THE WAQF, ITS CONTRIBUTION AND BASIC OPERATIONAL STRUCTURE Date: 15 th December 2011

1. THE WAQF, ITS CONTRIBUTION AND BASIC OPERATIONAL STRUCTURE Date: 15th December 2011 Prof. Dr. Murat Cizakca

2. “... Some argue that moral considerations can never guide business enterprise, that the two can never be reconciled1. Can we envisage institutions that accommodate profit motive and serving social goals within the same framework? Does history offer any clue? Do we have contemporary examples?”2 Prof. Dr.NejatullahSiddiqi I intend to answer the challenging questions asked by Professor Siddiqi. 1Timur Kuran, Islam and Mammon, the Economic Predicament of Islamism (Princeton: PUP, 2004). 2Mohammed Nejatullah Siddiqi, “Islamic Banking and Finance in Theory and Practice: A Survey of State of the Art”, Islamic Economic Studies,Vol. 13, No. 2, 2006, p. 23.

3. First, I will focus on “does history offer any clue ?” and second, “Do we have contemporary examples?”. Meanwhile I might add that the answer to both questions is a resounding and definitive “yes”!

4. In Islam, accumulation of wealth and its re-distribution are inseparable. Once wealth is accumulated Muslims are ordained to redistribute this wealth voluntarily. Islamic economic history indicates that

5. waqfs, rather than zekat, were the most important institutions for redistribution of wealth.3 3Marshall G. S. Hodgson, The Venture of Islam, (Chicago: University of Chicago Press, 1974), vol. II: 124.

6. Charitable foundations are known in the Islamic world as waqf or habs. The word waqf (pl.awqaf) is derived from the Arabic root verb waqafa, which means to cause a thing to stop and stand still. A second meaning is charitable or even philanthropic foundations.4 For westerners, the traditional waqf can also be described as a non-profit trust. 4 Whereas historians generally do not distinguish between charity and philanthropy, sociologists refer to charity for local and ephemeral social responsibility and to philanthropy for long lasting, definitive and even global, eradication of human problems

7. Origins Although some pre-Islamic civilizations were aware of waqflike structures, the origins of Islamic waqfsas we know them today are traced back to a statement by Prophet Muhammad (pbuh) known as Thawabba’d al Wafah (reward after death): “Abu Hurairah reported Allah’s messenger as saying: When a person dies, all his/her acts come to an end, but three: recurring (ongoing) charity, or knowledge from which people benefit, or a pious offspring, who prays for him/her.”5 5Imam Muslim, Sahih Muslim; Al-Kutub al-Sittah wa Shuruhuha (Istanbul: Çağrı, 1992): bab 3, hadith 14.

8. Thus, a Muslim can continue earning sawabeven after death. Waqf is the best instrument for this, because it can combine all these three acts. Indeed, a waqf established as a kulliyah, a complete system, can combine all these three acts.

9. A mosque stands at the center of a waqf -kulliyah and whenever the faithful pray in it, the founder of the waqf is considered to have provided ongoing charity. A waqf-kulliyah can also provide free food for the poor, another very clear on-going charity. In the school/university of the waqf, knowledge is produced and disseminated.

10. The process of knowledge production in the university can be considered as a mudaraba (capital-labor partnership). Indeed, the waqf founder provides the livelihood of the scholars, who work and produce knowledge. The thawab generated by the scholars, in the form of “knowledge from which people can benefit”, is then shared between the scholars and the waqf founder, who provided for their livelihood.

11. Finally, the management of the waqf can be granted to the pious offspring, who, it is assumed, would pray for the soul of the founder.

12. The basic structure of a waqf, in a nut-shell, is as follows: a privately owned property, (or in some countries public funds) is endowed for a charitable purpose in perpetuity and the revenue, which this property generates, usufruct, is spent for this purpose.

13. Waqfs, so structured, stand out as one of the great achievements of Islamic civilization. All over the vast Islamic world, from the Atlantic to the Pacific, magnificent works of architecture as well as services vitally important to the society such as education, health and many others have been organized, financed and maintained for centuries through this system.

14. A UNIVERSAL INSTITUTION Historians have established that the Islamic waqflaw was borrowed by Europeans during the crusades, when they had “visited” the Middle East and become acquainted with the Islamic culture.

15. An excellent example is the Merton College of Oxford University established in 1264. It is generally accepted that Merton College represents a threshold in the evolution of European colleges.

