Awqaf-Private Sector Partnership

Hisham Dafterdar, CPA, PhD
Chairperson
Awqaf Australia Ltd

Awqaf is a faith-based economic sector accounting for a significant share of the Islamic financial system. The Islamic institutions of zakat and waqf are two socio-economic development models having the objective of achieving equitable redistribution of wealth and income. As an act of piety, awqaf provides a connection between religion and economic development. Awqaf operations dovetail into all sectors of the economy and include a wide range of industries including real estate, education, healthcare, social services and recreation. However, in spite of its social and economic importance, this sector remains lacklustre. Financiers divide their world of organisations into public and private sectors. Perhaps the reason for overlooking awqaf lies in the Shariah restrictions on pledging of awqaf assets. Another reason is that awqaf organisations as charitable institutions are perceived to lack the organisational discipline of the corporate world. Hence, it is easy to dismiss awqaf as esoteric, undisciplined and un-entrepreneurial particularly when compared with the high flying private sector.

Awqaf is rich with one of the important factors of production – land, but is short on other factors such as capital and labour. Project funding is a constant quest for awqaf. To date large parcels of awqaf land are undeveloped due to lack of sufficient funds. This calls for a strategic cooperation between awqaf and the private sector which can bring in capital and entrepreneurship. Companies are attracted to awqaf projects because of the business opportunities they represent. A socially connected project generating a cash-flow has a special appeal to the private sector. Companies see these projects as a way of discharging their corporate social responsibility, and making them stand like a good corporate citizen.

Awqaf have an important but somewhat perplexing relationship with the private sector. To some degree, this relationship is characterised more by scepticism and indecision. Partnerships between awqaf and the private sector are more like “marriages of convenience” where each party expects the relationship to realise some benefits by leveraging on the other. Led by opportunities and expectations, the relationship between the two varies from adversarial and conflicting to collaborative and conciliatory. Each party has its goals and metrics that drive it. Awqaf’s commercial strategies are more about development and social impact. Business activities are undertaken to support their mission. Awqaf’s ultimate goal is not financial, and making money is more of an outcome than a purpose. Companies, on the other hand, are concerned with maximising profits and increasing shareholders’ values. No matter how socially beneficial a project may be, it will never be considered unless it can be translated into currency and deliver a measurable ROI that can be discussed in the boardroom.

Awqaf private-sector partnerships are not a matter of calling on the private sector to be charitable, and private investors in awqaf projects should not be expected to sacrifice their profit. A company wants to know what the investment is worth and what returns it generates. The elephant in the room is dealing with risk. The potential risks associated with awqaf projects reduce their appeal to the private sector. Awqaf properties cannot be used as collateral, and in the event of a dispute, awqaf may have an edge over the private sector particularly in the area of “business versus charity”. These are areas of concern to companies who may feel that the playing field is tilted in awqaf’s favour.

A contentious issue in developing awqaf projects relates to the different interests of stakeholders. Any discussion of developing a waqf project is likely to be distracted by disparate demands, views and interests. The waqifs stipulate how the waqf property is to be used, the beneficiaries have their needs, and the nazirs have their conditions; and government policies and local laws may impose restrictions that affect the project. The community, pressure groups, volunteers, and the media are also powerful forces in influencing the proposed development.

A key factor for awqaf – private partnership (APP) projects to succeed is the alignment of goals between all stakeholders. Since APP concessions extend for long periods, none of the parties know all that they need to know at the start of the project. Predicting time, cost and performance parameters is a difficult task in evaluating an APP project. Once the agreement is signed and execution commences, it is very difficult to stop the project when things go wrong. Invariably, there will be few speed bumps along the way to slow down the project. Good planning and cooperative behaviour are important to keep the project on track. APP projects require commitment from all parties to work cooperatively and communicate amicably even when there’s conflict. The nazir has a key role in explaining to stakeholders the justifications for the project. On the other hand, the developer has to understand the waqf organisation, its mission and mandate before committing to the project.

At times, when doing business with the private sector, some awqaf organisations have been short-changed, unaware of the final outcome of the project. APP contracts that stretch between 25 to 50 years, effectively take the “whole of asset life”. During this period, residential, commercial and special purpose buildings are designed, constructed and exploited by the private sector. At the end of this long concession period, when ownership goes back to awqaf, the project would be old, sapped, and ineffective. The only thing to do is to bulldoze and start all over. The poor appear as victims of what has become an uncaring industry rather than beneficiaries of a noble cause. With ill-conceived concepts, the result is a case where the cure is worse than the disease. Any entity involved in such issues generates mistrust and attracts the attention of stakeholders, regulators, politicians, the general public and the media. However, while such issues are relevant and need to be taken seriously, they are rare and should be put in perspective.

Both awqaf and the private sector have a lot to learn from each other. Awqaf can adopt many of the corporate governance practices of the commercial world, especially in the areas of accountability and transparency. Reciprocally, the private sector can learn from awqaf that there are “values” in business other than just financial ones. On many fronts the awqaf sector has taken steps towards reinventing itself, dispelling the tendency of writing it off as being inherently inefficient and has no place for entrepreneurial behaviour. One thing that awqaf often does better than commercial companies is animate the workplace with a sense of mission and purpose. Companies can learn from awqaf commitment, dedication, social responsibility and long-termism. Awqaf projects are more than being commercial investments. They are ‘impact’ investments that combine social objectives with profitability. The engagement of the private sector in awqaf projects can help create a new breed of social entrepreneurs – practical, passionate, innovative, and want to make a difference. Awqaf business with private investors should be more relationship-driven than transactional. This relationship should be structured in a purposeful and targeted way, to build confidence and bolster cooperation so that the marriage between the two is “for better, not worse”.