Development of awqaf sector in India like its counterparts elsewhere faces the critical challenge of liquidity. The portfolio of awqaf assets is highly imbalanced in favor of physical assets. Cash and monetary assets as waqf are almost insignificant. At the same time, cash is needed if the physical assets are to be developed and transformed into high return-yielding assets. Therefore, the commingling of private investment capital with waqf is tolerated by fuqaha on condition that such private participation would be finite, for a limited period and not dilute the ownership of awqaf assets in any manner. Accordingly, a need is felt to establish a new breed of Islamic financial institutions that would essentially mobilize investment capital that would (i) enhance returns to the Waqf, which in turn would be utilized for furtherance of waqif’s intentions or socially beneficial objectives in the absence of the former; and (ii) provide expected returns to the investors. One of the earliest experiments in this regard has been the Awqaf Properties Investment Fund (APIF) that is managed by the Jeddah-based Islamic Development Bank. The newly established National Waqf Development Corporation (NAWADCO) in India has a similar purpose. Hence, it is proposed that the latter may benefit from the APIF model in many ways and learn from its accumulated experience. At the same time, APIF is now in a position to directly contribute to awqaf development in India with some welcome changes in its regulatory framework. In this blog I briefly present the APIF as a replicable model of awqaf development.
APIF was established in the year 2001 with a mission “to contribute to the revival of the Islamic Sunnah of Waqf through the development of Awqaf properties (land and buildings) with the aim of increasing their returns which may in turn be used for the socio-economic development of the Ummah (poverty alleviation, education, health, etc.)”. The purpose of the Fund is to invest and develop in accordance with the principles of Islamic Shariah, awqaf real estate properties that are socially, economically, and financially viable, in the member countries of IDB and Islamic communities in non-member countries.
The Fund provides a full spectrum of real estate business opportunities from development, asset management to complex project financing initiatives. Its operations provide diverse investments spread over in various countries and financing platform across the risk/return dimensions tailored to the needs of awqaf institutions and charitable organisation worldwide. Key sectors include residential, commercial, retail and industrial facilities. The main focus of the Mudarib is the long term success of the Fund for the benefit of all stakeholders: waqifs, nazers, beneficiaries, unit holders and the public at large.
The following are the key elements of the Fund’s strategy:
Global reach: The geographical spread of APIF’s operations, which are not confined to IDB member countries, underlines the global platform for the Fund’s operations. The Fund pursues a global strategy giving priority to: (1) APIF’s participating countries; followed by (2) IDB member countries; and (3) other countries.
Integrated services: The Fund seeks to partner with capital providers: APIF’s own capital resources, IDB Departments and financing windows, other Islamic banks and financial institutions, conventional investors and BOT operators looking for developmental opportunities.
Financial packaging: The Fund harmonizes the interplay between capital requirements, technical and design work, revenue and ongoing property management in order to optimize the facilities delivered to awqaf customers and enhance the returns to investors and eventually to the beneficiaries of the waqfs.
The Fund’s Regulations set the initial capital of the Fund at US$ 50 million, divided into 5,000 certificates, having a value of US$ 10,000 each. The Regulations also provided for the minimum subscription in the Fund to be US$ 1 million. The Participants’ Committee has since approved increasing the capital of the Fund to US$100 million. Subsequently, fifteen other participants including ministries of awqaf, awqaf organizations and Islamic banks have subscribed in the capital of the Fund. The paid up capital of the Fund as of end 1434H amounted to US$76.410 million (INR450 crores). The names of participants and the amounts subscribed are given below.
To support the activities of the Fund, the IDB has provided a line of financing of US$ 100 million to the Fund. In addition, the Bank has approved an amount of US$ 200,000 for technical assistance to be used for preparing feasibility studies, concept and preliminary designs of qualifying projects. IDB, as part of its commitment to the development of Awqaf properties, has made significant efforts on research and publications, and has also convened conferences aimed at the revival of the Sunnah of Waqf. IDB has also been instrumental in developing Awqaf as a modern institution at the macro level. To achieve this objective, the IDB established the World Waqf Foundation (WWF) which aims to establish a network of waqf institutions that would undertake Shariah compatible charity activities, support waqf institutions, contribute to the alleviation of poverty, etc.
