Proposing a waqf based Ijarah Smart Sukuk Model for Development of Waqf Properties

Mohammad Bilal Khan1 [0000-0001-6273-9642] , Ibadurrehman Patel2 [0000-0003-4797-5406] , Shaiq Ahmad Ghafoorzai3 [0000-0003-4132-598X], Damkar Mohammad Shehbaz4 [0000-0002-2536-7998] Rusni Hassan5 [0000-0003-4332-9044], Jawwad Ali6

1 IIUM, Institute of Islamic Banking and Finance Malaysia

2 IIUM, Institute of Islamic Banking and Finance Malaysia

3 IIUM, Institute of Islamic Banking and Finance Malaysia

4 IIUM, Institute of Islamic Banking and Finance Malaysia

5 IIUM, Institute of Islamic Banking and Finance Malaysia

6 IIUM, Institute of Islamic Banking and Finance Malaysia
ibadpatel39@gmail.com

Abstract. This paper focuses on presenting a working model by combining the concepts of Waqf and smart Sukuk that works under the contract of Ijarah. Therefore, it can be referred to as a waqf based Ijarah Smart Sukuk model. In a study conducted by Che Zuina Ismail (2015), it is found that due to several reasons such as bureaucracy and lack of transparency in waqf administration, Waqf has lost much of its dynamism. Due to these reasons and several others, many waqf properties are either lying idle or in a dilapidated condition, which has led to Awqaf's effectiveness and role being questioned. There is a need to broadly advertise the significant role played by Awqaf as an instrument of social welfare. Hence, this model is suggested for the development of waqf properties and to revive the role of Waqf in society's social well-being. By using the qualitative method, this paper also highlights the issues or challenges involved in the practical application of the smart Sukuk or Ijarah contract, including possible Shari'ah issues. The paper's policy implication suggests that the states adopt this technologically advanced and Shari'ah compliant working model to target the development-related issues of waqf properties. This paper will also offer the existing and upcoming professionals in Islamic finance a broader perspective about smart Sukuk and hopefully encourages them to develop a favourable framework for smart Sukuk and other smart contracts, which is currently lacking.

Keywords: Smart Sukuk, Shari'ah, Challenges, advantages and disadvantages, Waqf, Ijarah

Introduction

Background of Sukuk

The Arabic word Sukuk means "certification" or "pay-out order" and is the plural of the word sakk. Documents confirm the use of the word "sakk" in early Islamic caliphates, which were used as papers representing financial obligations derived from trade and other commercial activities by Muslim societies of the classical Islamic period (Khan, 2003). Such practices were practiced in accordance with Holy Qur'an "When you deal with each other, in transactions involving future obligations in a fixed period, reduce them to writing…It is more just in the sight of God, more suitable as evidence and more convenient to prevent doubts among yourselves" (Al-Quran, 2:282).

Nowadays, Sukuk is classified as Islamic capital markets instruments. In Islamic finance today, Sukuk means Islamic stocks with quite distinctive characteristics. In February 1988, during the fourth session of the Council of the Islamic Fiqh Academy, one of the very first definitions were issued of the modern Sukuk. The Council defined Sukuk as "Any combination of assets (or usufruct) can be represented by written financial instruments that can be sold at a market price as long as the composition of the asset groups represented by Sukuk consists of a majority of the tangible assets"(Academy, 1988). It is possibly the first definition of Sukuk today.

In 1990, Shell MDS issued one of the first Sukuk in Malaysia shortly after this description. After this issuance, until the beginning of the 21st century, other Sukuk emitters had no other successful issuances. Several institutions began to issue Sukuk in 2000, from which the Sukuk market rose(Dusuki, 2009). In terms of Shari'ah issues and standardization, the exponential growth of the market demanded certainty. Hence, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) issued its Shari'ah Standard on 'Investment Sukuk' in May 2003, and defined it as: "Investment Sukuk are certificates of equal value, representing undivided shares owning tangible assets, usufruct, and services or (in possession of) the assets of particular projects or special investment activity, but this applies once the value of the Sukuk has been received, the subscription has closed, and the funds received have been put into use for which the Sukuk have been issued."(AAOIFI, 2008).

