Need of the Institution of Waqf
The institution of Waqf may bring a robust socio-economic development in the society as it is based upon human affection and the act of kindness to think to meet the need of others.
The main objective of Islamic banking is to implement ideal socio-economic system in the society based on the injunctions of Islam. Collectively, the Islamic banks may do very much with the establishment of the institution of Waqf.
The Islamic banks may establish significant Waqf fund for meeting the financial needs of the public. Through Waqf, Islamic banks may get experience many modes which is being thought as difficult in normal banking circumstances i.e. Qard e Hasana and Partnership modes.
Establishment of Waqf
All Islamic banks may establish Waqf fund under the regulation, permission and compulsion by State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP).
Objective of the Waqf
The objective of Waqf is not only the meeting of immediate financial needs of the people on temporarily basis but to stand people upon their own feet as they may play their role in the socio-economic development of the society.
Ways of Contribution in Waqf
As far as ways of contribution in Waqf fund, Islamic banks may contribute in the following, but not limited to, ways:
Firstly, Islamic banks may contribute though charity as it has been observed that almost every year, the Islamic banks disburse charity to different charitable institutions. This charity comes from the customers in case of late payments and the amount of profit that must be surrendered by the bank into charity due to non Shariah compliant transactions.
Secondly, Islamic banks may contribute through its own equity.
Thirdly, there may be an option to open Waqf account in Islamic banks under the Shariah and regulatory guidance of SBP. Pakistan is one of the largest charity provider nations in the world. The Islamic banks may play dominating role in this respect. Through opening of Waqf account, the Islamic banks may offer the public to contribute in Waqf account for further utilizing the certain amount for different socio-economic objectives. Islamic banks may become the most reliable charity collection and utilization institutes of the country.
Earning Activities of Waqf
The Waqf should be an earning body by investing in various profitable avenues. The profit would be utilized for remuneration of the management and staff of the Waqf and deposited in the pool of the Waqf.
The pool of the Waqf may be utilized through various Shariah compliant modes like Murabaha, Ijarah. DM etc. It may also be invested in stock exchange and different funds etc. The income of the Waqf would be deposited in the Waqf pool. In this respect, the benchmark of KIBOR must not be practiced at all because it is not the banking business. The Waqf should follow the market norms and other considerations while giving financing to the needy persons on case to case basis.
Modes of Help or Financing
Before extending helping or financing mode to any needy party, the needy party must be taught about the mode in clear and absolute manner as in Shariah, the nature of the contract must be made clear to all parties involved in the certain contract.
The needy people may be entertained with the following different modes:
Interest free Loans
These loans may be extended on the basis of Qard e Hasana and for the specified period. The modes may be chosen on case to case basis. These loans may be extended for people to establish their own earning tools. This category would not be expected as earning category for the Waqf.
Modes for Immediate Needs
The immediate needs may be fulfilled by extending financing on the basis of modes that are already used in the normal course of banking business i.e. Murabaha, Ijarah etc. These needs may include motor cycle, sewing machine etc.
Mudaraba and Musharaka
The people who want to establish their own businesses, the Waqf may help them in this respect. It is a fact that in the normal course of business, the banks hesitate to enter into Mudaraba and Musharaka based transactions. The partnership based modes may be practiced in establishing the businesses. The modes like Mudaraba and Musharaka may be chosen on case to case basis. In this way, the general outline of the practice may be devised and may be helpful for banking business as well.
As far as profit calculation in this respect, the benchmark of KIBOR must not be practiced at all because it is not the banking business. The Waqf should follow the market norms and other considerations while giving financing to the needy persons on case to case basis.
This article has been written as a glimpse to establish waqf fund by the Islamic financial institutions as it is very much potential for Islamic financial institutions to play a major role in the development of Islamic socio-economic financial structure and practice in the country. This article offers the stake holders to think further in this respect.
[box type=”note” align=”” class=”” width=””]The Author is a Team Leader-Training & Development Unit, Shariah Compliance Department, National Bank of Pakistan[/box]