A Framework for Analysis of Awqaf Laws in India

(Paper presented at 5th SC-OCIS Roundtable just concluded in Kuala Lumpur, Malaysia)

In this brief paper I present a framework for analysis of waqf laws. The framework is presented in the context of the Indian laws, but may be employed for analysis of laws in other jurisdictions. The following facts for Indian awqaf sector provide the basis for developing the framework. The size of assets under awqaf in India is huge. As estimated by the Report on Social, Economic and Educational Status of the Muslim Community of India (2006)*, there were more than 490,000 registered awqaf. The total area under Waqf properties estimated at 600,000 acres; 80% are in rural India and remaining are in major cities. The book value of these assets is estimated at USD 1 billion (over half-century old); and market value is estimated at USD 20billion. The income on awqaf assets is meagre, estimated annual income is USD27 million or 2.7 percent on book value.

Massive encroachment by state agencies and corporate houses raise serious concerns of preservation. Indeed historians assert that aggressive encroachment by state began after 1857 mutiny against the British raj. Currently in Delhi alone, over 30 percent of about 2000 waqf properties are illegally occupied by government agencies. Further, media reports on specific high profile cases have kept the concerns about preservation in the front burner. For example, in 2002 an orphanage land valued at about USD24 million was sold for USD3.4 million for construction of residence of India’s richest man that is currently valued at around USD1 billion. Studies have also reported excellent returns on properties post-development. Therefore, it is rightly believed that the potential and significance of development is huge. A study by Prof Dr Syed Khalid Rashid published by Institute of Objective Studies and quoted in the report mentioned above estimated the average return on investment of 20 percent post-development.

UNDERSTANDING THE REGULATORY TRAJECTORY

India has witnessed multiple enactments of waqf laws beginning the year 1810. The more recent enactments have been the Wakf Act 1954, Wakf Amendment Act 1984, Wakf Act, 1995 and now the Wakf Amendment Act 2013. In order to get a proper appreciation of the way the laws have evolved over time, we present the concept of Society’s objective function for laws-regulations-rules-policies. We hypothesize that the objective function for laws-regulations-rules-policies pertaining to awqaf is determined largely by the Islamic scholars who happen to lead the Muslim masses in India in matters of religion. In a democratic set-up the laws simply seek to catch-up with and capture the objective function over time. We hypothesize that given the large-scale encroachment of awqaf assets that continued since the British raj through the present governments, the Indian Muslim scholars’ and society’s primary objective has been the preservation of assets. However, over a period of time we witness a shift in the objective function from (i) preservation of assets to (ii) preservation of benefits for the intended beneficiaries. A shift in the objective function is believed to have taken place as one finds an increasing discussion of the concepts of ibdal and istibdal in scholarly seminars. Arguably, there is an increasing realization that the objective function may need to be modified to (iii) sustained enhancement in benefits for the intended beneficiaries. This would also ensure the fulfillment of (i) and (ii). Society’s objective function may be presented in a two dimensional space as Regulatory Efficiency Frontier with the two dimensions being preservation and development.

Creation of an enabling legal-regulatory-policy environment would involve a search for laws of the following types:
1. Laws that enhance both preservation and development: a movement towards the Regulatory Efficiency Frontier
2. Laws that enhance preservation without adversely affecting development (a vertical move upwards)
3. Laws that enhance development without adversely affecting preservation (a horizontal move to the right)
Search for efficiency should involve movement of the 1-2-3 types. Society will optimize efficiency gains at the Regulatory Efficiency Frontier. Any further change would mean enacting laws that ensure greater preservation only at the cost of development and vice versa: a movement along the Regulatory Efficiency Frontier (trade-offs between concerns of preservation and concerns about development). A shift in objective function itself (relative importance attached to concerns about preservation and development) would mean a change in the shape of the REF.

WAQF INFRASTRUCTURE IN INDIA

Now let us look at the various components of the waqf related infrastructure in India and explore how changes in laws over time affecting them are governed by concerns about preservation and development.