There are various different Sukuk forms based on the Islamic contracts already in existence: Murabaha, Mudarabah, Ijarah, Musharakah, Wakalah, and Salam. Depending on Islamic financial institutions' development, other hybrid and complex systems can be found in the Sukuk market. The market has witnessed many Sukuk launches in different forms and frameworks over the first decade of the 21st century. In 2007, the Sukuk market peaked in terms of issuance (Radzi, June 2018, ).

The general process of Sukuk issuance is as follows:

Creation of an SPV to represent the investors.

Sukuk proceeds against the issuance of the certificates and putting them into circulation.

Secure the cash-flow through the contract period from the issuer to the investor and principal payment at the maturity.

The asset is repurchased as per agreement by the originator after the maturity of the Sukuk certificate.

Fig 1. Sukuk Issuance Process

Source: (Inc., 2021)

The key parties involved in the issuance of Sukuk:

The originator who is the organization that wants to collect funds,

The Sukuk Issuer, to be a current or a newly combined vehicle of a special purpose (SPV).

The lead Arranger/Manager who is the party that organizes/manages the whole cycle of Sukuk (usually originator itself).

The Trustee (usually SPV) is a designated party to serve and supervise the Sukuk 'holders' rights from the start of the Sukuk issuance arrangements until SPV has wholly redeemed the Sukuk; and

The Sukuk holders are investors planning to invest in the project and keep the Sukuk Certificates as evidence of their Sukuk investment.

Fig 2. Parties involved in Ijarah Sukuk

Source: (bixMalaysia, 2019)

The Concept of Waqf.

Waqf is an Arabic origin whose meaning is to stop or suspend or hold. In Islamic law, it means creating a waqf of a specific property in the way of Allah (SWT) for good objectives (Saad et al., 2017). Significantly, Islam strongly recommends socio-economic well-being and welfare-friendly practices such as sadaqah and Zakah. Waqf is another such Islamic model that the main objective is to eliminate the deprivation from society by establishing education centers, healthcare, etc. while enhancing access to tangible resources, amenities, and employment (Ali, 2019)

Though Waqf is not explicitly mentioned in the Quran, there are meanings in its favour and can be utilized in several ways. Allah says: "Righteousness is not that you turn your faces toward the east or the west, but righteousness is one who believes in Allah, the Last Day, the angels, the Book, and the prophets and gives wealth, despite the love for it, to relatives, orphans, the needy, the traveler, those who ask, and for freeing slaves; establishes prayer and gives Zakat …" (Al-Quran, 02:177)

The Prophet (PBUH) said: "When the son of Adam dies, his deeds come to an end except three…Sadaqah Jariyyah(Al-Tirmidhi, 1975). According to Khatib al-Shurbuni, Waqf is one type of Sadaqah Jariyyah. Thus, Waqf's genesis is continuing charity, and its ultimate end is success in the life Hereafter (Al-Shurbīni, 1994).

Historically, the origin of Waqf is traced to the era of the Prophet as it is stated in the Prophet (PBUH) narrations that Umar (RA) had acquired a piece of land in (the canton of) Khaibar and proceeded to the Prophet (PBUH) and sought his counsel to make the most pious use of it. After which, the Prophet (PBUH) declared, "Tie up the property (asl-corpus) and devote the usufruct to human beings that it is not to be sold or made the subject of gift or inheritance; devote its produce to your children, your kindred and the poor in the way of God"(Al-Tirmidhi, 1975). Following this rule, Umar (RA) dedicated the property in question as Waqf, which continued to exist for several centuries until the land became waste. After the Prophetic era, this chain continued by Muslims to endow their properties, gardens, houses, and other things and participated in the construction of Masjid. The history of Islam is fulfilled with precious examples of Awqaf. In every era, good people stressed the formation of Waqf and carried significant work in its extension and promotion (Aziz et al., 2018). However, it has seen many ups and downs during the development of contemporary civilization. For example, in India, Waqf assets had progressed substantially and speedily, particularly after the Mughals' emergence. This management of socio-economic welfare by the Mughal rulers helped build mosques, religious institutions, etc., (Abdullah Nadwi, 2012).

