Paper Title: Sustaining Value-Based Intermediation Initiative via Cash Waqf Models

Author:        Amal Hayati Ishak and Norzahirah Zaini

Publisher:    Turkish Journal of Islamic Economics, Vol. 11 No. 1, 57 – 78.

Cash waqf is one of the important Islamic social finance instrument that has potential to allow Islamic financial institutions to embed and contribute VBI initiative by leveraging the potential of Waqf on stand-alone basis and by integrating with other Islamic finance instruments and structures.

Authors present various Waqf models which are conceptualized as well as applied in practice. Integrated models allow for widening services beyond finance and Waqf can allow fund mobilization for social services in complement to financial services.

Authors opine that the involvement in Cash Waqf can rectify the misconceptions inflicted upon Islamic banks as it provides them the opportunity to render their services in light of four salient values brotherhood and justice.

This study provides insights to the stakeholders of a Cash Waqf infrastructure to continue strengthening their role by understanding the embedded physical and spiritual values and benefits of their acts. It is pertinent for regulators to further encourage VBI among Islamic financial institutions, towards attaining the pure philosophical foundations of Islamic banking and finance; i.e., the principles of socio-economic justice and brotherhood.

This study also supports the significant role of strategic partnerships to collaborate in Cash Waqf. The collaboration can potentially promote Cash Waqf initiatives via Islamic financial institutions’ platforms and customers, which can assist in the dissemination of relevant information on a larger scale.

As for the authorities, the authors recommend that it is also crucial to further encourage strategic collaboration between Cash Waqf stakeholders via suitable incentives such as tax exemption. Nevertheless, this study recommends further research to formulate comprehensive legal guidelines or trust deed structures that can optimize the benefits of such collaboration while at the same time preserving the pillars and conditions of Waqf.

The authors caution that regardless of the model in place, the pillars, and conditions of Waqf should not be neglected but preserved as they affect the validity and perpetual rewards of Waqf itself. In addition, future research can also propose and validate a model of Cash Waqf collaborative partnership which can ensure sustainability of Waqf amidst various financial risks.

Paper is an important attempt to link social finance with VBI initiative. Since banks are highly regulated, they can at best offer integrated financial services to allow cost absorption of any initiative they take. If regulators are willing to provide incentives which can assist in partial cost-sharing, then Islamic banks would be willing to enter this segment since it will also give them better reputation and showcase their words into actions.

Authors could have discussed the problems which are encountered in practice due to which Waqf is less utilized. There are various economic problems, such as search cost, adverse selection, moral hazard, free-rider problem and diseconomies of scale. These economic problems need economic solutions.

Integrated models can blend commercial with social finance instruments to allow economic viability of initiatives. Awareness is important to also attract funds from other stakeholders, especially the impact investors, both individuals as well as organizations.

Islamic banks have an advantage that their systems are well tuned to cater to the challenge of moral hazard, adverse selection and mitigate search cost through their effective KYC and physical penetration.

Hence, an integrated model which overcomes these challenges can prove to be a game-changer and allow Islamic finance to showcase their distinction in practice as well.