APIF Participants and their Contribution in the Paid-up Capital as at end 1434H (US$ million)
|No.||Name of Participant||Country||Paid-up
|1||Islamic Development Bank||Saudi Arabia||29.50||38.60%|
|2||OIC – Islamic Solidarity Fund||Saudi Arabia||15.50||20.29%|
|3||Ministry of Islamic Affairs, Awqaf, Da’wa and Irshad||Saudi Arabia||7.50||9.82%|
|4||Kuwait Awqaf Public Foundation||Kuwait||5.00||6.54%|
|5||Kuwait Finance House||Kuwait||5.00||6.54%|
|6||Faisal Islamic Bank||Egypt||3.00||3.93%|
|7||Iran Endowment Fund||Iran||2.90||3.80%|
|8||Al-Baraka Islamic Bank||Bahrain||1.00||1.31%|
|9||Bahrain Islamic Bank||Bahrain||1.00||1.31%|
|10||Shamil Bank of Bahrain||Bahrain||1.00||1.31%|
|11||Tadamon Islamic Bank||Sudan||1.00||1.31%|
|12||Jordan Islamic Bank||Jordan||1.00||1.31%|
|13||Ministry of Awqaf and Islamic Affairs||Jordan||1.00||1.31%|
|14||Arab Islamic Bank||Palestine||1.00||1.31%|
|15||Amanah Raya Bhd||Malaysia||1.00||1.31%|
APIF undertakes a comprehensive assessment of various factors – legal, economic, financial, social, political, technological end environmental – to take its investment decisions.
The legal analysis involves (i) waqf deed; (ii) title deed of the waqf property (land) and registration certificate (iii) proof of non-encumbrance on the Property. It also involves (iv) application of the principles of Shariah (v) local laws and regulations on Waqf, Trust, NGOs (vi) land and property law and regulations and (vii) tax law and regulations.
The project cycle for waqf projects financed by APIF involves (i) identification & preparation (ii) evaluation/ appraisal (iii) approval of IDB management (iv) preparation of financing agreements by the Legal Department (v) signature & declaration of effectiveness of financing agreements (vi) implementation and disbursement (vii) repayments and finally, (viii) completion and closure.
In terms of financial analysis, APIF essentially looks forward to a good return on its investments. The maximum duration of the financing is 15 years including gestation period of 3 years (construction period). The minimum amount of financing is US$ 5 million and maximum between US$ 10-12 million. The mark-up, usually comprised of LIBOR plus spread, is added to the financing amount. Total mark-up usually varies between 6%-7%. APIF seeks the following types of guarantees to mitigate risk: (i) sovereign guarantee (ii) bank guarantee (iii) corporate guarantee (iv) guarantee taken on other assets owned by the beneficiary (v) third party guarantee (vi) letter of comfort by the Government (vi) pledge /mortgage and (vii) escrow account mechanism for collection of receivables.
Mode of Financing
In principle, APIF finds all the below-mentioned mechanisms as acceptable for investing in the development of awqaf assets.
- Murabaha (purchase and selling of existing buildings)
- Installment Sale
- Diminishing Participation
- Other appropriate Islamic modes of financing
However, the modes of financing mostly used by APIF are leasing and Istisna’a for construction of residential buildings (service and residential apartments of high standing), commercial buildings (office blocks, commercial centres), mixed-use development on land that are well located in city centres in order to maximise the return potential of the project. This is evident from the asset composition of the Fund presented in Table below.
|Box 1: Social Impact of APIF Investments
While examining the “business face” of a given waqf project, APIF also attaches great importance to the benefits that would ultimately flow out of the project to the community. A few glaring examples of the social dimension of APIF investments are provided below.
The Makola Towers project in Sri Lanka with a total investment of USD 19.5 million and APIF contribution at USD 10 million has a clear social objective to fulfill – providing food, shelter, clothes, education and healthcare to orphans. The commercial complex for Al-Magzoub Organisation, Khartoum, Sudan with a total investment of USD 9.1 million and APIF contribution at USD 7.5 million aims to facilitate the teaching and memorising of the Quran and establish educational institution for Islamic Studies. The office tower for the Islamic University of Chittagong, Bangladesh with a total investment of USD 5.5 million and APIF contribution at USD 4.0 million aims to provide assistance to students and facilitate research for Islamisation of curricula. A commercial and residential waqf for the British Muslim Heritage Centre, Manchester, U.K with a total investment of USD 28.92 million and APIF contribution at USD 11.0 million aims to support the educational and cultural programs and activities of the Centre. Similarly, the purchase of an existing building for the Islamic Trust For Education and Culture- Elyas Ar-Rumi, Dresden, Germany with a total investment of USD 13.4 million and APIF contribution at USD 6.4 million has the ambitious objective of funding the educational programs for Muslims in Germany and support research and activities aimed at improving the image of Islam. The construction of a waqf commercial complex project with a total investment of USD 13.3 million and APIF contribution at USD 7.0 million will support the Islamic religious community of Macedonia by funding Islamic schools and the college of Islamic Studies. The construction of another waqf commercial complex project in Cairo for Al-Azhar Al-Shareef with a total investment of USD 38.1 million and APIF contribution at USD 10.15 million will support a Center to teach Arabic to non-native speakers.