Nevertheless, when the British came into power in the Indian subcontinent, this institution collapsed along with the administration of other established Islamic Institutions (Cizakca, 2000). According to the Aziz and Ali (2018), Sachar Committee Report (2006) revealed that the total value of the Waqf properties in India in 2006 was estimated to number at around 500,000 assets, encompassing a total area of ​​600,000 acres, with a market value of more than 60 billion Indian rupees. According to the report, if these properties were better utilized, they could generate, at a minimum, a return of ten percent, which would amount to approximately 1200 billion Indian rupees per annum.

In Malaysia, at present, according to the Department of Waqf, Zakat, and Hajj (JAWHAR) the objective of which is to create a waqf institution that is neat, orderly, uniform, transparent and effective in accordance with the tenets of Shari'ah that can help improve the socio-economic status of the Muslim community in Malaysia, there are over 8,861.15 hectares of Waqf land. A total of 4,543.27 hectares of the land have been categorized as 'Wakaf Khusus' or special Waqf (the kind of Waqf precisely declared for specific purposes or special beneficiaries), while 4317.88 hectares have been categorized as 'Wakaf Aam' or general Waqf (Ismail et al., 2015). Like India, there have been many hurdles to develop the Waqf properties across the countries. According to Aziz and Ali (2018), Waqf-related issues are heard in the Civil High Court or Court of Appeal that may create obstacles in hearing the Shari'ah -related cases because judges are incompetent in Shari'ah law, as they were qualified in the secular law. Another issue which is an obstacle for the development of Waqf institution in the country is to fall under taxable properties like private land (Rani et al., 2010)

Literature Review

Smart Sukuk

Smart Sukuk is one of the latest and most essential frameworks for future Sukuk issuances. Smart Sukuk appears to be the future of Islamic fundraising to develop infrastructure and industry in the era of advancements in crowdfunding and financial technology.

Sukuk markets are the most profitable in Islamic finance. However, it is also clear that powerful entities and public agencies typically issue Sukuk, and therefore they become costly in terms of issuances. The smart Sukuk framework aims to use blockchain technology to improve productivity, transparency, cost reduction and enable SMEs, social impact projects, groups, and associations to develop their Sukuk using new technology. The Smart Sukuk's key component is to standardize and automate the accounting, legal and overhead payment of conventional Sukuk deals, all of which are fully supported in the issuing country by a licensed legal entity (Sa'ad, 2018). "Smart Sukuk in Islamic economy is tokenization by collecting funds from investors in exchange for Sukuk Tokens representing an ownership portion of the Sukuk investment. The funds are automatically distributed back to the Sukuk Token holders via the blockchain according to the rules of the smart contract in Islamic Economics - without the need of conventional banks or intermediaries". Therefore, any institution that needs funds can issue Smart Sukuk that collects money from investors in exchange for Smart Sukuk Tokens that represent a portion of the Sukuk. When the institution pays, the funds are automatically distributed back via Blockchain to Smart Sukuk Token owners under the smart contract's provisions – without the need for banking institutions or third parties. In-depth research and analysis show that Sukuk's behaviour is entirely consistent in contrast with the smart contract theory. The only difference is automation; smart contracts are automatic, whereas Sukuk is manual(Maghdeed, 2019).

