WAQF-SUKUK, ENHANCING THE ISLAMIC FINANCE

FOR ECONOMIC SUSTAINABILITY

IN HIGHER EDUCATION INSTITUTIONS1

Khairunnisa Musari
(khairunnisamusari@yahoo.com)

Department of Islamic Economics

Faculty of Islamic Economics and Business (FEBI) and Postgraduate Program
State Institute of Islamic Studies (IAIN) Jember, Indonesia

The development of sukuk and the unique nature of waqf to be integrated is an interesting
development in Islamic finance. This paper believes that these two powerful Islamic financial
instruments can be combined to be an effective tool for financing the higher education
institutions. Sukuk potentially to be an instrument for mobilizing fund and waqf has capacity
to generate income and finance productive activities where the returns or profits will be
retained for future funding. Collaboration of sukuk and waqf can be an innovation to have low
cost fund to engine the economic sustainability of higher education institutions. Hence, this
paper attempts to: (1) Describe the best practice of waqf-sukuk in the world, ie in Saudi
Arabia, Singapore, and New Zealand; (2) Propose the model of waqf-sukuk for higher
education institutions. Overall, this paper encourages the higher education institutions in the
world Islamic countries to involve Islamic finance in establishing the glory of Islamic
scientific civilization as in the past.

Keywords: Economic Sustainability, Higher Education, Islamic Finance, Waqf-Sukuk

JEL Classification: G23, G32, I22, I23, I25

1 This paper was presented at the 2nd World Islamic University Leaders Summit 2016 (WICULS 2016) begin with

a Pre-Summit International Conference on Qalb (Virtues) - Guided Leadership in Higher Education Institutions on the 14th
& 15th November 2016, followed by the Main Summit, WICULS 2016 on the 16th & 17th November 2016, and end with a
Post-Summit Workshop for Young Muslim Student Leaders. This was a joint collaboration between Universiti Sains Islam
Malaysia (USIM) and the Higher Education Leadership Academic (AKEPT), Negeri Sembilan, Malaysia. 14-20 November.
1
1. Introduction
There is much potential of Islamic finance in promoting economic sustainability. As a
system, Islamic Development Bank (IDB, 2015) argues that Islamic finance helps in
stimulating economic activity and entrepreneurship towards poverty alleviation and
inequality, ensures financial and social stability, and promotes comprehensive human
development and fairness for all which relevant to Sustainable Development Goals (SDGs) 2.
Ahmed, Mohieldin, Verbeek & Aboulmagd (2015) explain the SDGs will require
unprecedented mobilization of resources to support their implementation. Their predecessor,
the Millennium Development Goals (MDGs), focused on a limited number of concrete, global
human development targets that can be monitored by statistically robust indicators. The
MDGs set the stage for global support of ambitious development goals behind which the
world must rally. Against the background of globalisation and increasing complexity, Barth,
Godemann, Rieckmann & Stoltenberg (2007) mention that higher education institutions
(HEIs) for sustainable development aims at enabling people to not only acquire and generate
knowledge, but also to reflect on further effects and the complexity of behaviour and
decisions in a future-oriented and global perspective of responsibility. The Organization for
Economic Co-operation and Development (OECD, 2007) find that sustainability of the HEIs
have a strong focus on activities linked to environmental sustainability, but a somewhat
weaker focus on social responsibility and limited focus on economic sustainability.
Gajetti & Maggiore (2013) define the economic sustainability3 as the use of various
strategies for employing existing resources optimally so that that a responsible and beneficial
balance can be achieved over the longer term. Within a business context, economic
sustainability involves using the assorted assets of the company efficiently to allow it to
continue functioning profitability over time. Goodland (2002) explains that the widely
accepted definition of economic sustainability is maintenance of capital, or keeping capital
intact. Economic capital should be maintained. Anand & Sen (2000) argue that economic
sustainability is often seen as a matter of intergenerational equity, but the specification of
what is to be sustained is not always straightforward. The addendum explores the relationship
between distributional equity, sustainable development, optimal growth, and pure time