Asset Composition as at 29th Dhul Hijjah, 1434H (US$ ‘000)
|Cash & Cash Equivalent||1,168||1.4||30,566||37.9||29,865||37.4||37,863||46.9|
|Investments–Ijarah Muntahia Bittamleek||16,084||18.8||17,079||21.2||19,662||24.6||21,998||27.2|
|Investments–Islamic Ijarah Sukkuks||38,226||44.6||17,926||22.2||10,660||13.3||5,944||7.3|
|Investments–Islamic Lease Fund||1,806||2.1||1,950||2.4||1,913||2.4||0||0|
|Accrued income and other assets||11,325||13.2||8,261||10.2||10,853||13.6||8,780||10.9|
The financial performance indicators of the Fund for the years 1434-31H are presented in Table below. It follows therefrom that APIF can serve as a good replicable model for creating Islamic Funds for financing awqaf development in the IDB MCs and non-MCs. It has effectively demonstrated that awqaf development makes good investment sense. It has shown how private investment capital may be raised by consistently providing a good return on capital. Indeed the return on investment at 2.5 percent per year through the last four years has been higher than average LIBOR hovering between 0.72-1.05 percent per year. In addition to its success in raising funds, the APIF model has also demonstrated how the modern Islamic modes of finance, such as, diminishing musharakah, ijarah, istisna and murabaha may be used to commingle private investment capital with waqf capital to create a win-win situation for both the investors and waqf beneficiaries. The APIF model has shown how some traditional objections to development of awqaf that are rooted in concerns about preservation may be addressed. It has effectively demonstrated that development of awqaf is the best way to preserve them.
Financial Indicators (US$ ‘000)
|Net Income before Mudarib’s share||1,837||2,599||1,923||2,316|
|Mudarib’s share of net income||184||260||192||224|
|Transfer to General Reserve||83||169||384||448|
|Dividend/Paid-up Capital – Declared Dividend||2.5%||2.5%||2.5%||2.5%|
|Average LIBOR (%)||0.72%||1.03%||0.80%||0.94%|
|Net Asset Value Per Certificate||11,063||10.846||10,771||10,780|
Appendix I: List of APIF Projects Approved During 1434-31H
(Amounts in US$ Million)
|Project Name||Total Cost||APIF||IDB Line||Others|
|Construction of a student hostel Mohammadiah, Morocco.||15.75||4.0||1.65||10.1|
|Construction of CAIR Plaza in Washington DC, USA||30.60||5.0||11.0||14.6|
|Construction of waqf commercial complex in Cairo, Egypt.||38.10||4.0||6.15||27.95|
|Purchase of an existing building (Elyas Ar Rumi) in Dresden, Germany.||13.44||3.0||3.40||7.04|
|Construction of office building in Jakarta Indonesia.||48.00||5.0||10.5||32.5|
|Construction of waqf commercial center in Gostivar, Macedonia.||13.33||3.0||4.0||6.33|
|Construction of commercial and residential waqf project in Manchester, UK||28.92||5.0||6.0||17.92|
|Construction of commercial and residential complex in Jeddah, KSA||26.30||6.0||6.0||14.30|
|Construction of a Residential Apartment Building Al-Seeh District, Medinah Al-Munawarah, Kingdom of Saudi Arabia||34.00||5.00||5.00||24.00|
|Construction of a Commercial/Residential Waqf Complex in Khalidiya, Sharjah, United Arab Emirates.||50.80||7.00||4.70||39.10|
|A Line of Financing of US$ 10.0 million in favour of Bosna Bank International (Investment Agent) for establishing Waqf Projects in Bosnia & Herzegovina||15.00||5.00||5.00||5.00|
|Construction of Commercial and Residential Complex in Kampala, Uganda||18.77||5.00||7.75||6.02|
|Construction of Commercial & Residential Complex in Jeddah, Kingdom of Saudi Arabia||14.50||3.80||4.50||6.20|
|Abu Millian Waqf Commercial Building, Tripoli, Libya||21.00||5.00||9.00||9.00|
|Construction of Serviced Apartment Building, Manama – Bahrain||25.00||7.00||9.00||9.00|
|Acquisition of Existing Commercial Center, Lenesia, South Africa||27.00||5.00||5.00||17.00|
|IUCT Tower – 2 Chittagong, Bangladesh||16.50||4.50||7.00||5.00|
|Highlands Shopping Complex, Mauritius||6.10||3.00||2.00||1.10|
|International Trade Center, Ankara, Turkey||83.20||7.00||10.00||66.20|
|1.||Construction of a Commercial Building, Fujairah, UAE||20.00||3.00||3.00||14.00|
|2.||Ablan Residential Complex, Doha Qatar.||56.4||5.00||10.00||41.40|
|3.||Addawah Furnished Apartment Tower Khartoum, Sudan||7.00||1.00||3.30||2.70|
|4.||Extension and Renovation of Bazerkan Commercial Center, Beirut – Lebanon.||21.50||4.00||1.00||16.50|
|5.||Commercial & Residential Center Kazan Tatarstan.||5.00||1.00||2.00||2.00|
Mohammed Obaidullah | April 02, 2014