The world's first innovation in smart Sukuk introduced by blossom finance, Blossom's Smart Sukuk uses "smart contracts" from Ethereum, which is basically a blockchain computer program. All records, assignments, calculations, and payments relating to the Sukuk are managed through a smart contract, leaving behind a permanent audit trail at any time (Blossom, 2019). A smart contract encrypts business rules directly into the underlying payment currency itself – the blockchain itself complies with the contract rules concerning payments and transfer of ownership (Blossom, 2018).

Ijarah Sukuk

Ijarah (Leasing) is a manfa'ah (benefit) type of contract, where a lessor (owner) leases out an asset or equipment to its client at an agreed rental fee and pre-determined lease period upon the 'aqad (contract). The ownership of the leased equipment remains in the hands of the lessor (Rahim, 2013). According to (Sekuriti, 2006) Ijarah or rental principal is a benefits contract between the rental owner and the lessor (asset owner) when the rental rate and rental duration are stated in the contract.

Sukuk al-Ijarah is a Sukuk structured with the rental concept alongside a right to purchase the rented property on the final lease date. This Sukuk is issued by applying the Ijarah contract between the issuer and the investor of Sukuk. The implementation of Sukuk, however, includes the initial sale and purchase contract. In this regard, Sukuk al-Ijarah covers the sale and purchase agreement and the entire al-Ijarah contract. With this principle, Sukuk represents each unit of Sukuk with a physical asset. Therefore, the loaner can sell it domestically or abroad on the secondary market without any restrictions(Ahmad, 2009).

Ijarah Sukuk can be negotiated fully and traded on secondary markets. Ijarah Sukuk provides a high degree of flexibility in terms of its performance and marketability (Rohmatunnisa, 2008). Such Sukuk can be issued by the central government, municipalities, Waqf, or any other asset consumer, either private or public. In addition, financial intermediaries or users of leased assets may issue them directly(Kahf, 1997).

Sukuk Ijarah is one of many Sukuk that most contribute to economic well-being. Sukuk Ijarah is most widely accepted by Islamic scholars and most widely used in financing the projects (Mohd Yahya Mohd Hussin, 2012). In Malaysia, Sukuk Ijarah is one of the world's most popular Sukuk structures since its first introduction in 2001(Yumanita, 2008). It became popular in Muslim countries that developed Sukuk, especially Sukuk Ijarah, but other countries that realized that Sukuk is becoming important also adopted it, such as China, Japan, Thailand, and Germany. Afterward, the examples of Sukuk Ijarah on a global level are Government of Bahrain Sukuk Ijarah, Segari Energy Venture Sukuk, Qatar Sukuk, Tabreed Global Ijarah Sukuk, Pakistan Global Sukuk, Saxony-Anhalt Sukuk, Government of ' 'Malaysia's Global Sovereign Sukuk, and others(Faiza Husnayeni Nahar, 2018).

Ijarah Sukuk is one of the best ways of improving the private sector economy; the fundamental explanation is that the real beneficiaries of Sukuk issuance in Ijarah Sukuk are the holders of the Sukuk assets (investors) who are the owners of 'the Sukuk's underlying asset. The Ijarah Sukuk also provides a mechanism to promote and upgrade innovation in the Islamic capital markets (ICMs), especially in the Sukuk market. Sukuk is more preferred than conventional bonds because it is issued in a single Islamic economic structure based on investment in capital and real economic output. It has helped to improve and maintain ICMs in today's financial world. (Sa'ada, 2019).