16. The Merton foundation became a respected model in England and was imitated by the foundation of Peterhouse, Cambridge University. Prof.Gaudiosi has argued that the endowment deed of Merton College was in such conformity with the Islamic waqf law that it would have been approved in the Islamic world by any learned judge.6 6Monica Gaudiosi, “The Influence of the Islamic Law of Waqf on the Development of the Trust in England: The Case of Merton College”, University of Pennsylvania Law Review, vol. 136, no. 4, 1988: 1231-1261.

17. In the USA also, The top universities are either originally structured as waqfs Or, they all have their own university endowments. Harvard, Yale, Penn, Princeton etc,…

18. According to Abu Yusuf and Imam Muhammad, the two great Hanafi jurists, when a privately owned property is endowed and is made the corpus of a waqf, it becomes Allah’s property.

19. Such a conversion of property usually takes place as a pious act in order to obtain Allah’s approval and to be nearer to Him. In societies where property rights are not fully respected, waqfs also provided property owners security against confiscations. For, normally, in an Islamic society no revenue seeking ruler would dare confiscating what belongs to Allah!

20. Consequently, many waqfs with sound and sufficient endowments have survived for considerably longer than half a millennium and some even for more than a millennium.7 7Daniel Crecelius, “Introduction”, Journal of the Economic and Social History of the Orient, vol. 38, 1995, no. 3.

21. The history of waqfs is a turbulent one. For centuries, the fate of this institution was closely linked to the fates of the states under which they functioned. Failing states and desperate revenue seeking rulers had always a lust for the rich, waqf-controlled assets.

22. This provocation could have been curbed somewhat had waqfs paid taxes to the state. But there were no uniform rules on this, while the Central Asian waqfs paid taxes to the state depending upon their fiscal status before their establishment, neither the Malikitewaqfs of Muslim Spain nor the Hanafite Ottoman cash waqfs of Bursa paid any taxes.

23. Consequently, throughout Islamic history waqf-state relations have remained difficult. While, on the one hand, the Sultans established some of the greatest waqfs with their own property, on the other, the state often violated the property rights of the waqfs, particularly if they were not legally sound.

24. Nowhere in this long history, however, did the waqfs experience the universal and deliberate destruction that was inflicted upon them during the nineteenth and twentieth centuries, a fact which pinpoints to western imperialism or westernisation as the culprit. Usurpation of waqf properties started under western pressure and continued, after Islamic countries gained independence, under the indigenous modernists.

25. CATEGORIES OF WAQFS There are several categorizations of waqfs. If the revenue generated is spent entirely on charity/philanthropy, such a waqfwould be known as waqfkhayri.

26. If the revenue is spent for the family members of the founder, this would be waqfahlior khas. Islamic law permits family waqfs.

27. The exact nature of the corpus leads to still another categorization: the real estate or cash waqfs (awqaf al-nuqud).

28. REAL ESTATE WAQFS Traditional real estate waqfs functioned in a simple manner. They were either endowed in urban areas, where their corpuswould be in the form of residential buildings, shops, bath-houses or other rent yielding urban property, or in rural areas in which case their corpus would be in the form of cultivable land.

29. In rural areas, the waqf land would be managed through share-cropping, muzara’a, with a certain share of the produce going to the land owning waqf and the rest to the peasant. In Malaysia, Palm oil plantations endowed as waqf land, Can be cultivated this way.

30. Frequent fires or devastating earth quakes constituted a serious danger for urban real estate waqfs. When that happened, and the corpus of the waqf was destroyed, the waqf simply failed to function. The solution found was the ijaratayn.

31. During the nineteenth and twentieth centuries colonial powers subjected waqfs to centralized government control. As a result, most waqfs lost their original autonomy.

32. Since most of the modern states of the Islamic world did not reverse these colonial policies during the twentieth century, the waqfs all over the Islamic world remain firmly centralized and controlled by the states. This contradicts the Islamic law, which considers waqfs as autonomous institutions.

33. Overwhelmed by state control and bureaucratic impediments, waqfs in most Islamic countries have lost their previous importance and dynamism.

34. Modernist states in the Islamic world have also not hesitated to confiscate waqf properties. The most dramatic violation of the waqf property rights, however, occurred in Turkey in 1954, when all the Ottoman cash waqfs were abolished and with their confiscated capital, the Bank of Waqfs (VakıflarBankası) was established in Turkey. Let us now focus on these cash waqfs.