2
SDGs is the new global development blueprint and the successor to the MDGs expiring at the end of
the year 2015. The SDGs, the global development agenda for 2015 through 2030, are composed of 17 goals and
169 targets. The SDGs cover a wide spectrum of development challenges including poverty, inequality, climate
change, planetary body, sustaining ecosystem and cities, health, education, shelter etc – all in the realm of social,
economic and environmental sectors; the pillars of sustainable development (SD). SD is defined by World
Commission on Environment and Development (WCED, 1987) as ‘development which meets the needs of the
present without compromising the ability of future generations to meet their own needs’. Further, Basiago (1999)
mention the term SD first appeared in the World Conservation Strategy drafted by the United Nations
Environment Programme (UNEP) and the International Union for the Conservation of Nature (IUCN) in 1980. It
should be advanced through ‘conservation’, defined as ‘the management of human use of the biosphere so that it
may yield the greatest sustainable benefit to present generations while maintaining its potential to meet the needs
and aspirations of future generations’ .
3
Basiago (1999), Goodland (2002) explain that the notion of ‘economic sustainability’ was originated
by Hicks in his classic work Value and Capital (1939; Second Edition 1946). Hicks’s definition of income is the
amount one can consume during a period and still be as well off at the end of the period’ – can define economic
sustainability, as it devolves on consuming value-added (interest), rather than capital. Traditionally, economists,
assuming that the supply of natural resources was unlimited, placed undue emphasis on the capacity of the
market to allocate resources efficiently. They also believed that economic growth would bring the technological
capacity to replenish natural resources destroyed in the production process. Today, however, a realization has
emerged that natural resources are not infinite. The growing scale of the economic system has strained the
natural resource base.
2
preference. In Development Theory, Basiago (1999) affirms that the economic sustainability
implies a system of production that satisfies present consumption levels without
compromising future needs. The ‘sustainability’ of ‘economic sustainability’ is the
sustainability of the economic system itself. An-Naf (2005) mentions the requirements of
economic sustainability are: economic efficiency, economic welfare, and distribution of
wealth. According to Ackerman et al (1998), welfare inequality should be followed by the
distribution of wealth. Muazir & Musari (2016) emphasize that Islamic finance has
responsibility to carry out the distributive justice through the distribution of wealth which in
turn will reduce poverty and inequality.
In order to reach the economic sustainability for HEIs, given the teaching of Islamic
economic values which are aligned with 'sustainability', the Islamic financial sector has the
potential to contribute to the achievement. Musari (2016a) promotes the collaboration of
sukuk and waqf can be an innovation for economic sustainability, particular to get low cost
fund without interest rate.4 Ismal, Muljawan, Chalid, Kashoogie & Sastrosuwito (2015), Omar
& Rahman (2013), Hasan (2011), Sukmana, Khalid & Hassan (2009) also encourage the
securitization of waqf through sukuk as for modern scheme to develope waqf assets. Kasri &
Saeran (2016) explain a number of researches have shown that waqf coupled with sukuk
could be a panacea in solving the humanitarian funding gap. Waqf-sukuk has become a
‘household name’ for charity fundraising or humanity causes. Then, Benyounis (2014, 2015)
also emphasizes that waqf al sukuk is not only bridge the gap between the profit and non-
profit sectors, but also help develop both sectors in many ways as balance the Islamic
economy, enhance efficiency of non-profit sector, revive and apply the sunnah of qard al
hassan, develop new Islamic finance tools for the non-profit sector, provide secured
infrastructure to globalize the awqaf industry, and safe structure for the profit to invest in the
non-profit sectors.
Surely, this paper believes that two powerful Islamic financial institutions, the waqf
and sukuk can be combined. The collaboration of sukuk and waqf can be an innovation as a
funding source for HEIs in order to achieve the economic sustainability. Hence, this paper
attempts to: (1) Describe the best practice of waqf-sukuk in the world, ie in Saudi Arabia,
Singapore, and New Zealand; (2) Propose the model of waqf-sukuk for HEIs. Overall, this
paper has mission to socialize waqf-sukuk as an economic sustainability instrument and
encourage the HEIs in the world Islamic countries to involve Islamic finance for establishing
the glory of Islamic scientific civilization as in the past. Since commercialization is
dominating within global Islamic financial landscape, Ismal, Muljawan, Chalid, Kashoogie &
Sastrosuwito (2015) argue the need for inter-sector development between financial sector and
real economic sector, and even with social sector within Islamic economic system. Waqf as a
part of social sector is rarely touched for further development within the landscape even
though social sectors can actually bring huge benefits to the social welfare and justice, which
is in line with the maqasid al-shari’ah. Hence, there is urgency interplay between all the
sectors through breakthrough development in Islamic finance.

4 Sanrego & Taufik (2016) emphasize the tendency to use the third sector become a global trend. This is because
the first sector and the second sector of the economy has failed to ensure the attainment of human well-being, both in the
national and global level, which is based on market forces. By giving more to the strength of the third sector, it is expected
to play a big role on poverty eradication. This is also an effort to ensure that the poor will get financial services by
presenting a guarantee or collateral. Kahf (1998) also affirms the importance of waqf for socioeconomic development,
which is consists of creating and developing a third sector distinct from the profit-motivated private sector and the
authority-based public sector, and changing this third sector with the responsibility of performing a group of tasks whose
nature make them better achieved. This third sector assigned in education, health and social and environmental welfare.
Furthermore, it can provide defense services and public utilities in many instances.