Advantages of smart Sukuk

Smart Sukuk, as it has been highlighted above, are Islamic bonds that are digitalized in order for the Islamic financial system to keep up with the pace of the increasingly technological development and taking advantages/opportunities these innovations come up with instead of taking any chance of being disrupted. The Sukuk, which is transacted via blockchain technology, apparently brings many benefits to Islamic finance such as cost efficiency, time efficiency, transparency, security etc., which are very helpful in preventing gharar and speculation in Islamic finance

Smart Sukuk tokens can be designed to support an industry-standard protocol that may help smart Sukuk be traded seamlessly at the international level and lower operational risk. To give an example of that is the adoption of the ERC20 standard token, which moreover provides the issuers and investors with access to the global market and harmonizes the challenges of various public cryptocurrency exchanges. "We are now using an Ethereum smart contract to collect funds, issue ownership certificates to investors (using the ERC20 token standard), remit money from overseas into Indonesia, convert forex to rupiah, manage payment back to the investors, disburse payments appropriately based on relative ownership stake, and pay Blossom's share of profits based on the agreement, plus secondary market tradability. All of this happens automatically using the blockchain rather than manual processes and human intervention," explained Martin. (Fintech, 2018)

Issuing the smart Sukuk does not require intermediaries since technology is decentralized in nature. This may lower the cost and also make small lot sizes that are more financially viable. Small lot sizes can also increase the liquidity of the Sukuk market. The regular Sukuk market is not much liquid because everyone hoards the good papers against the underlying assets. The smart Sukuk introduces the smaller-ticket papers representing actual ownership of the underlying asset and creates a genuinely more liquid instrument. "The technology has become much more mature, there is great liquidity in the market, and it is good timing for investors," Martin shared. (Fintech, 2018).

On the other hand, the ability to issue the small lot size tokens to the public in the smart Sukuk market, widening the opportunity to the SME and non-bank individuals who have no access to the capital market to be the part of the global Sukuk market by not only buying the tokens but also may raise fund to finance their projects by issuing their own.

The blockchain and smart contacts used for transacting the smart Sukuk make all procedures being transparent. Since the blockchain enhances transparency, the trust among the issuers and investors increases, and of course, this may eliminate any chance of fraud and speculation in Sukuk transactions. A decentralized, immutable record also ensures all stakeholders have equal access to information and helps in building trust ( Angwei Law, 2017). Speaking about eliminating fraud and other speculations, the blockchain technology also uses the cryptosystem, which is considered highly secured. Each transaction is signed with a private key and then can be further verified with a public key. If the of the transaction changes, the signature becomes invalid. As a result, the block is ignored and will not make it to the chain. (Kot, 2019).

Advantages of smart Sukuk

The benefits of the smart Sukuk, among those explained above, make the smart Sukuk more attractive and increasing interest to various stakeholders. However, there are some challenges in respect of Operational/technology-based that need to be highlighted.

Feasibility, Cyber Security Threat & Government Regulations

The adoption of the blockchain technology and uses of the cryptocurrency associated with its limitations/challenges, in one way or another, may threaten the feasibility and development of the smart Sukuk. Because smart Sukuk works on the Blockchain platform, which needs a computer and an internet connection apart from the requirement that the person using it should also have the knowledge of using not only computers but also blockchain, presents a massive constraint in its wider acceptance across the globe. Still, many countries and a considerable population worldwide do not know how to use a computer or have no internet connection, or both. Moreover, even if people have computers and the internet, there is still a significant chunk of the population that is unfamiliar with the blockchain. Besides, the problem like the Local Regulations regarding Blockchain and cryptocurrency makes it difficult for the smart Sukuk to be available to the masses (Swanson, 2016).

Safety and security are other challenges of using the blockchain and cryptocurrency. The public still has the trust issue on the online systems due to the scammers and hackers. There have been instances where cryptocurrency, such as Bitcoin, has been hacked, and millions of dollars' worth of Bitcoins have been withdrawn by the hackers. Because no central authority or any government is backing the Blockchain transactions, its users have no recourse in case of a hack or any other mishap. Apart from this, every Blockchain transaction consisting of a monetary amount is deducted or added to a digital wallet, which requires a unique passcode to be accessed. If this passcode is forgotten or misplaced by the user, there is no way of recovering the money contained in the digital wallet (Swanson, 2016).

