Awqafability: Many Happy Returns

Guest Blog by Hisham Dafterdar, CPA, PhD
Chairman, Awkaf Australia Ltd

Sustainability is broadly defined as the ability of something to maintain or “sustain” itself over a long time. By this definition, sustainability is not anything new for awqaf. It’s a system that pools together a number of activities that awqaf has been practicing for the last 1400 years.

Awqaf, like all organizations, need revenues to sustain themselves and fund their operations. They need to generate sufficient cash from the assets in custody, or appeal to donors whose contributions are uncertain and unpredictable. As a result of the persisting COVID pandemic and the looming financial crises and the mounting pressure on charities to declare their funding sources, corporations and individuals are now giving less. Many awqaf organisations have reported that there has been noticeable reduction in donor funds and are having difficulty in achieving financial sustainability. More awqaf organisations are finding it necessary to expand their revenue base to include steadier forms of income from commercial activity and investments. This spills over into the increasingly competitive environment of the marketplace where awqaf have to compete with the commercial sector, which raises concerns about the impact of such activities on the social mission of awqaf.

Awqaf have to compete with the commercial sector, which raises concerns about the impact of such activities on the social mission of awqaf.

Why do awqaf need to invest prudently? Shouldn’t awqaf be profitable in order to be sustainable? There is a degree of commerciality in these questions. Some people see a conflict between the waqf as a not-for profit institution and the pursuit of growth and profitability. Why does someone buy a suit case? The answer is not that he needs a suit case, it’s that he needs to pack clothes for a trip.  This is obvious after you hear it. People buy a product not because they want the product itself but because they have a special need for it. Awqaf organizations have their purposes and needs for generating revenues. Awqaf need a revenue stream to be able to carry on their mandates and to ensure long term financial sustainability. The income is used to support their social work. Making a profit and doing social good should not be regarded as separate or contradictory. Awqaf commercial activities are complementary. Profitability is not in awqaf’s credo and their ultimate goal is not financial.  Making a profit is more of an outcome than an objective to be pursued. Awqaf’s aim is to make their businesses profitable and not making profit the business of awqaf.

Awqaf organizations must seek a balance between being financially efficient and socially effective.

Awqaf stakeholders consist of groups and individuals of diverse nationality, cultural, educational, social and economic status. Such groups have different values, interests, goals and perceptions of acceptable performance. In responding to this list of stakeholders, awqaf organizations may face a problem of balancing financial needs with operational objectives. The financial needs can be readily expressed in quantitative terms, while operational objectives are more conventionally expressed in qualitative terms. There is a risk of overplaying the financial objectives at the expense of the operational objectives, thereby inducing a form of role-reversal where the waqf social objectives support the financial objectives, rather than the financial objectives support the waqf’s operational objectives. Awqaf organizations must seek a balance between being financially efficient and socially effective. There is little use in being financially efficient if the organisation is proving to be ineffective in delivering successful social services. Likewise, an awqaf organisation that is highly effective in meeting its operational objectives, but is inefficient financially will soon find itself unable to continue delivering its services as its resources drain to critical levels.

The dichotomy between sustainability and profitability is false.

The dichotomy between sustainability and profitability is false. There is a misconception among some that because an organisation is a waqf, it should not seek profits. Some stakeholders believe that awqaf organisations should break even or distribute the surplus if there is one. “Profit” is not a bad word, which in awqaf it is often assumed to be. The main difference between awqaf and the private sector is that in the corporate world, profit is used to create individual wealth. In awqaf, the surplus is used to accomplish a mission. The waqf is seen as a flow-through entity and a conduit of income to beneficiaries and not a vault to lock it in.

Awqaf investment vision is not myopic. Responsible awqaf organisations take a long term view when investing. Their obligation for asset protection and management emphasizes the need for capital preservation, capital appreciation and income generation that enable them to realize their mission well into the future. Achieving financial sustainability is a goal that all awqaf organisations should strive for. Imagine, for example, an orphanage operated by a waqf organisation. If it does not have any surplus funds to meet ongoing operating expenses and future capital costs, the orphanage may be forced to close down. The inability to access any surplus funds from its own reserves may result in the withdrawal of a much needed community service.

Awqaf by its social goals is changing the way businesses do business. An obsession with continual pursuit of profit is unsustainable and threatens to compromise many invaluable work pursuits. Awqaf investments stand for something larger than profit. They are a powerful complement to other activities as they advance the awqaf’s social mission and the community’s financial sustainability by creating jobs, alleviating poverty and growing the economy. Awqaf business is becoming recognized as the enterprise that directly ties investment with awqaf’s ultimate goal of creating social value.