WAQF of Securities Challenges & solution proposal

1. WAQF of Securities Challenges & solution proposal HamedSoltaninejad CEO, CSDI H.Soltaninejad@csdiran.com

2. CSDI Functionalities

3. Outline • Introduction to waqf • Waqf functions • Efficiency challenges of traditional waqf • Controversial issues in waqf • Waqf in capital markets • Challenges and opportunities • Best practices • Capital market considerations • Proposed solutions

4. Introduction to Waqf • Definition of Waqf • To stop, contain or to preserve. • Voluntary, permanent, irrevocable dedication of Wealth to Allah. • The waqf is a system that stems from the idea of institutionalizing voluntary giving in order to guarantee sustainability. • …..A waqf is SadaqahJariyyah, continuing charity • A Capital Gift to Allah.

5. Introduction to Waqf • Forms of Waqf • Economic Assets : Income producing assets • Yields or manfaat • Social Assets: fixed or capital assets • Principal itself or eine

6. Introduction to Waqf • General types of waqf • Religious waqf :Mosques and real estates confined for providing revenues to spend on mosques' maintenance and running expenses the category of religious waqf. • Philanthropic waqf: It aims at supporting the poor segment of the society and all activities which are of interest to people at large such as libraries, scientific research, education, health services, care of animals and environment, lending to small businessmen, parks, roads, bridges, dams, etc. • Family waqf: waqf for one's own family and descendants.

7. Characteristics of waqf • Perpetuity : remaining waqffor ever • Permanence of stipulations of waqffounder: fulfillment of conditions specified by the founder • Management of waqf: mutawalli as administrator

8. Waqf Functionalities • Economic Roles • Social Roles • Wqaf institution • Islamic financial modes for awqaf • Role in poverty alleviation • Making synergy • Social Entrepreneurship

9. Challenges of Traditional Approach • Inefficiency • Development Barriers • Moral Hazards (due to lack of transparency) • Weaknesses • Mainly old and existing waqf prosperities • Government control and centralization • Two narrowly focus on mosque and school • Trustee (Mutawalli) weaknesses

10. Necessity of Augmentation • Reforming the management • Reconstructing the procedure (ijtihad) • Corporate governance structure • Waqf literacy improvements

11. Controversial Issues • Property substitution(Ibdal and Istibdal) • Different views • Prevention(habs) of principal or properity itself (Ein) • Cash Waqf (credit waqf) • Waqf of securities • Waqf of other financial instruments

12. Waqf of Securities • Different Approaches • Shariah Compliance Solutions • Consensus Approach

13. Previous Efforts in Security Waqf • Cizakca: Incorporated cash waqfs and mudaraba, Islamic non-bank financial instruments from the past to the future • Elgari: Waqf-based microfinance: Realizing the social role of Islamic finance • Kahf: Innovative modes for financing the development of waqf properties

14. Innovative Methods • Current Situation in I.R. Capital Market • Account for principal • Account for yields • Innovative Methods • Revitalization of waqf • Sukuk AL- INTIFA'A • Sukuk AL- Mosharake

15. Musharakah Transaction mechanism • Waqf Asset Manager (WAM) enter into lease agreement with ABC Property Management including 2 years forward lease • WAM and Special Purpose Company (SPC) enter into a musharakah venture to develop waqf land for a period of say 6 years – profit sharing ratio determined 70:30 • WAM Contribute land to the mushatakah • SPC Contribute cash as capital to build commercial building on the waqf land • The musharakah appoints the WAM as an agent to develop the land. The WAM may appoints developer to build the building, then when it was ready to lease the building ,the return will distributed according to the ratio • The WAM will undertakes to buy at pre-agreed price the musharakah shares of the SPC on periodic basis and at the end of 6 years, then SPC would no longer have any shares in the musharaka Waqf Asset Manager Developer Period profit (30%) 1.Wakaf land 4. Undertakes to buy Musharaka share on periodic basis A B C Lease/ forward lease Musharakah Investor Period profit (75%) 2b.Capital 2a.Capital SPC 3. Issue SukukMusharakah + periodic profit Sukuk

16. Mutual Funds as Waqf Carriers • Mutual fund specifications • Mutual and securitized • Comparable with market performance • Professional management • Attractiveness • Better supervision • Suitable for new waqf projects

17. Mutual Funds Waqf • Models • Waqf of cash • Waqf of mixed cash and securities • Conditional waqf of securities • Challenges of Models • Rare acceptance of Jurisprudents (shaz) • 2& 3 – some Jurisprudents don't believe holistic Ibdal and Istibdal

18. Investment Funds Waqf • Opportunities • Better Portfolio management • by professional mutawalli (trustee) • Feasibility of ibdal and istibdal • Better Administration and supervision • Joining benefits of securitization • Challenges • Again challenge of Ibdal and Istibdal • Necessity of different funds for different purposes • Prevention of fund’s share transaction • Mandatory listing of public investment funds in some countries

19. Comparison of Proposals

20. والسلام علی عبادالله الصالحین