Lastly, there is the issue of Government Interference with digital money, which may also hinder the smart Sukuk development. Several governments do not feel comfortable with a currency that a sovereign country's institutions do not back. "Some countries and central banks issued official warnings against Bitcoin usage during its early years, including Russia, China, and the European Union." Even though some countries such as Japan and South Korea now allow its citizens to use cryptocurrency and invest in it, the risk of it not being backed and monitored by any central authority is still present. (Elasrag, 6 March 2019).

Shari’ah issues in Ijarah Sukuk and smart Sukuk

Issues in Ijarah Sukuk

Ijarah Sukuk has almost two decades of history in the Islamic capital market. It is introduced to the Islamic capital market in 2001 for the first time and got widely accepted among scholars and the Muslim and non-Muslim countries such as China, Japan, and Germany(Yahya, 2012). Despite its acceptance, some Shari'ah issues have been raised by Islamic scholars. Here the paper enlists some of the prominent issues regarding Ijarah Sukuk.

1. Sale and lease-back structure: There are disputes among the Islamic scholars about Ijarah Sukuk's structure. Some argue that it is the modified of Bay’-al-wafa or Bay’-al-Istiglal or Bay'-al-I'nah which these types of sale contracts been discussed widely by Islamic scholars (Al-Amine, 2001). Bay’-al-Wafa is a sale of an asset with the condition that if the seller pays back the price of the asset, the buyer shall return the asset to the seller. Or in other words, the seller honestly does not want to sell its asset; instead, he intends to attain the money. This type of sale is allowed to a small group of scholars, while many scholars rejected it. By renting the asset to whom can sell it cash, give the same result as such renting by Ijarah Muntahiya Bi al-Tamleek (lease contract that ends with ownership). Hence these contracts have similar characteristics. Likewise, Bay’-al-Istiglal, which is selling the assets with ceratin pre-agreed conditions, where the seller leases out this asset and once, he can pay back the price, he will get his asset back, and this is the end of sale and lease-back contract. Bay'-al-i'nah is a sale transaction where two contracts of sale initiate at once, one with spot price and the other with the deferred higher price. Hence, there can be similarities between the mentioned three sale contracts and Sukuk Ijarah, in which the aforementioned sale contracts have been considered a legal trick to riba.

2. Pricing of Sukuk: Islamic law scholars and Muslim economists are yet to develop an alternative to the interest rate as an indicator of profitability. That is why, nowadays, London Inter-Bank Offered Rate (LIBOR) is used as a benchmark in the practice of IFI's. Meanwhile, even the use of LIBOR as a benchmark is not prohibited, but it is not correct to rely on it to determine returns. Sukuk holders are supposed to receive their return from the rent of the underlying asset of Ijarah Sukuk. However, in practice, this return is not at all genuinely reflecting the rental of the underlying asset; instead, it is more to the prevailing rate of interest rate ( Faiza Husnayeni Nahar, et al., 2018).

Issues in Smart Sukuk.

Issue of Khiyar: Despite the advantages of smart Sukuk discussed above, there are some issues that scholars have raised in this regard; one of them is the issue of Option or Khiyar. In smart Sukuk, once the contract has commenced, there is no option for the contract's cancellation or amendment. This issue happens when the contract behind is Mudharabah. In the Mudharabah contract, each party keeps the right to terminate the agreement except if there is any other condition at the inception of the contract, such as the contract made for a specific period of time. (Sa'ad, 2018).

Use of Cryptocurrency: The scholars and specialists in Shari'ah (Islamic Law) generally have different views. The first group of scholars believes that Shari'ah prohibits using cryptocurrencies. The other group believes that the concept of cryptocurrency is halal.

First View: Cryptocurrency is Haram. Many scholars and fatwas support this view, which is summarized below. Egypt's Grand Mufti, Shaykh Shawki Allam, said cryptocurrency is haram. Among other explanations, the Shaykh cites the following in his statement:

It is easy to use cryptocurrency for illegal activities; therefore, the transaction's primary purpose is hidden from the governments, and the authorities are concerned in case transactions are made for non-Shari'ah and unlawful purposes.

