Have you ever heard about Sukuk-waqf? This might be your first time knowing about Sukuk-waqf. It is understandable as most countries have not yet implemented the concept of Sukuk-waqf as their sovereign funds. This article will elaborate on it for you.
What is Waqf?
Allah grants humans the capacity to carry out economic activities within Shariah rulings. As a result, we can acquire and transfer properties through several contracts, including commercial and non-profit transactions. Likewise, waqf is a part of the second category. Waqf is an act of dedicating any property for prosperity whose profit can be used for charitable intentions. Prophet Muhammad once said:
When a man dies, his deeds come to an end except for three things: sadaqah jariyah (ceaseless charity), beneficial knowledge, and virtuous descendant who prays for him (for the deceased).
Furthermore, waqf is a type of endowment fund from wealthy people to benefit the needy. It is an Islamic concept in alleviating poverty by providing basic needs to increase general welfare. The structure of waqf involves four elements:
- Waqif (the asset/property provider)
- Mawquf (the property endowed)
- Mawquf’ alayh (the beneficiary)
- Al-sighah (the form of contract)
Waqf-like charity is the most common form of waqf. In that regard, people donate their physical property, such as lands or buildings for public facilities. Besides, there is cash-waqf which refers to the holding and preserving cash by a waqif to the welfare of society in perpetuity. There is also Sukuk-waqf that we will discuss soon.
Sukuk-Waqf: Definition, Structure, and Application
Firstly, let’s recall the definition of Sukuk. According to AAOIFI, Sukuk is “a certificate of equal value representing undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity, however, this is true after receipt of the value of the Sukuk, the closing of subscription and the employment of funds received for the purpose for which the Sukuk was issued.“
Sukuk-waqf refers to the combination of a Sukuk-based contract and waqf. It is a tradable certificate of equal monetary value that represents the money preserved for any social projects (as the waqf asses).
The structure of Sukuk-waqf is basically not different from other types of Sukuk. The fundamental difference between both is the purpose. While the holder of normal Sukuk aims at a profit, the holder of Sukuk-waqf aims at Allah’s rewards and blessings and serves the public interest. The structure of Sukuk-waqf involves these main parties of Sukuk issuance:
- Originator (the company that raise funds)
- Issuer of the Sukuk (the existing or a newly incorporated special purpose vehicle “SPV”)
- Trustee (the appointed party that represent and oversee the Sukuk holders’ rights from the beginning until the redemption)
- Sukuk holders (investors who wish to invest in the social project and hold the Sukuk certificate)
Example of Sukuk-Waqf
International Shari’ah Research Academy for Islamic Finance (ISRA) has launched a social project based on Sukuk-waqf. The project involves Awqaf New Zealand, ISRA, and the Security Commission of Malaysia. The objective was to raise $1 billion to establish a farming industry in New Zealand and Canada. Through this farm, Qurbani (halal slaughtering animals) was provided for Muslims particularly in the west. The waste was used to produce shoes and bags. Furthermore, the revenue was used for charitable and social purposes worldwide.
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