The institution of waqf is a feature of the socio-economic makeup of the Muslim society and one of the most effective mechanisms of its unity. Awqaf contributed effectively in creating a holistic system for unifying Muslims and serving their social and welfare needs. The waqf, as an Islamic institution to combat poverty and enhance welfare, has a developmental role to boost the economy and compliment government’s social initiatives.
Many of the fundamentals of the SMEs are consistent with the broader goals of awqaf
SMEs are receiving increasing attention in the developing countries because they address the economic disparity between regions and contribute to economic growth and sustainable development. They create jobs, produce goods, provide services, reduce poverty and raise living standards. In this light, many of the fundamentals of the SMEs are consistent with the broader goals of awqaf.
There is a close and mutually beneficial relationship between awqaf and the small and medium scale enterprise (SME) sector. The concept of the waqf as a financier of SMEs arises from its mission to play an effective role in social and economic development. SMEs enable awqaf to maintain equilibrium between ‘give’ and ‘take’. Awqaf as givers enable the SMEs to realize their potential and be profitable, while as takers the SMEs enable awqaf to be profitable while being charitable.
Being a small enterprise does not mean being restricted or limited. Nearly all businesses start as small entities with low amounts of capital and very few employees. Many of the large companies around the world today have started as small businesses by one or two founders, with an idea for a product or a service to meet a market need.
SMEs often find it difficult to access adequate capital and affordable finance.
Notwithstanding SMEs important contribution to the economy and their potential for growth, they face a number of financial and operational difficulties and many fail as a result of one or a combination of the two. SMEs need financial resources to start, equip and run their business. Access to finance is a major constraint. SMEs often find it difficult to access adequate capital and affordable finance as in many cases they fail to meet “the threshold of bankability” requirement of banks and financial institutions. Commercial lenders normally want to see several years of financials, business plans, and the business needs to be in good shape in the first place.
There are also non-financial and operational constraints.
There are also non-financial and operational constraints such as limited production capacity, poor market access due mainly to unfair competition from large companies, and low level of managerial skills. All these issues expose the SME to risk of failure. Lack of succession planning is another big issue facing SMEs. Without proper succession planning, SMEs will have relatively short survival horizon.
Awqaf and SMEs can complement each other.
Awqaf and SMEs can complement each other. In many respects, awqaf and the SME sector have common goals and complementary roles in community involvement. Awqaf organizations are viewed as centers of community assistance. SMEs on their part are much closer to their communities than larger companies. They are more dependent on their customers, employees, neighbors and other key stakeholders, and therefore are better attuned and more responsive to community needs.
Awqaf cannot be a mere credit card for the poor man. Awqaf financing is not just to build a business, but to build people who then build the business. SME owners are known to be entrepreneurs who are creative, innovative and technically capable, but are not strong on finance or management. Awqaf can raise capital and channel needed resources and provide advisory services to competent entrepreneurs who have business propositions that have good prospects of succeeding.
Not a matter of just providing concessional finance
Awqaf’s support of SMEs is not a matter of just providing concessional finance or giving benevolent loans to new or existing SMEs. Experience from many countries shows that if the enterprise prospects depend entirely on grants or low-cost funds it will have little or no chance to survive and stand on its own feet. Awqaf must examine closely the extent to which the solvency of the SME is based on the availability of this “cheap capital”. Moreover, awqaf does not want to be regarded as an institution which subsidizes uneconomic enterprises.
Close relationship can provide reciprocal benefits for both.
Partnership between a waqf and an SME can be short or long term, ranging from working together to deliver a one-off program to a more permanent relationship. The close relationship between awqaf and the SMEs can provide reciprocal benefits for both. Awqaf can provide the capital and the financial support needed by the SME. Awqaf have the means to raise capital and mobilize financing for SME projects. Awqaf can also link projects to target sponsors and donor groups. SMEs, on their part, represent vehicles for awqaf to deploy surplus capital and earn potentially good returns from projects that harmonize with Awqaf purposes. SMEs can also be used to develop and convert awqaf’s undeveloped properties into revenue generating projects serving awqaf organization in sustaining themselves over the long-term.
By Dr. Hisham Dafterdat, CPA
Chairman, Awkaf Australia