Waqf, Impact Investing, Youth & Blockchain
Rushdi Siddiqui Board Of Directors at Coco Veda
Casino capitalism brought us on the precipice of financial Armageddon with its multiplier consequences across socio-economic classes, especially the less well to do. However, the simple and natural gesture of the ‘noble donation,’ transparently accessed and utilized to serve humanity in a humane manner, may just right many of the greed based wrongs.
Today, there are certain buzz words that have captured the world’s imagination for the road ahead…Blockchain, Bitcoin/Cryptocurrency, Sustainability, Impact Investing, Endowments (Waqfs), 4IR, and so on. But, it’s also important to connect certain buzz words, and an interesting area includes the linkage between impact investment, faith based endowment (Wafq) and blockchain.
For young people, spiritual or secular, to get excited about and connect with their mission/cause driven values, the image, perception and narrative of $1-2.5 Trillion in Waqf assets must be updated. Young people are driven by causes and Waqf positioned as impact investments wrapped around blockchain technology aligns to their interest and values. Their social media presence, reach and savviness combined with their ‘Kickstarter’ mindset may just be the formula to make Waqf more involved in their lives.
The intention of this short essay is NOT to provide another historical version of Impact investing or Waqf, as academics have touched upon the topic. ‘Foundations named “waqfs” were the most important institutions of philanthropy in the whole Ottoman Empire…’ (1). The purpose here is to address Waqf and impact investing, at a surface level, compare to trust law. Then, introduce blockchain for immutable titling of Waqf property, and, finally, briefly discuss blockchain based cash waqf donation for (P2P crowd) based investing for uplifting stated beneficiaries.
Pope & Solidarity
‘In 2014 the pope, speaking to a conference in the Vatican on impact investing, called on Christians to rediscover “this precious and primordial unity between profit and solidarity”. His church has responded. Some Catholic institutions with assets to invest—including the Jesuits, the Franciscan Sisters of Mary and Ascension Investment Management—have earmarked a part of their investments for impact funds.’ (2).
Waqf & Trust Law
The ‘Waqf…[was ‘developed’] in Islamic world from the 7th to 9th centuries, [and] bears resemblance to the English trust law. Under both a waqf and a trust, "property is reserved, and its usufruct appropriated, for the benefit of specific individuals, or for a general charitable purpose; the corpus becomes inalienable; estates for life in favor of successive beneficiaries can be created" and "without regard to the law of inheritance or the rights of the heirs; and continuity is secured by the successive appointment of trustees..’ (3)
Interest in Impact Investing, popularized in 2007, is partly attributed to the criticism of traditional forms of philanthropy and international development, which have been characterized as unsustainable and driven by the goals—or whims—of the corresponding donors. (4).
Thus, Impact investment, funding originating from development funds to pension funds to family offices to even SWFs, are directed towards social and/or environmental areas including housing, healthcare, and education, micro-finance, and sustainable agriculture. The intention is to generate a measurable, beneficial social or environmental impact alongside a financial return, which can be from below-market (program related investments, PRI) to above-market rates (market related investments, MRI)..’ (4)
Although, impact investing is not a crowdfunding play, where allocations are small, investment gestation periods are shorter, etc., we are now seeing the groundswell rise of social enterprises, with patient capital, for similar mission. Ramps for individual involvement have increased by way of ETFs, pooled investments, platforms, gender lens, etc., and, with social media channels, it will increase dollars amounts and demand for impact projects. (4)
However, impact investing is a small market, $114B, when compared to the global equity market, estimated at US$61 trillion, with the largest sectors being microfinance, energy, housing, and financial service. But, there are interesting emerging developments: Impact investing accelerators (similar to start up accelerator in process and function) and corporate impact investing (as have influence on supply chain players). (4)
Thus, impact investing is not only about making difference, but, concurrently aligned to UN Sustainable Development Goals (SDGs) #1 (Zero Poverty), #4 (Quality Education), #13 (Climate action), etc. (5).
‘The legal meaning of Waqf according to Imam Abu Hanifa, is the detention of a specific thing in the ownership of waqf and the devoting of its profit or products "in charity of poor or other good objects.” (3) Its objective is aligned to modern day impact investing challenges for the less well to do in addressing ‘…basic services including housing, healthcare, and education, micro-finance, and sustainable agriculture, with the intention to generate a measurable, beneficial social impact alongside..’
[Brief historical context, ...’[T]here is no direct injunction of the Qur'an regarding Waqf, which is derived from a number of hadiths (traditions of Muhammad). One says, "Ibn Umar reported, Umar Ibn Al-Khattab got land in Khaybar, so he came to the prophet Muhammad and asked him to advise him about it. The Prophet said, 'If you like, make the property inalienable and give the profit from it to charity.'" It goes on to say that Umar gave it away as alms, that the land itself would not be sold, inherited or donated. He gave it away for the poor, the relatives, the slaves, the jihad [struggle], the travelers and the guests. And it will not be held against him who administers it if he consumes some of its yield in an appropriate manner or feeds a friend who does not enrich himself by means of it. (3) (6)].
Parallels of Waqfs & Impact Investing
For a Waqf to come into legal existence there must be minimum criteria that must be satisfied, and they are aligned to many of impact investment projects.
Criteria Waqf Impact Investing
Existence Founders* can legally contract Prospectus
Property/Estate Immovable** & not in public domain Project Identified
Beneficiaries* Identified person or public utility Clearly Identified
Administrator/Trustee Legally capable competent (comp) Comp/Bckgrnd
Tenure Perpetual unless conditions arise Prj Life Defined
The above matrix is general and does not expound on each school (7) of thought juristic proclamations: Sunni: (Hanafi, Hanbali, Maliki, Shafi); Shi’iah, Khawarij, and Ahmadiyya.
