| KUALA LUMPUR, March 28
KUALA LUMPUR, March 28 Malaysia's Islamic
endowments may soon move from mostly donated real estate to
share and bond funds led by external managers to produce better
The endowments, known as awqaf in Malaysia, operate social
projects such as hospitals, mosques and schools with donations
received from Muslims usually in the form of real estate. They
are run by the religious bodies of each state, but poor
financial returns and a lack of economic efficiency prompted a
government review of Malaysia's awqaf last year.
Cash awqaf, which instead rely on equities and bonds,
promise better returns but would require external asset managers
to oversee the use of more risky assets.
"Several states are embarking on cash awqaf concepts. The
important aspect is for both state and the private sector to
work together," Radzuan Tajuddin, a senior official with the
Islamic capital market department of the securities commission,
Malaysia's stock market regulator and the Oxford Center for
Islamic Studies held a two-day roundtable to discuss ways to
modernize awqaf. "The key assessment was to identify areas for
reform," said Tajuddin.
The move into cash awqaf would expand the donor base by
welcoming smaller contributions in the form of cash, stocks and
bonds, rather than "immovable property" said Aamir A Rehman,
managing director at Fajr Capital Advisors. These tradable
assets could also improve awqaf returns through more active
management of a portfolio.
"The government can still play a key role in terms of
strategy and decision-making. But expertise in financial markets
is generally not expected from government officials," said
Cash awqaf could promise greater returns, but the use of
liquid assets means they could also incur significant losses.
"If you have financial investments, they can go to zero. That's
an issue people have not thought about," said Abdulkader Thomas,
chief executive of SHAPE Financial Corp, a Kuwait-based
consultancy for Islamic finance.
Cash awqaf may also need a review of the current awqaf
laws, which rely on 'ijtihad' or interpretations by religious
scholars that need updating to address many new questions and
the sector's drive to innovate, said Thomas.
Awqaf globally have been slow to progress with the broader
Islamic finance sector, he said, although the modern economies
of Malaysia, Singapore and Turkey are in best shape to lead the
In Malaysia, awqaf is monitored by a national foundation
although decisions are still made by the respective states.
"You're dealing with entrenched interests. For any proposal to
change how things are governed would require quite a lot of work
on a political level to get people to agree," said Thomas.
Only six states in Malaysia have explored cash awqaf, with
some requiring minimum contributions as low as 5 ringgit
($1.50). But financial institutions still play a minor role.
Bank Muamalat Malaysia Bhd became the first
Islamic bank to manage an awqaf fund , when it was hired by the
state of Selangor in 2012. "The first step is achieving greater
conceptual clarity on the parameters on which awqaf can operate.
Once there's greater conceptual clarity, you can do a lot in
terms of reform," said Rehman.
(Additional reporting By Bernardo Vizcaino in SYDNEY; Editing
by Eric Meijer)