CENTRAL WAQF COUNCIL

Waqf Act (1995): (enhance preservation)

• Advise the Government of India on matters concerning the working of Waqf Boards and the due administration of Awqaf in the country
• Undertake development of waqf assets to ensure preservation

Waqf Amendment Act (2013): (enhance preservation)

• Empowers CWC to issue directive to the State Waqf Boards on their financial performance, survey, maintenance of waqf deeds, revenue records, and encroachment of wakf properties seeking annual report and audit report
  Provides for any dispute arising out of its directive to be referred to a high-level Board of Adjudication

STATE WAQF BOARDS

Waqf Act (1995)

• Elaborate list of obligations for the Mutawalli relating to registration, disclosure, compliance
  with directives of the Board etc. failing which financial penalties would be imposed (enhance
  preservation)
• Proactive intervention for development of an asset with prior government approval (enhance
  development)

Waqf Amendment Act (2013) (further enhance preservation & development)

• Physical punishment added to list of penalties
• No government approval is required

Waqf Amendment Act (2013) : enhance preservation

• Establishment of Boards in states where non-existent
• Prohibition of sale, gift, exchange, mortgage or transfer of waqf property ab initio
  (exception to above: acquisition of waqf properties for a public purpose under the Land Acquisition Act, 1894 or any other law relating to  acquisition of land if such acquisition is made in consultation with the Board, provided also that (a) the acquisition shall not be in contravention of the Places of Public Worship (Special Provisions) Act, 1991; (b) the purpose for which the land is being acquired shall be undisputedly for a public purpose; (c) no alternative land is available which shall be considered as more or less suitable for that purpose; and (d) to safeguard adequately the interest and objective of the waqf, the compensation shall be at the prevailing market value or a suitable land with reasonable solatium in lieu of the acquired property.”
• Restoration of waqf properties in occupation of government agencies to the mutawalli or Waqf Board; or payment of rental at market rates
• Inclusion of professionals and scholars in Board; Muslim CEO to effectively deal with administrative machinery in the state
• Removal of corrupt members through no-confidence motion
• Survey and digitization of records; compulsory registration within one year of enactment and every ten years thereafter

TRIBUNAL
Waqf Act (1995) (enhance preservation)

Disputes on whether a particular property specified as Waqf property is waqf property; aggrieved mutawalli, member, executive officer and staff; ineffective against encroachment.

Waqf Amendment Act (2013) (further enhance preservation)

The Tribunal has such powers of assessment of damages by unauthorized occupation of waqf property and to penalize such unauthorized occupants and to recover the damages. Whosoever being a public servant fails in his lawful duty to prevent or remove such
encroachment, shall on conviction be punishable with fine.

MANAGEMENT OF ASSETS
Waqf Act (1995): (enhance preservation)
Lease or sub-lease of waqf assets not permissible for period beyond 3 years

Waqf Amendment Act (2013): (enhance preservation as well as development)

• Lease period enhanced up to 30 years for commercial activities, education or health purposes Approval by the State Govt. necessary because of the long gestation periods Board will sanction lease with consent of at least two-thirds members
• Maximum period of lease of agricultural land at 3 years

Draft Leasing Rules (2014) (enhance preservation as well as development)

• Minimum lease rental at 5 percent of market value
• Increase of not less than 5 percent every year
• Competitive bidding for price discovery
• Two years rental as security if lease period is over 10 years
• No sub-lease is permissible
• No clause for automatic renewal of lease
• Stringent conditions in agreement for possible default by lessee

It may be noted that the above rules have been formulated by the Ministry of Minority Affairs as
prescribed by the Act. Arguably, these need to be revisited as we will find later.

NEED FOR DEVELOPMENT OF ASSETS

In line with a growing concern for development that is the only way to enhance the benefits for the waqf beneficiaries (a flatter REF to the right), there is a need to take a look at the available mechanisms to ensure development. The mechanism that has been existing for several decades is the Urban Waqf Properties Development Scheme of Central Waqf Council. It is funded through yearly grant-in-aid from the Central Government. The scheme provides loans with two conditions for waqf management: (i) donation of 6 percent per annum to Education Fund and (ii) 40% of enhanced income after loan repayment to be paid towards education.
The new National Waqf Development Corporation (NAWADCO) is a step in the right direction that has been established with the explicit objective of development of awqaf assets.