*Can be non-Muslims
**Can be movable
‘After the Islamic waqf law [was] firmly established by the 10th century, the number of hospitals multiplied throughout Islamic lands, and by the 11th century, many Islamic cities had several hospitals. The Waqf trust institutions funded the hospitals for various expenses, including the wages of doctors, ophthalmologists, surgeons, chemists, pharmacists, domestics and all other staff, the purchase of foods and medicines; hospital equipment such as beds, mattresses, bowls and perfumes; and repairs to buildings. The Waqf trusts also funded medical schools, and their revenues covered various expenses such as their maintenance and the payment of teachers and students.’ 
‘The earliest known waqf, founded by financial official Abu Bakr Muḥammad bin Ali al-Madhara'i in 919 (during the Abbasid period), is a pond called Birkat Ḥabash together with its surrounding orchards, whose revenue was to be used to operate a hydraulic complex and feed the poor.’ 
In India, from the report of ‘Sachar Committee (2006), there are about 500,000 registered Wakfs [in India] with 600,000 acres (2,400 km2) land in India, and Rs. 60 billion book value. 
Thus, Waqf are impact projects serving humanity, and are also very much aligned to the present day UN SDGs.
Titles to Waqf Property
One of the major challenges with property in the emerging markets, which includes all of the 56 Muslim countries, concerns titles. Record keeping and filing typically require original paper copy for the appropriate ministry, but strange things do happen (to titles). For example, titles/files may be destroyed in natural disasters like fires and floods, they may be difficult to read because of fading ink, they may be lost during moves, they may be doctored with new corrupt owners, they may not be updated, and so on.
For example, ‘In 2010, a large earthquake in Haiti destroyed or damaged numerous municipal buildings used to store Haiti’s land title records, creating confusion as to who held title to what. In Andhra Pradesh, India, corruption and fraud have led the government to explore blockchain technology as a possible solution to make land title records more transparent and less susceptible to fraudulent transfers...’ (8)
Obviously, this presents a major risk for [decades and centuries old records of] Waqf properties globally, as the impactful intention of founders become disconnected to the beneficiaries. Thus, in case of, say, upgrading, aligned within the intention of the founders and executed by administrator/trustee, may not happen as title (which may require original paper documents) may become in question for the afore-mentioned reasons.
Thus, one of the important use cases for blockchain (9) is digitizing the original paper copy based title of Waqf properties and intentions of founders. The decentralization, permanence, immutability, efficient and accuracy recording and recording time are five (of many) important attributes of blockchain, hence, hinders inability to, say, unilaterally doctor title records. (10).
[A ‘notable scholar, Bahaeddin Yediyıldız, defines the waqf as a system (blockchain comparison) which comprises three elements: khayrat, a’akarat and waqf. Khayrat (خيرات), the plural form of khayr, means “goodnesses” and refers to the motivational factor behind a waqf organization; a’akarat (عقارات) refers to corpus and literally means ”real estate” implying revenue-generating sources, such as capital markets, land, water wells; and finally waqf, in its narrow sense, is the institution(s) providing services as committed in the endowment deed such as hospitals, schools, mosques, libraries, etc.’ (11)].
‘In April 2016, the country of Georgia initiated a project to record land title records using blockchain technology. Sweden, Dubai, and Brazil have also announced blockchain related pilot programs for land title records…’ (8)
Even if we are able to put Waqf property onto blockchain, a major issue still exists: donors want audit transparency and accountability on the funds spent. As a result, ‘..Unfortunately, the utilisation of cash Waqf and other forms of Waqf has declined since the end of 19th century due to mismanagement, colonisation and secularism…’ (12). Thus, conditions exist where assets are sometimes/often under-utilized, and in other instances requiring additional donations.
However, the time has arrived to apply blockchain to cash Waqf, both types, direct and indirect, to address donor accountability and transparency concerns. The need to fund/sponsor impact projects, from education to hospitals to residences and so on, has become increasingly acute in Muslim world, and technology will be the spark to facilitate, accumulate and deploy the ‘funds in the wait.’
For example, one conversation that has been initiated is about ‘Wafqcoin,’ where coin is subscribed by the contributors based on the principle of donation or Tabarru’ where each coin represents a unit of the shares of the contributor towards the project in which the money received as contribution is spent…trustees, monitoring and managing the project, will maintain a depository of the Waqfcoin holders, given assurance on governance, and perpetually as long as the projects are on-going, the information about the project will be disclosed and shared with Waqfcoin holders.. (12)
Another example, is a Peer to Peer (P2P) crowd funding platform (need regulatory license) using blockchain to establish a smart contract (13), ie, ‘computer program code that is capable of facilitating, executing, and enforcing the negotiation or performance of an agreement (i.e. contract) using blockchain technology,’ tied to specific Waqf undertakings. Furthermore, being able to audit on funds, in real time, is confidence building measure.
Thus, ‘...Blockchain could be applied in Waqf as a tool for accumulating funds across the globe in a hassle-free manner. With that claimed, the blockchain eases provision of perpetual funds for better Waqf management…’ (14).
In the Islamic economy space there is much talk about Islamic fintech, but, today, there is a bias towards developments in crowd funding, banking software, payment/remittance, etc. (15). These are important developments, but we need innovative disruptions, and, in positioning Waqf as impact investing wrapped in blockchain technology, we will create and capture the imagination of the young social entrepreneurs and 'man/woman on the street donors' for making the needed impact on projects for inclusion, empowerment and enfranchisement, hence, raising the economic tide and lifting all boats!
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