Malaysia reviews operations of Islamic endowments

KUALA LUMPUR/DUBAI, March 27 Tue Mar 26, 2013 11:09pm EDT

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KUALA LUMPUR/DUBAI, March 27 (Reuters) - The Malaysian government is reviewing the operations of Islamic endowments as it seeks ways to have them run by private corporations instead of religious bodies.

Facilitating corporate management of Islamic endowments, known as awqaf or wakaf in Malaysia, is one of several initiatives announced by the government in September to boost the country's Islamic finance industry.

Awqaf operate social projects such as hospitals, mosques and schools with donations received from Muslims in the form of land, cash or other valuables. Malaysian awqaf hold 11,091 hectares of land valued at 1.2 billion ringgit ($384 million), according to the government's Department of Awqaf, Zakat and Hajj (JAWHAR).

The government wants to introduce corporate management to raise the returns of awqaf and boost their economic efficiency.

The Malaysian Wakaf Foundation, part of JAWHAR, is conducting two studies. One study is examining the development of awqaf in general; an initial version was rejected because it lacked detail, and it is now due to be delivered in June, said Zainal Mohd Yusoh, an official in JAWHAR's awqaf department.

A second study, due in December, will focus on corporate awqaf, a subject which has attracted a lot of interest from corporate donors, Yusoh added.

Corporate involvement is needed to make awqaf more productive, said Sheila Ainon Yussof, senior analyst at the Kuala Lumpur-based International Institute of Advanced Islamic Studies.

"Various steps have been taken by government and private companies to accelerate and stimulate awqaf developments in the country, but it has yet to reach a level of sophistication where it can be relied on as an efficient and effective tool."

Mustafa Omar Mohammed, associate professor in the Centre for Islamic Economics at International Islamic University Malaysia, estimated only a fifth of awqaf projects generated significant revenue, meaning there was not enough money to fund many projects.

"The issue of sustainability is here. How can 20 percent sustain 80 percent? This can only evolve if we have a different structure," he said.

NEW LAW

Awqaf are currently monitored by JAWHAR, which has no administrative powers over them, so some analysts think a new law is needed to address issues of enforcement and oversight.

"They don't have any jurisdiction over the management of wakaf in the respective states. It's not easy for JAWHAR, given the limitations that they face," Mohamad Akram Laldin, executive director at the Malaysia-based International Sharia Research Academy for Islamic Finance, told Reuters.

"It is a state affair, and sometimes it can be bureaucratic. The level of efficiency between states is different - this needs to improve."

A land management manual issued by JAWHAR serves only as a guide and lacks legal standing, said Yussof. "It has no enforcement features with punitive measures for non-compliance, being merely a guideline."

Awqaf rules are based on English trust law, which is not suitable for modern awqaf management, said Murat Cizakca, professor of comparative economic history at Malaysia's International Centre for Education in Islamic Finance.

Cizakca and his colleagues have proposed updating awqaf law using Turkish and Western models as references. A new law, however, would depend on recommendations by the two government studies, and might need considerable time to be drafted.

State-owned Johor Corp pioneered the corporate awqaf model in Malaysia in 2006, said Yussof. The conglomerate, which has interests ranging from palm oil to hotels, manages chains of mosques and clinics as well as a disaster relief organisation through a subsidiary. (Editing by Andrew Torchia)

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