Making Sense of Some Numbers:

Against 490000 registered awqaf properties with estimated market valuation of assets at USD24billion:
(i) The Urban Waqf Properties Development Scheme of Central Waqf Council has hitherto provided loans to 137 projects of US$ 5.77 million (1974-2012) of which 84 have been completed in all respect and are now yielding income.
(ii) The Waqf Development Corporation has been established with authorized capital of INR500 crores (USD80 million) which is less than 0.35 percent of asset value.
A pertinent question therefore arises: How do we meet the massive capital needs for waqf development in an efficiency-enhancing manner?
The first mechanism following from successful international experiments seems to be through private capital contribution for limited and finite period. This would however call for a relaxation of leasing rules and more specifically, to accord permissibility to sub-leasing to facilitate sukuk issues, since no other form of Shariah-compliant borrowing is possible in India. There is little scope for modes like bai-istisna by Islamic banks as there are none in India. Without permissibility to sub-ijara or sub-lease many of the modern awqaf financing mechanisms would fall flat. The second mechanism to finance the development of new waqf is through creation of new waqf. However, the law in its present form does not provide for explicit rules for cash waqf and waqf shares. It should also provide for rules pertaining to investment of cash waqf. It is a matter of common observation that there is need for level playing field for awqaf as compared with other forms of Not-for-Profit-Organizations, such as, Societies, Trusts and Section 35 Companies. Waqf involves significant financial and non-financial costs as compared to the above structures leading to lack of interest among Muslim philanthropists for using the awqaf mode for establishment of education, healthcare and other socially useful projects. A striking example is that of Azim Premji Trust. Azim Premji transferred 295.5 million equity shares, valued at 3.5 billion USD representing 19.93 per cent of the shares of Wipro Ltd, to an irrevocable trust (the Azim Premji Trust) that finances the activities of the Azim Premji Foundation. It is to be noted that the irrevocability of the trust takes care of the most significant difference between a waqf and a trust and therefore the Azim Premji Trust can be ligitimately called an innovative case of Corporate Waqf (there are strikingly similar examples of Corporate Waqf in Malaysia and Turkey. Can we not provide for the possibility of Corporate Waqf in our laws dedicated for awqaf?

Interestingly, there is very little mention of the term “waqif” or donor in the Indian waqf laws. It appears that these laws are meant for awqaf created many centuries ago and not for new awqaf that are to be created. A suggestion that is worth considering is the possibility of providing an option to waqif to create waqf outside the purview of Board (which is where most non-financial costs come from). Without the above changes on the law, the problem of funds would continue to haunt the prospects of waqf development.

Way Forward

The search for efficiency-enhancing laws, regulations, rules and policies must continue. We must not shy away from considering and experimenting with new innovations in waqf financing. We may make a beginning in a limited way and test the waters. Or else, are we going to allow the awqaf properties to remain as they are: without being of any value or providing benefits to any one? We as a society remain accountable to Allah SWT and certainly our posterity if we continue with the same stagnant and defeatist mindset. A good example of such mindset is the concern about inclusion on non-Muslims among beneficiaries of awqaf. I call it a mis-specification of the objective function which must be avoided. I have dealt with this issue in an earlier blog (Should benefits of waqf be restricted to Muslims?). Further, the modes to address our concerns (preservation or development) must be correctly identified. For example, extreme concern for preservation has led to seeking parental state protection without recognizing its adverse impact on institutionalization of voluntarism. Indeed, state protection is sought to curb private corruption while state apathy, corruption and interference discourages voluntary acts. Waqf was always meant to be in the voluntary sector and not in the government sector. We must do everything to revert back to the original position though efficient laws.

* The report was prepared by a Committee appointed by the Government of India under the chairmanship of Justice Rajinder Sachar (popularly known as the Sachar Committee).

Mohammed Obaidullah | March 23, 2014