35. CASH WAQFS, (THE ORIGINS) When a waqf is established with cash capital, it is called a cash waqf. Such a waqf is managed by investing its corpus and channelling the returns to charity. The earliest origins of these waqfs are traditionally traced back to Imam Zufar’sfatwain the eighth century. The Ottomans began establishing cash waqfs from the fourteenth century on.8 8Döndüren, Vakıf Meseleleri, p. 95.

36. In Istanbul, of the 2,517 waqfs established in the period 1456-1551, 46 percent were cash waqfs and in the smaller city of Bursa, there were 761 cash waqfs during the eighteenth century.9 Cash waqfs’ popularity eventually led to an inevitable controversy. 9Ö. L. Barkan and E. H. Ayverdi, Istanbul Vakıfları Tahrir Defteri (Istanbul: Fetih Cemiyeti, 1970), p. XXX and M. Çizakça, Comparative Evolution, p. 132.

37. One of the basic arguments of those, who opposed the cash waqfs was based on a seemingly powerful point: once endowed, the capitalof a waqf belongs to Allah. While investing this capital,

38. the endowed cash is inevitably distributed to the borrowers or entrepreneurs. But what belongs to Allah, the opposition argued, cannot be distributed to third persons.10 10Mandaville, “Usurious Piety”, p. 305.

39. It should be noted, however, that only the right to utilize the waqf capital, the usufruct, was distributed to the borrowers, not the ownership. The original capital of the waqf was protected by a hefty collateral, usually, in the form of the borrower’s house. This Ottoman arrangement was known as istiglal.

40. MODUS OPERANDI A wealthy person (founder) goes to the court and declares his intention to establish a cash waqf. Once permitted, he makes a cash endowment and then the cash waqf is established.

41. OTTOMAN CASH WAQF

42. The essence of an Ottoman cash waqf was to invest the capital endowed (corpus) and to channel the returns thus generated to charity. Investment occurred in the form of sale/lease back and repurchase.

43. This process was called Istiglaland was designed such that the borrower (B1) first sold his house to the waqf and obtained, in return, the capital he needed. (SALE) He then asked the waqf for a permission to stay on in his house. This permission was granted on the condition that the borrower becomes a tenant and pays rent for as long as he kept the capital in his possession. (LEASE)

44. The borrower.11usually kept this capital in his possession for a year. When the borrower returned the capital he had borrowed, usually after a year, the deed of his house was returned back to him. (REPURCHASE) 11The maximum number of borrowers observed in the Bursa Ottoman court registers was 20. See; Çizakça, “Cash Waqfs of Bursa”.

45. The rents paid by all the tenants/borrowers were pooled and this pool constituted the total annual profit of the cash waqf. After the management expenses were deducted from the total rent,

46. the remainder was then channelled to the charity declared in the endowment deed. Some waqfs were prudent enough to allocate part of their total rent income for enhancing their original capital, corpus. Bulk of the waqfs that enjoyed longevity, i.e., survived for more than a century, were these.

47. Finally, it has been observed that waqfs contributed to each other. The cash waqf controversy lasted from 1545 to 1586, when finally a consensus could be reached.12 Based upon this consensus, cash waqfs were definitively legalized by the order of the reigning sultan, Murat III. 12Main points of the opposition led by Imam Birgevi were the following: 1) cash waqfs impede the application of the law of inheritance 2) If the founder changed his mind and wanted to revoke his waqfs, he would not be permitted 3) The endowed cash is invested through bay al-ainah, which has been considered as makruh by the Prophet. See; Hamdi Döndüren, Günümüzde Vakıf Meseleleri (İstanbul: Erkam, 1998), p. 94.

48. The reason why the controversy lasted so long, were the various objections to cash waqfs. One of the most important objections was The endowed cash is invested through bay al-ainah, which has been considered as makruh by the Prophet.

49. Probably, in response to these objections, Ottoman cash waqfs began to apply sale/lease-back/re-purchase method described above. This has been approved not only in 1586 by an Ottoman ijtihad but also most recently by the AAOIFI in 2007. The AAOIFI decision of course refers to the sukuk al-ijarah, which also employs the sale/lease back/re-purchase method. Hence the similarity between the Ottoman cash waqfs and the sukuk al-ijarah.

50. The traditional Ottoman cash waqfs have now been modernized. In this process, their traditional Shari`ah weaknesses have been eliminated. This is what I want to focus on now. The Modus Operandi: When the Islamic world borrowed the concept of joint-stock corporations from the west during the nineteenth century,