Development of awqaf sector in India like its counterparts elsewhere faces the critical challenge ofÂ liquidity. The portfolio of awqaf assets is highly imbalanced in favor of physical assets. Cash andÂ monetary assets as waqf are almost insignificant. At the same time, cash is needed if the physicalÂ assets are to be developed and transformed into high return-yielding assets. Therefore, theÂ commingling of private investment capital with waqf is tolerated by fuqaha on condition that suchÂ private participation would be finite, for a limited period and not dilute the ownership of awqafÂ assets in any manner. Accordingly, a need is felt to establish a new breed of Islamic financialÂ institutions that would essentially mobilize investment capital that would (i) enhance returns toÂ the Waqf, which in turn would be utilized for furtherance of waqifâ€™s intentions or sociallyÂ beneficial objectives in the absence of the former; and (ii) provide expected returns to theÂ investors. One of the earliest experiments in this regard has been theÂ Awqaf Properties InvestmentÂ Fund (APIF) that is managed by the Jeddah-based Islamic Development Bank. The newlyÂ established National Waqf Development Corporation (NAWADCO) in India has a similarÂ purpose. Hence, it is proposed that the latter may benefit from the APIF model in many ways andÂ learn from its accumulated experience. At the same time, APIF is now in a position to directlyÂ contribute to awqaf development in India with some welcome changes in its regulatoryÂ framework. In this blog I briefly present the APIF as a replicable model of awqaf development.
APIF was established in the year 2001 with a mission â€œto contribute to the revival of the IslamicÂ Sunnah of Waqf through the development of Awqaf properties (land and buildings) with the aimÂ of increasing their returns which may in turn be used for the socio-economic development of theÂ Ummah (poverty alleviation, education, health, etc.)â€. The purpose of the Fund is to invest andÂ develop in accordance with the principles of Islamic Shariah, awqaf real estate properties that areÂ socially, economically, and financially viable, in the member countries of IDB and IslamicÂ communities in non-member countries.
The Fund provides a full spectrum of real estate business opportunities from development, assetÂ management to complex project financing initiatives. Its operations provide diverse investmentsÂ spread over in various countries and financing platform across the risk/return dimensionsÂ tailored to the needs of awqaf institutions and charitable organisation worldwide. Key sectorsÂ include residential, commercial, retail and industrial facilities.Â The main focus of the Mudarib is the long term success of the Fund for the benefit of allÂ stakeholders: waqifs, nazers, beneficiaries, unit holders and the public at large.
The following are the key elements of the Fundâ€™s strategy:
Global reach: The geographical spread of APIFâ€™s operations, which are not confined to IDB memberÂ countries, underlines the global platform for the Fundâ€™s operations. The Fund pursues a globalÂ strategy giving priority to: (1) APIFâ€™s participating countries; followed by (2) IDB memberÂ countries; and (3) other countries.
Integrated services: The Fund seeks to partner with capital providers: APIFâ€™s own capital resources,Â IDB Departments and financing windows, other Islamic banks and financial institutions,Â conventional investors and BOT operators looking for developmental opportunities.
Financial packaging: The Fund harmonizes the interplay between capital requirements, technicalÂ and design work, revenue and ongoing property management in order to optimize the facilitiesÂ delivered to awqaf customers and enhance the returns to investors and eventually to theÂ beneficiaries of the waqfs.
The Fundâ€™s Regulations set the initial capital of the Fund at US$ 50 million, divided into 5,000Â certificates, having a value of US$ 10,000 each. The Regulations also provided for the minimumÂ subscription in the Fund to be US$ 1 million. The Participantsâ€™ Committee has since approvedÂ increasing the capital of the Fund to US$100 million. Subsequently, fifteen other participantsÂ including ministries of awqaf, awqaf organizations and Islamic banks have subscribed in theÂ capital of the Fund. The paid up capital of the Fund as of end 1434H amounted to US$76.410Â million (INR450 crores). The names of participants and the amounts subscribed are given below.
To support the activities of the Fund, the IDB has provided a line of financing of US$ 100 millionÂ to the Fund. In addition, the Bank has approved an amount of US$ 200,000 for technical assistanceÂ to be used for preparing feasibility studies, concept and preliminary designs of qualifying projects.Â IDB, as part of its commitment to the development of Awqaf properties, has made significantÂ efforts on research and publications, and has also convened conferences aimed at the revival of theÂ Sunnah of Waqf. IDB has also been instrumental in developing Awqaf as a modern institution atÂ the macro level. To achieve this objective, the IDB established the World Waqf Foundation (WWF)Â which aims to establish a network of waqf institutions that would undertake Shariah compatibleÂ charity activities, support waqf institutions, contribute to the alleviation of poverty, etc.
