By Dr Hisham Dafterdar, CPA
Chairman, Awkaf Australia
Awqaf organizations have long been recognized as tools to achieve sustainable social development goals (SDGs) as they provide a wide range of social services and contribute to building a sustainable future to the communities they serve. However, to be able to do so, they have to ensure their own survival and sustainability. Sustainability in the context of a waqf organization, refers to its capacity to continue serving future generations while preserving the value of its assets and invested capital. Without sound financial practices, awqaf organizations risk depleting their resources and becoming incapable to support their social programs effectively.
Sustainability and Profitability
Like all organisations, awqaf need money to fund their operations and deliver on their missions. They have to generate sufficient cash from assets in their custody, or appeal to donors for help. However, donations are uncertain, unstable and cannot be relied upon to sustain an organization’s long term financial stability. Financial stability requires consistent and predictable sources of income. Specifically, financial stability is attained when the organization is able to generate steady cash flow that enables it to meet its current and future financial needs, maintain its long-term viability and carry out its mission without interruption. Awqaf organizations are aware of the importance of diversifying their sources of income to ensure their resilience and long term sustainability. They realize the need to supplement their traditional forms of funding such as endowments and donations. This entails developing innovative and entrepreneurial strategies where they have to undertake commercial activities and contend with the competitive forces of the marketplace, all while remaining focused on their social mission.
It’s no longer a surprise to see awqaf organizations engaging in business ventures. The increasing commercialization among awqaf organizations raises important questions: Must awqaf organizations be profitable in order to ensure their long-term sustainability? Is there a conflict between the not-for-profit nature of waqf institutions and the pursuit of growth and profitability? Can awqaf engage in commercial activities without compromising their philanthropic mission? These are intricate issues with no easy answers; but one thing is clear: the sustainability and profitability of a waqf organization are intricately intertwined, requiring thoughtful strategies and prudent decision making.
The perceived dichotomy between awqaf’s sustainability and profitability is unfounded.
The perceived dichotomy between awqaf’s sustainability and profitability is unfounded. Awqaf’s primary social goals should not be overshadowed by engaging in commercial activities. An awqaf organization that is financially successful has the potential to foster economic development and offer greater social support. By aligning their financial and operational objectives, awqaf organizations can ensure long-term viability and ability to allocate more resources towards fulfilling their mission and expanding their services.
Achieving Financial Returns & Social Impact
It’s a delicate balancing act. To achieve some equilibrium, awqaf organizations can explore tangible and profitable social investment opportunities that can bring about positive change. Awqaf can develop commercial properties on their land holdings, invest in profitable ventures, or form partnerships with corporate businesses or other organizations. Profits would be directed to mission-related activity, although the business activity may or may not be mission related.
Awqaf organizations can achieve financial success while remaining true to their social goals. Social and business relationships have matured in awqaf investments. Research reveals that investments aimed at generating positive social impact do not result in lower yields. Instead such investments often exhibit stronger performance. One reason for this stronger performance could be attributed to the changing dynamics of consumer behavior and investor preferences. In today’s interconnected world, individuals and institutions are increasingly conscious of the social and environmental consequences of their actions. As a result, there is a growing demand for investment opportunities that not only generate financial returns but also contribute to addressing societal challenges.
Awqaf organizations will need to diversify their sources of funding in their bid to become more independent, and to expand their reach to a wider and more diverse beneficiaries. There is a vital relationship between financial capacity and social performance. A key issue in relation to awqaf commercial investments is that Shariah governance structures should be proportionate to the size complexity and nature of the business. However, awqaf sustainability is not just about money. Diversifying funding sources is only one aspect of ensuring sustainability. Other essential aspects include management capabilities and the competence level of the staff. Strategic financial planning, good donor relationship and collaborative partnership with other organizations are also critical to the financial sustainability of the waqf organization. Furthermore, awqaf must pay attention to their public image, reputation, and longevity of their mission. With special attention to these areas of operation, awqaf can thrive and continue to serve their communities for generations to come. By prioritizing sustainability in their management practices, awqaf can continue to make a positive social impact in the long run.