Awqaf and SMEs: Connecting the Dots

The waqf is the Islamic hallmark of social development, providing local solutions to local problems. The waqf system aims to reach an active and productive society by providing financial and non-financial support especially where government or private sector sources are unwilling or unable to intervene or remedy market biases. There are few touchpoints where awqaf intersect with other sectors in what they do by way of sustainable development.

SMEs can be the toolbox for awqaf’s social work, while awqaf can be SMEs’ lever for sustainable performance.

There is an intimate link between awqaf and the small and medium enterprise sector. Their relationship is practical and complementary as both sectors can work together to meet the needs of their communities. Awqaf by directly investing in small and medium scale projects, will be contributing more practically to society. SMEs can be the toolbox for awqaf’s social work, while awqaf can be SMEs’ lever for sustainable performance.

Awqaf’s financial support can be in any one of three main Shariah compliant modes

Awqaf’s financial support can be in any one of three main Shariah compliant modes: participatory, concessionary, and project financing. Within these modes are various contractual forms that conform fully to the principle of profit and loss sharing. Such partnerships can be of enormous benefit to the project, to the waqf organization and to the community. Awqaf organizations can also provide other ancillary financial services such as assisting in financial planning and giving guarantees to collateralize loans advanced by financial institutions.

Awqaf can also provide in-kind contributions.

Awqaf can also provide in-kind contributions. These may include tangible goods such as furniture, equipment, books, protective clothing, etc. Other in-kind contributions may include office, factory and warehouse space and land. Many of awqaf assets are vacant land. The provision of land for a project serves awqaf objectives for developing idle waqf properties and ensures the permanent connection of the project to the waqf organization.

Awqaf can create long-lasting impact.

Awqaf can create long-lasting impact because part of the process involves channeling more than financial resources. Other than money, non-financial support can be particularly helpful for start-ups and early stage companies to help them establish a market position and to succeed and scale. Typically, awqaf will not get involved in a hands-on role, but will step in areas of strategic planning and give access to networks of others who can help. Awqaf organizations have a wide network capacity both locally and nationally. These networks can provide SMEs with knowledge about market opportunities, supply chains, legal advice, environmental responsibilities, technological advancements and training. SMEs use of the intangible resources of awqaf gives them a competitive advantage in the marketplace.

Awqaf organizations are very risk-averse and this can work in the interest of SMEs.

Because of the Shariah rules concerning the protection of awqaf assets, awqaf cannot invest in speculative high risk projects. Awqaf organizations are very risk-averse and this can work in the interest of SMEs by excluding risky investments. Awqaf’s principles of perpetuity and inalienability and the condition of non-encumbrance of awqaf assets, provide a well-defined strategy for risk aversion and succession planning. Most SMEs are family businesses where generational change is a big risk factor to the extent that two thirds of the SMEs do not survive the transition to the second generation. Awqaf organizations, with their long-term vision and mature attitude towards wealth preservation across generations of beneficiaries, can help SMEs make effective succession planning strategies. Awqaf can also provide advice and guidance based on experience with other companies in similar situations.

Awqaf investments merge the social mission with the market approach of business.

Awqaf investments merge the social mission with the market approach of business. When investing, awqaf applies an ethical rigor built on social and economic factors that connect the business to the challenges in peoples’ lives. Therefore, the support offered by awqaf to an SME is generally made subject to certain restrictions on the purposes, policies, and operations of the entity. Among the restrictions that are normally associated with awqaf investments include: Shariah compliance in all operations and financial dealings by the SME; conformity to awqaf ethos and mission objectives; restrictions related to the pledging of assets as collateral for financing; restriction on the admission of new partners or investors; corporate governance and imposition of fiduciary responsibility on the management to use available resources efficiently.

Perhaps there isn’t an area of the economy not touched by what awqaf does. Awqaf investments are focused on long term community development projects which are aligned with the waqf social objectives and government economic policies. Awqaf investments aim to deliver measurable social, economic and environmental goals alongside financial returns. Awqaf projects go beyond the premise of profitability and can be viewed as a form of investment in the future of individuals and communities. The awqaf-SMEs relationships can open up access to resources that help both sectors to fulfill their roles. This strategic alliance is a win-win situation for awqaf, the SME sector and the economy generally.

By Dr Hisham Dafterdar, CPA, PhD. Chairman, Awkaf Australia