APIF Participants and their Contribution in the Paid-up Capital as at end 1434HÂ Â (US$ million)
|No.||Name of Participant||Country||Paid-up
|1||Islamic Development Bank||Saudi Arabia||29.50||38.60%|
|2||OIC â€“ Islamic Solidarity Fund||Saudi Arabia||15.50||20.29%|
|3||Ministry of Islamic Affairs, Awqaf, Daâ€™wa and Irshad||Saudi Arabia||7.50||9.82%|
|4||Kuwait Awqaf Public Foundation||Kuwait||5.00||6.54%|
|5||Kuwait Finance House||Kuwait||5.00||6.54%|
|6||Faisal Islamic Bank||Egypt||3.00||3.93%|
|7||Iran Endowment Fund||Iran||2.90||3.80%|
|8||Al-Baraka Islamic Bank||Bahrain||1.00||1.31%|
|9||Bahrain Islamic Bank||Bahrain||1.00||1.31%|
|10||Shamil Bank of Bahrain||Bahrain||1.00||1.31%|
|11||Tadamon Islamic Bank||Sudan||1.00||1.31%|
|12||Jordan Islamic Bank||Jordan||1.00||1.31%|
|13||Ministry of Awqaf and Islamic Affairs||Jordan||1.00||1.31%|
|14||Arab Islamic Bank||Palestine||1.00||1.31%|
|15||Amanah Raya Bhd||Malaysia||1.00||1.31%|
Â Investment Analysis
APIF undertakes a comprehensive assessment of various factors â€“ legal, economic, financial, social, political, technological end environmental â€“ to take its investment decisions.
The legal analysis involves (i) waqf deed; (ii) title deed of the waqf property (land) and registration certificate (iii) proof of non-encumbrance on the Property. It also involves (iv) application of the principles of Shariah (v) local laws and regulations on Waqf, Trust, NGOs (vi) land and property law and regulations and (vii) tax law and regulations.
The project cycle for waqf projects financed by APIF involves (i) identification & preparation (ii) evaluation/ appraisal (iii) approval of IDB management (iv) preparation of financing agreements by the Legal Department (v) signature & declaration of effectiveness of financing agreements (vi) implementation and disbursement (vii) repayments and finally, (viii) completion and closure.
In terms of financial analysis, APIF essentially looks forward to a good return on its investments. The maximum duration of the financing is 15 years including gestation period of 3 years (construction period). The minimum amount of financing is US$ 5 million and maximum between US$ 10-12 million. The mark-up, usually comprised of LIBOR plus spread, is added to the financing amount. Total mark-up usually varies between 6%-7%. APIF seeks the following types of guarantees to mitigate risk: (i) sovereign guarantee (ii) bank guarantee (iii) corporate guarantee (iv) guarantee taken on other assets owned by the beneficiary (v) third party guarantee (vi) letter of comfort by the Government (vi) pledge /mortgage and (vii) escrow account mechanism for collection of receivables.
Mode of Financing
In principle, APIF finds all the below-mentioned mechanisms as acceptable for investing in the development of awqaf assets.
- Murabaha (purchase and selling of existing buildings)
- Installment Sale
- Diminishing Participation
- Other appropriate Islamic modes of financing
However, the modes of financing mostly used by APIF are leasing and Istisnaâ€™a for construction of residential buildings (service and residential apartments of high standing), commercial buildingsÂ (office blocks, commercial centres), mixed-use development on land that are well located in city centres in order to maximise the return potential of the project. This is evident from the asset composition of the Fund presented in Table below.
|Box 1: Social Impact of APIF Investments
While examining the “business face” of a given waqf project, APIF also attaches great importance to the benefits that would ultimately flow out of the project to the community. A few glaring examples of the social dimension of APIF investments are provided below.
The Makola Towers project in Sri Lanka with a total investment of USD 19.5 million and APIF contribution at USD 10 million has a clear social objective to fulfill â€“ providing food, shelter, clothes, education and healthcare to orphans. The commercial complex for Al-Magzoub Organisation, Khartoum, Sudan with a total investment of USD 9.1 million and APIF contribution at USD 7.5 million aims to facilitate the teaching and memorising of the Quran and establish educational institution for Islamic Studies. The office tower for the Islamic University of Chittagong, Bangladesh with a total investment of USD 5.5 million and APIF contribution at USD 4.0 million aims to provide assistance to students Â and facilitate research for Islamisation of curricula. A commercial and residential waqf for the British Muslim Heritage Centre, Manchester, U.K with a total investment of USD 28.92 million and APIF contribution at USD 11.0 million aims to support the educational and cultural programs and activities of the Centre. Similarly, the purchase of an existing building for the Islamic Trust For Education and Culture- Elyas Ar-Rumi, Dresden,Â Germany with a total investment of USD 13.4 million and APIF contribution at USD 6.4 million has the ambitious objective of funding the educational programs for Muslims in Germany and support research and activities aimed at improving the image of Islam. The construction of a waqf commercial complex project with a total investment of USD 13.3 million and APIF contribution at USD 7.0 million will support the Islamic religious community of Macedonia by funding Islamic schools and the college of Islamic Studies. The construction of another waqf commercial complex project in Cairo for Al-Azhar Al-Shareef with a total investment of USD 38.1 million and APIF contribution at USD 10.15 million will support a Center to teach Arabic to non-native speakers.