It can only be used over the internet and is intangible.

Money laundering and theft are allowed.

It does not have a central body that monitors its system but destroys the power over central banks and governments' monetary policy.

Second View: Cryptocurrency is Permissible in Principle. some scholars believe that mainly cryptocurrency is permissible. It is a common legal principle that lawyers have explained: الأصل في المعاملات الإباحة, it means that the initial rule is permissibility in financial and business transactions. In other words, it is all permissible unless we find it directly contrary to the principles of Shari'ah. According to this principle, mainly cryptocurrency is allowed. It can also be viewed as money if it has the following attributes.

1) Considered among the people as a valuable thing, 2) Accepted by all or a substantial group of people as a medium of exchange, 3) It is a cost factor, 4) It serves as an accounting unit. Any cryptocurrency that meets these criteria (for example, Bitcoin) is therefore suitable as property(Abu-Bakar, and M. M., 2018).

Third View: Cryptocurrency can be Permissible. the new cryptocurrency phenomena cannot be regarded as halal unconditionally due to a few of their technical problems, operating mechanisms, and legal status, which do not comply with the principles and ethics of Shari'ah. Examples include the gharar element in return, the fund's movement without a regulatory standard, investor (users ') insecurity, and no risk plan. Therefore, in order to benefit from halal cryptocurrency, one should be established according to the Maqasid al-Shari'ah, and that is a standard Shari'ah regulatory framework, Shari'ah guidelines, and policies, a Shari'ah supervisory body for monitoring every operation within the Maqasid al-Shari'ah avoiding all gharar component in any aspect of establishment or function and it should be an asset-backed with useful existence, tools, and principles and also justified by Shari'ah (Alabdulraheem, S.M., & Abdul Qayom, 2019).

Findings And Discussion

Application of Waqf based Smart Sukuk through Ijarah Contract

Waqf body can either be an Islamic charitable foundation or a government waqf board that has properties or undeveloped land under its command. The goal of the Waqf based smart Sukuk is to re-shape the obsolete building in a selected site or to develop an undeveloped/barren land. The property or land shall be given for 20-30 years on a long lease to a developer who will approach a Special Purpose Vehicle (SPV) to mobilize funds to develop the land into commercial shops and residential apartments based on the principle of the BOT (Build, Operate and Transfer) contract. The SPV will appoint a property developer or a company to develop and manage the property. When developed, rent received will be periodically distributed between investors through SPV. The Waqf Foundation will take control of the developed property and continue to receive the rent upon maturity of the contract.

The working of the model is explained as follows:

Fig3. Flow of the Proposed Model

Source: Authors (2021)

Waqf administrator/manager signs an Ijarah contract with the real estate development company (with the build, operate and transfer or BOT concept), which receives the waqf land-based on the long-term rental contract and develops it into a modern business rental property and manages it.

After receiving property from the Waqf administration, the Property Development company will establish SPV to issue Sukuk, and SPV offers a subscription to this property under the Ijarah contract through the blockchain platform.

Having agreed on all the terms and conditions of waqf-based Ijarah smart Sukuk, Investors will subscribe to the Sukuk and pay the amount through blockchain application; Blockchain will create separate blocks for each subscription that will record their transactions.

SPV provides the fund to the property development company for developing the waqf property.

The SPV assigns the property development company to administer the Waqf properties/ assets. The agreed lessees (customers) of the properties enter into forward leasing with the Property Development Company.

The Property Development Company collects the agreed lease amount and dispenses it to SPV.

Then SPV distributes the periodic amount to Sukuk holders through blockchain (their respective blocks). And each transaction will keep the record as proof of work.

