An exploratory study on the issuance of Sukuk Waqf in Malaysia

Hasan, Aznan and Noordin, Nazrul Hazizi and Mohd Noor, Azman and Zakariyah, Habeebullah and Mahadi, Nur Farhah and Ahmad, Mahadi (2025) An exploratory study on the issuance of Sukuk Waqf in Malaysia. Standard. IIUM Institute of Islamic Banking and Finance and Bank Kerjasama Rakyat Malaysia Berhad, Malaysia.

	PDF Restricted to Registered users only Download (3MB)
Preview	PDF Download (186kB) | Preview

Abstract

Over recent years, Malaysia’s socio-economic landscape is marked by pressing challenges, including poverty, inequality, and the growing impacts of climate change, necessitating adequate funding to address these critical issues effectively. With government resources increasingly stretched thin, the adoption of alternative financial instruments that foster public-private-philanthropic partnerships has become imperative for bridging funding gaps to advance social and economic development. Waqf, a traditional Islamic philanthropic arm, holds immense potential in this regard, but is often constrained by its reliance on immovable assets, such as land and buildings, which limit its scalability and adaptability. Unlocking the full potential of waqf calls for integrating it with modern Islamic capital market instruments, particularly sukuk. Such innovative synergy can pave the way for effective and sustainable funding mechanisms, enabling Malaysia to increase its economic resilience. This report presents an exploratory study of sukuk waqf issuance in Malaysia, examining its conceptual foundations and proposing terms and structure tailored to align with Shariah principles while meeting the practical needs of both issuers and investors. The study also identifies key compliance and market challenges that could hinder the issuance and subscription of sukuk waqf, and offers policy recommendations to tackle these challenges, ensuring operational efficiency and market acceptance. The report is structured as follows: Chapter 1 outlines the research objectives and the methods used to address them, including literature reviews, policy analysis, and focus group discussions with market experts and other stakeholders. Chapter 2 discusses the revitalization of waqf through innovation in sukuk issuance, exploring how these financial instruments can reform waqf practices and scale up their impact. It begins with a review of the evolution of waqf practices, transitioning from traditional asset-based endowments to cash waqf, which offers greater flexibility in making contributions in the pursuit of societal well-being. While cash waqf holds significant potential for amplifying charitable giving, challenges such as poor governance and low public awareness hinder its full utilization. The chapter then shifts focus to sukuk as a key fundraising instrument in the Islamic capital market, highlighting its nature and alignment with Shariah principles. It emphasizes the integration of waqf into sukuk structures, leveraging Malaysia’s robust Islamic finance ecosystem. The incorporation of waqf into sukuk not only aligns with the maqasid or objectives of Shariah but also caters to the rising demand for socially responsible investments. Case studies, including the development of Zamzam Tower in Saudi Arabia and Indonesia’s cash waqf-linked sukuk program, illustrate the successful application of such integrations in mobilizing funds for high-impact projects. Chapter 3 provides a comprehensive exploration of the concept and definition of sukuk waqf. Sukuk waqf is defined as certificates representing undivided shares in Shariah-compliant assets or investments, with an option given to investors to convert their principal, returns, or both into waqf during the sukuk’s tenure or upon maturity. Unlike traditional approaches that focus exclusively on developing physical waqf properties, the proposed concept allows the proceeds to be invested in broader Shariah-compliant assets. This flexibility enhances its appeal to a diverse investor base, ranging from profit-driven entities to philanthropists. Additionally, the chapter highlights the economic significance of sukuk waqf, including reducing fiscal reliance on government resources for public infrastructure, fostering financial inclusion by empowering small and medium-sized enterprises (SMEs), and meeting the needs of Malaysia’s ageing population. Chapter 4 outlines a framework for the proposed sukuk waqf programme. It begins with an overview of the programme’s terms and conditions, emphasizing the key operational elements critical for its successful issuance. It then presents the proposed sukuk waqf structure, including its design and transaction flows, ensuring adherence to Shariah principles while meeting market expectations. Additionally, the chapter delineates the roles and responsibilities of key stakeholders, specifying their contributions to the programme’s implementation. The chapter concludes by identifying the primary documents and deliverables required to ensure legal and regulatory compliance, streamline operations, and build investor confidence. Chapter 5 delves into the operational, market-related, legal, and Shariah challenges associated with issuing sukuk waqf. It explores critical concerns such as the necessity of using a SPV as the issuer, the obligor’s ability to generate sufficient revenue, and the rating mechanisms for sukuk waqf. The chapter also discusses operational complexities associated with converting sukuk holdings into waqf. Market issues such as distribution methods, pricing structures, sukuk tenure, market liquidity and tradability, and investors’ appetite for social impact are evaluated, with tax incentives also addressed as a way to attract subscriptions. Legal concerns include whether sukuk waqf qualifies under existing laws, the ownership of waqf assets by private companies, as well as jurisdictional issues in determining trusteeship. Lastly, the chapter discusses Shariah compliance issues revolving around sukuk waqf issuance. These issues, among others, include, reconciling sukuk’s fixed tenure with waqf’s perpetual nature, the permissibility of temporary waqf, and the commingling of waqf and non-waqf investments. Finally, Chapter 6 suggests key policy recommendations to support the effective issuance and implementation of sukuk waqf in Malaysia. It emphasizes the need for market guidelines tailored to sukuk waqf, standardized definitions, and amendments to waqf enactments to incorporate financial assets. Clear criteria for issuers, tax incentives, and streamlined mechanisms for converting sukuk into waqf are proposed to enhance clarity and attract investors. Governance measures include defining stakeholder roles, establishing oversight committees, and requiring periodic impact reporting, supported by independent validations to ensure accountability and transparency. Capacity building is highlighted through training programs for Majlis-Majlis Agama Islam Negeri (MAINs), collaborative research to innovate sukuk waqf models, and public awareness campaigns to showcase its social and financial benefits. Lastly, fostering partnerships between public and private entities is crucial, with recommendations to involve professional fund managers and enhance collaboration between MAINs and regulators, ensuring compliance, efficiency, and scalability of sukuk waqf initiatives.

Item Type:	Monograph (Standard)
Uncontrolled Keywords:	Sukuk waqf, revitalising waqf through sukuk, Sukuk waqf model
Subjects:	BPH Islamic Economics BPH Islamic Economics > BPH437 Sukuk - Islamic Bond BPH Islamic Economics > BPH741 Waqf
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Institute of Islamic Banking & Finance (IIiBF)
Depositing User:	Dr Nur Farhah Mahadi
Date Deposited:	22 Jul 2025 15:28
Last Modified:	22 Jul 2025 15:56
URI:	http://irep.iium.edu.my/id/eprint/121927

Actions (login required)

View Item