Asset Composition as at 29th Dhul Hijjah, 1434HÂ (US$ â€˜000)
|Cash & Cash Equivalent||1,168||1.4||30,566||37.9||29,865||37.4||37,863||46.9|
|Investmentsâ€“Ijarah Muntahia Bittamleek||16,084||18.8||17,079||21.2||19,662||24.6||21,998||27.2|
|Investmentsâ€“Islamic Ijarah Sukkuks||38,226||44.6||17,926||22.2||10,660||13.3||5,944||7.3|
|Investmentsâ€“Islamic Lease Fund||1,806||2.1||1,950||2.4||1,913||2.4||0||0|
|Accrued income and other assets||11,325||13.2||8,261||10.2||10,853||13.6||8,780||10.9|
The financial performance indicators of the Fund for the years 1434-31H are presented in Table below. It follows therefrom that APIF can serve as a good replicable model for creating Islamic Funds for financing awqaf development in the IDB MCs and non-MCs. It has effectively demonstrated that awqaf development makes good investment sense. It has shown how private investment capital may be raised by consistently providing a good return on capital. Indeed the return on investment at 2.5 percent per year through the last four years has been higher than average LIBOR hovering between 0.72-1.05 percent per year. In addition to its success in raising funds, the APIF model has also demonstrated how the modern Islamic modes of finance, such as, diminishing musharakah, ijarah, istisna and murabaha may be used to commingle private investment capital with waqf capital to create a win-win situation for both the investors and waqf beneficiaries. The APIF model has shown how some traditional objections to development of awqaf that are rooted in concerns about preservation may be addressed. It has effectively demonstrated that development of awqaf is the best way to preserve them.
Financial IndicatorsÂ Â Â Â Â (US$ â€˜000)
|Net Income before Mudaribâ€™s share||1,837||2,599||1,923||2,316|
|Mudaribâ€™s share of net income||184||260||192||224|
|Transfer to General Reserve||83||169||384||448|
|Dividend/Paid-up Capital – Declared Dividend||2.5%||2.5%||2.5%||2.5%|
|Average LIBOR (%)||0.72%||1.03%||0.80%||0.94%|
|Net Asset Value Per Certificate||11,063||10.846||10,771||10,780|
Appendix I: List of APIF Projects Approved During 1434-31H
(Amounts in US$ Million)
|Project Name||Total Cost||APIF||IDB Line||Others|
|Construction of a student hostel Mohammadiah, Morocco.||15.75||4.0||1.65||10.1|
|Construction of CAIR Plaza in Washington DC, USA||30.60||5.0||11.0||14.6|
|Construction of waqf commercial complex in Cairo, Egypt.||38.10||4.0||6.15||27.95|
|Purchase of an existing building (Elyas Ar Rumi) in Dresden, Germany.||13.44||3.0||3.40||7.04|
|Construction of office building in Jakarta Indonesia.||48.00||5.0||10.5||32.5|
|Construction of waqf commercial center in Gostivar, Macedonia.||13.33||3.0||4.0||6.33|
|Construction of commercial and residential waqf project in Manchester, UK||28.92||5.0||6.0||17.92|
|Construction of commercial and residential complex in Jeddah, KSA||26.30||6.0||6.0||14.30|
|Construction of a Residential Apartment Building Al-Seeh District, Medinah Al-Munawarah, Kingdom of Saudi Arabia||34.00||5.00||5.00||24.00|
|Construction of a Commercial/Residential Waqf Complex in Khalidiya, Sharjah, United Arab Emirates.||50.80||7.00||4.70||39.10|
|A Line of Financing of US$ 10.0 million in favour of Bosna Bank International (Investment Agent) for establishing Waqf Projects in Bosnia & Herzegovina||15.00||5.00||5.00||5.00|
|Construction of Commercial and Residential Complex in Kampala, Uganda||18.77||5.00||7.75||6.02|
|Construction of Commercial & Residential Complex in Jeddah, Kingdom of Saudi Arabia||14.50||3.80||4.50||6.20|
|Abu Millian Waqf Commercial Building, Tripoli, Libya||21.00||5.00||9.00||9.00|
|Construction of Serviced Apartment Building, Manama – Bahrain||25.00||7.00||9.00||9.00|
|Acquisition of Existing Commercial Center, Lenesia, South Africa||27.00||5.00||5.00||17.00|
|IUCT Tower â€“ 2 Chittagong, Bangladesh||16.50||4.50||7.00||5.00|
|Highlands Shopping Complex, Mauritius||6.10||3.00||2.00||1.10|
|International Trade Center, Ankara, Turkey||83.20||7.00||10.00||66.20|
|1.||Construction of a Commercial Building, Fujairah, UAE||20.00||3.00||3.00||14.00|
|2.||Ablan Residential Complex, Doha Qatar.||56.4||5.00||10.00||41.40|
|3.||Addawah Furnished Apartment Tower Khartoum, Sudan||7.00||1.00||3.30||2.70|
|4.||Extension and Renovation of Bazerkan Commercial Center, Beirut – Lebanon.||21.50||4.00||1.00||16.50|
|5.||Commercial & Residential Center Kazan Tatarstan.||5.00||1.00||2.00||2.00|
Mohammed Obaidullah | April 02, 2014