Home » Knowledge (page 3)


Waqf & Its Implications for the Modern Economy (Part 2)

by Murat Cizakca Part 2: In this series of articles on IslamicBanker.com, renowned economist Murat Çizakça explores Waqf – one of the greatest institutions in Islamic history and how it can be revitalised. Some readers will have noticed by the similarity between the historical cash awqaf and modern Islamic banks: both were designed originally to operate through mudarabah and both ended up utilizing, from the Islamic perspective, less preferable instruments. This cannot be a mere coincidence. What then were (are) the reasons behind this undesirable situation? Although risk aversion must be a trait shared by both the trustees of the cash awqaf and modern Islamic bankers, the causes of risk aversion in history and today differ. Whereas the trustees in history were precisely instructed in the waqf deeds by the founders of cash awqaf how to utilize the capital, modern Islamic bankers apply murabahah on their own initiative. It has been shown elsewhere that there are two basic reasons why modern Islamic bankers insist on applying murabahah despite all the criticism they have been subjected to; managerial and financial [1]. As far as the former is concerned, Islamic banks have found it very difficult to supervise and guide the individual entrepreneur in a mudarabah situation. This is quite natural, since mudarabah demands close, personal and continuous contacts [2] between the principal and the agent. Moreover, this is not merely a moral problem and is not limited to monitoring the agent’s activities. Such contacts in the form of mutual co-operation and assistance should constitute the very essence of any partnership. However, we have learnt from experience that, unless seriously reorganized, the large and bureaucratic Islamic banks are simply not suited for this task. Experience, again, has taught us that such co-operation is best provided by the relatively small, specialized companies as observed in the American venture capital sector. Concerning the latter, Islamic banks encounter a mismatch of funds; whereas the deposits they collect are of short term nature, mudarabah investments usually involve long term commitments [3]. It is precisely at this point, i.e., the problem of mismatch of funds, that cash awqaf represent an exciting potential. Let us imagine for one moment that it were possible to combine cash awqaf and Islamic banks. Since waqf capital that is entrusted to an Islamic bank would represent a long term, even hopefully a perpetual fund, the problem of mismatch of funds would be ...

Read More »