In a world’s first, Malaysia two weeks ago saw the initial public offering (IPO) of waqf shares through a company that manages endowed land in the country’s southernmost state of Johor. The step is widely seen as an innovative strategy in Islamic finance for effective development of waqf properties in order to maximise benefits for the community.
Waqf, under Islamic law, is a charitable endowment which involves donating a building, plot of land or other tangible assets for religious or charitable purposes with no intention of reclaiming the assets. The donated assets are normally held by a charitable trust in a system that Western law defines as usufruct.
In this case, Waqaf An-Nur Corp, an company set up by Johor Corp, a government-linked entity seeking to improve economic and societal development in the state, is offering shares worth around $20mn backed by endowed land to retail and institutional investors and intends to use the proceeds to upgrade regional transport infrastructure in the state’s capital of Johor Bahru.
Waqaf An-Nur Corp has been established to manage the assets of Johor Corp endowed for waqf. For the parent group, it plays the role of a Maukuf Alaihi, an institution entitled to receive waqf property through shares and other forms of company securities collectively allocated into waqf. Besides infrastructure, the firm manages clinics, hospitals and community centres and provides start-up financing and interest-free capital to small-scale entrepreneurs to start or grow their businesses, organises community workers and provides contributions to the society via general welfare allocations.
The funds raised from the Shariah-compliant waqf IPO of the “Larkin Sentral Waqaf Properties Fund” will be used to renovate and upgrade the main and largest public transport terminal in Johor Bahru, Larkin Sentral, and its adjacent market, and for the acquisition of land for the construction of a multi-storey carpark by 2019.
Investors in the waqf shares will be eligible for tax deduction of up to 7% in case they are individuals and 10% in case they are companies or other institutional shareholders, namely retirement funds, cooperatives, foundations or workers’ pension funds. The dividend from the waqf shares is aimed at helping small and low-income vendors and single-mother groups by reducing rental rates for the market’s shop lots to a reasonable level.
“This launch is a moment that can be considered historic to the country as it is the launch of the first public offering of waqf shares in the world,” said Mohamed Khaled Nordin, chairman of Waqaf An-Nur Corp. “Indirectly, it is also an example of an innovation in ensuring the waqf system can continue to be strengthened with better governance.”
Observers say that this first-ever waqf IPO may have an impact not just on Malaysia’s Islamic finance landscape, but even at a global range as it could potentially open new avenues for the waqf segment, which is believed to hold substantially valued asset across the Muslim world, but is widely considered as untapped.
Generally seen as an important Islamic institution that underlies basic economic development, waqf has a long history in the Muslim world of inspiring economic growth and expansion, with benefits encompassing commerce, education, health, social and spiritual dimensions. However, in Malaysia over the past century – particularly as a consequence of British colonial rule – Muslims at all levels had come to consider that the waqf system was an ancient institution mainly for the upkeep of cemeteries and mosques, a notion that changed only in the recent past with the growing importance of Islamic finance and improved regulation of Islamic asset management in Malaysia.
“People used to describe waqf only as a charitable system involving assets such as land and money,” noted Kamaruzzaman Bin Abu Kassim, CEO and president of Johor Corp
“However, the real meaning of waqf is wider and includes various aspects as long as its intention and purpose are beneficial to the community. Our waqf IPO is changing the perception as it gives the opportunity to participate in contributing something to the community through the way of Islamic finance. It is also not exclusive to Muslims, as non-Muslims can also participate on the basis of social responsibility,” he added.