf fund. To date, the Higher Education minister had
announced, the collective waqf fund collected from the universities had reached RM
21.6 million11.Yusof, Yusof, Hasarudin, & Romli, (2014) reminded those entities that
involves with waqf and infaq need to employ an enterprise system that accomplish
their waqf revenues management and conduct the online transaction mechanism.
Does banking is the appropriate system that could accommodate this function?

4.2.2 Abundant numbers of unimproved waqf land

In Malaysia, the Waqf Land Transformation 2015-2030 provides guidelines and
projects that waqf land development in Malaysia would be stimulated succinctly. In
2015, the report highlighted that only 12 per cent of 30,000 hectares of waqf land had
been improved and developed successfully. The rest 88 per cent is left undeveloped
and remained scattered throughout the country. Three difficulties of waqf property
development were identified; legal and administrative, economic and financial and
socio-political elements of waqf land supply constraints (Omar, 2015; Omar & Md
Yusof, 2014).

Omar & Ismail(2016) claimed the financial rules in securing fund for
development from banks and financial institutions had dampened the initiatives to
develop waqf land. This is because the nominal value of waqf land is 0 which mean it
is not a security for collateral of waqf land, which hindered the waqf lands development

Noted by Muhammad Ali Don at Seminar Pembiayaan dan Pembangunan Wakaf Institut Pengajian Tinggi
(IPT) in Universiti Malaya23-24 May 2017.
investment facility and markets in hence remain underutilized (Tahir, 2008 ;Chowdhury
et al., 2011).. Most of the current waqf land developments are funded by cash waqf,
government funding (waqf irsod), Built operates and transfer (BOT) or joint venture
(JV) In fact, in the case of Wakaf Setee Aisah(JV) project, the appointed contractor
used their internal financing approximately RM24 million to fund all the development
project cost. The question is how many parties willing to contributes such a huge
amount in developing the waqf land? If we do, does the number enough to cater the
remaining 88 percent of the undeveloped waqf land?

4.2.3 . The new trend of waqf land development

The growing of waqf literature also inspired Malaysia Waqf to evolve with an
innovative approaches and revised criteria of waqf land development. Hotels,
commercial buildings, office buildings, housing estates, hospital and in fact buses
terminal also are among the new development approaches that has been introduced.
Those development were considering the current need of the local community. One of
the iconic waqf development is Wakaf Seetee Aisah (WSA) that encountered issue on
housing affordability WSA is a RM 24 million commercial properties and housing areas
project. The houses were leased12 for 99 years at the range of an affordable prices
between RM 250,000 to RM 400,000 each which lower by 20% from the current market
price.(Ismail, Omar, Abu Bakar, & Suhaili, 2016) Thus, it provides a greater Muslim
opportunity to own a house. During the 90%of the WSA project accomplishment,
almost all houses unit had been engaged but, the issue arose when there were limited
end financing facilities13 available to the leased holder (customer). This scenario
occurred as the Malaysian banks reluctant to offer credit facility (end financing). Again,
the issue of non-collateral of waqf asset was being raised up14. In the few years ahead,
approximately another 2500 houses on waqf land would be completed. As in Malaysia,
residential housing financing is provided by banking institutions (85%), government
housing loan (13%) and the remaining 2% by the private-sector housing loans15. The

The leased instead of sales and purchased contract was used as to maintain the character of waqf.
For WSA the end-financing only comes from Ar Rajhi bank & Bank Islam Malaysia Berhad
Interview with banking officer on 26 May 2015
CAGAMAS report 2013
questions are which bank would offer the end-financing facilities? If the existing bank
wouldn’t, does it mean Malaysia need to establish waqf bank that cater all the waqf
development financing facilities?

4.2.4 The outreach of the financing facilities

Although the Financial Inclusion Index had significantly improved to 0.90 in 20151617,
there are still 8% unbanked population in Malaysia where 86% are representing the
no and low- income group. gaps are remaining in utilizing the financial products and
services among the low-income. There are still household. Micro saving and micro
takaful being introduced by the Malaysia central bank as financial protection against
the unexpected adverse event.

4.3 The Waqf bank Character

4.3.1 Equity based financing

Despite being in presence for more than 40 years the ideal Islamic values, is
still undervalued by the MIBF as its products and services are quite similar as those
structured by the conventional banks (Ariffin, Kassim, & Razak, 2015). The waqf bank
is expected to actualize the equity-based financing (EBF) such as mudharabah and
musyarakah even it is much riskier. The dominant murabahah scheme are not so fit in
waqf asset transaction In fact, a purchase of a Waqf property is not ace ptable in a
Murabahah sale as Waqf properties are restricted from being sold. In theory, Risk
Sharing based Financing (RSF)
4.3.2 Islamic Social banking
Same as other religions, Islamic Law emphasizes on the moral value of caring
and sharing to poorer by wealthier peoples. Peoples with more financial ability have
to aids and support the destitute. Welfare of destitute is strongly concern under Islamic
Financial Institutions. This is also one of the reasons that Riba is prohibited since it will

Bank Negara Malaysia
increase the burden of the borrower by paying extra (interest). A kind of interest-free
loan, called as Al Quard Al Hasan has being offered to the needy in Islamic finance.
Under this profit-free loan, the borrower only required to pay back the principal amount
of loan without needing to pay extra for interest, mark up cost or others. Besides the
profit-free loan, Zakat is offered to support for needy. Zakat acts as religious tax which
is compulsory to be contributed by every Muslim. The concept of collection Zakat isto
promote the moral values by providing financialsupport for needy and poor from
peoples who have greater financial abilities.

A Venture Capital mediumOpportunities in establishing waqf bank

In 2016, a consortium of Islamic banks in Malaysia had established Investment

Account Platform in Malaysia, an olnline
The new trend of waqf land development

The outreach of the financing facilities

4.4 Challenges for waqf bank establishment
The concept, theoretical and operational of waqf bank development institution
modelled and labelled as an Islamic awqaf bank has arrived for serious consideration
4.4.1 High start-up capital

4.4.2 Regulatory environment

4.4.3 Operational structure

The bank’s board of directors should be combination of experienced Islamic
bankers, regulators, fund managers, and individuals who are committed to the mission
of awqaf. The bank’s Board of Directors will have the overall responsibility of the
business of the bank. It will ensure compliance with the laws, rules and regulations of
the various jurisdictions where it operates.
The board should be supported by specialised committees as required to
consider matters of special importance including capital strategies, major investments
and commitments, capital expenditure, risk, audit, staff appointments and the
allocation of resources.
In addition, a dedicated ‘Awqaf Advisory Committee’ should be constituted
whose members would provide specialist guidance and support to the bank and
ensure a balance between the Bank’s commercial returns and the awqaf charitable

Explore the feasibility of establishing the waqf bank.
The waqf market should be added and structured in a similar way to the current
Islamic financial markets where there should be a regulator under the purview of the
central bank and the securities commission along with the religion department.
We conclude that waqf market is needed to be introduced as a new market
place, highly regulated and governed with similar guidelines, standards and
regulations of the financial market. The easy way to establish this market is to map its
structure against the takaful operator, and map its business operation and portfolio
against the Islamic commercial and investment banks.
decentralisation of its administration, and creating a favourable environment will
enhance waqf’s financial role not only in providing the goods and services needed in
Muslim and Muslim minority countries but will also assist governments in providing
these services without any cost