After the agreed period, the newly developed property is handed over to the Waqf with tenants. (Source: Authors, 2021)

Advantages of the Model

The model is presented to counter the development-related issues of waqf properties so that the real essence of Waqf, which is to ensure humanity's social well-being, is preserved. Apart from ensuring the social welfare of humankind, there are numerous other benefits of the implication of this model. One such benefit is the creation of employment opportunities. As discussed earlier in the study, there are around 4317.88 hectares of 'Wakaf Aam' or general Waqf, and a major chunk of this is still unutilized (Ismail et al., 2015). Therefore, if the waqf administration decides to develop these lands as hospitals, schools or religious, educational institutions, or other facilities for the general public, it will not only facilitate them but also provide employment to numerous others.

Another benefit is an increase in the value of awqaf through its investment. As waqf property can be developed to function in many areas, therefore, its investment in various fields is not only profitable for humanity but for the waqf administration as well. (Authors, 2021).

It has been pointed out by (M.N.Siddiqi, 1995) that it is the Prophet's tradition to finance an economy using Waqf, e.g., the Prophet (PBUH) had used fruits from orchards that Mukhayriq left to finance for artillery. Secondly, the Ottomans successfully incorporated Waqf in their financial system and catered to its public expenditures for centuries. Thirdly, Waqf had financed social needs and cultural associations for centuries in Islamic history, and some awqaf had even survived over ages.

Studies done by (Çizakça, 1998) and (Mohd, 2012) indicate that Waqf reduces public expenditures and cs to a country's social needs. (Ambrose et.al., 2015). This had brought Abdul, Muhammad, and Hakimi (2013) to conclude that Waqf, among other philanthropy tools in Islam, has the ability to create a welfare economy. Therefore, keeping in mind all the benefits, more emphasis needs to be given to develop the waqf properties and utilize them for the welfare of the ummah and the whole of humanity.

Conclusion And Recommendations

It can be concluded from the discussion above that the Ijarah contract is already a popular contract when it comes to issuing Sukuk. Similarly, it can be specifically used to issue smart Sukuks. When applied to develop waqf properties that are laying barren or unutilized or even under-utilized, it can prove beneficial for the Waqf and the Sukuk holders. Where on the one hand, the development and investment in waqf property raise the value and potential of Waqf, on the other hand, it gives a chance to the investors to get returns from halal investments or use the property in which they invested for a given time period, without the need to purchase it in order to be able to use the property. As far as the investment of waqf property is concerned, it is allowed from the perspective of Shariah because deduction or negligence of Awqaf is prohibited. However, the motive behind such investment should be the welfare of the society rather than profit-making. Nevertheless, when it comes to the dividend of investment being shared with the waqf institution, it is allowed, as long as this profit is used for the purpose for which Waqf is made, with strict shariah compliance. (Ambrose et.al., 2015).

As discussed in the paper earlier that awqaf in today's world have lost its dynamism and utility but, if the focus is shifted towards developing the properties that the waqf bodies already possess all over the world, instead of creating new awqaf, it will create much more development opportunities, not only for Waqf but also for Muslim ummah and for the states as well. Nonetheless, developing waqf property leads to achieving the social well-being of society. However, to overcome the issues discussed earlier, it is necessary to introduce new laws and regulations to solve them and make the contracts more compliant with Islamic law. For example, the Ijarah contract issues can be easily resolved by making minor tweaks in the contract structure and making sure the contract terms are clear to the parties involved before the contract is concluded. Hence, an authoritative organization such as the SAC of BNM could play a vital role in alleviating these problems. Moreover, if the issues are weighed in comparison to the advantages, the advantages are much more in terms of the benefits achieved through the use of Waqf combined with a smart contract, such as the Ijarah smart Sukuk. Therefore, this study recommends adopting a technologically advanced and more transparent method of developing Waqf properties, such as integrating it with a smart contract. It will put the public's confidence back in the Waqf administration and ensure that such institutions' credibility remains intact as they are meant to promote brotherhood and social well-being instead of being a ruckus in the society.

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