3
2. Waqf for Economic Sustainability of HEIs
Sustainability has been defined in many ways. Generally, sustainability is understood
as a combination of environmental, social and economic performance. Most people agree that
sustainability is desirable to prevent the devastating and inefficient. Davoodi &
Dehghanmongabadi (2015) mention that sustainability has three main ideas: involves
development, requirements, and future generation. Goodland (2002) elucidates the four main
types of sustainability are: human, social, economic, and environmental. Waas, Hugé,
Ceulemans, Lambrechts, Vandenabeele, Lozano, Wright (2012) claim that sustainability
principles has five rules, ie normativity, equity, integration, and dynamism.
In Islamic economics perspective, in the broaden scope, sustainability is in line with
waqf. Literally waqf means to stop, contain, or to preserve. In shari’ah, waqf is a voluntary,
permanent, irrevocable dedication of a portion of ones wealth – in cash or kind – to Allah.
Once a waqf, it never gets gifted, inherited, or sold. It belongs to Allah and the corpus of the
waqf always remains intact. The fruits of the waqf may be utilised for any shari’a compliant
purpose. “When a human being dies, his work for Allah comes to an end except for three
things: a lasting charity (sadaqa jaariya), knowledge that benefits others, and a good child
who calls on Allah for His favour.” (Related by Muslim, Abu Daoud, At-Tirmidhi, and An-
Nasaii.). We can see, philosophically, a lasting charity (sadaqa jaariya), knowledge that
benefits others, and a good child who calls on Allah for His favour is a waqf. Waqf actually is
a true sustainable instrument or institution for reaching sustainable consumption, sustainable
production, sustainable distribution, sustainable investation, and sustainable development.
Waqf is a true economic sustainability in Islamic economic perspective while synergize to
Islamic finance will provide opportunities offer prospects to unlock new growth boundary.
Çizakça (1998), Islahi (2003) Sulaiman, Adnan & Nor (2009), Ahmad (2015),
Malaysia International Islamic Financial Centre (MIFC, 2014), Sanrego & Taufik (2016)
describe waqf as powerful vehicles, if efficiently managed and empowered utilising Islamic
finance facilities, have the ability to eradicate poverty, to improve the socio-economy of the
Muslim, also to establish distributive justice and equitable distribution in a society. As a civil
societal institution, waqf have played a significant role throughout Islamic history. History of
waqf goes back to the time of the Prophet SAW. The institution has always provided public
goods that range from education and health care to water supply and highway facilities on a
voluntary basis by the non-profit sector.5
For HEIs, there is possible structure for waqf instrument that can be implemented in
the future to the financing. The HEIs is very important for the development of human capital
and achievement of economic well-being for oneself, society and nation at large. In the
Islamic countries, there are some famous waqf-based HEIs. Mahamood & Rahman (2015)
mention history has shown that waqf has benefited, i.e. mosques, universities, Islamic
schools/centres/colleges, libraries, hostels, etc. – some of which are still in existence. In fact, a
significant number of waqf-based universities have established and have been continuously
maintaining academic and professional programmes and activities (particularly their welfare
5 Waqf institution has long been recognized and had a vital role in the history of the Muslim world. However,
current waqf institution through out the Muslim world has declined in effectiveness due to lack of management. Hence, waqf
institutions need enhancement to revive back its vital role. The institution can be revitalized by turning it to become a
productive waqf. Productive waqf will not only be a self-financing waqf but it also can finance the primary project of the
waqf (Sadeq, 2002). Waqf is subject to ijtihad which rules that it must be benevolent. The static perpetuity, rigidity and
historical mismanagement of waqf created inefficiencies and ineffectiveness that can be avoided by good governance.
However, the perpetuity of waqf is compulsory and its benefits in developing waqf assets should be shari’a-compliant. This
can be ensured through a transparent relationship between stakeholders which accomplish waqf objectives, monitors
performance, and assures compliance with Islamic shari’a rules and principles (Masyita, 2012).

4
services). But, actually waqf-based HEIs were known not only in the Muslim world, but also
in other great civilizations. Its benefits are not restricted to the Muslim community alone
rather goes beyond religious, cultural, racial and sectarian boundaries. Once accepted and
firmly established by the Muslims, it spread to the West during the Crusades. For HEIs,
Gaudiosi (1988), Çizakça (1998), Stibbard, QC & Bromley (2012), Mahamood & Rahman
(2015) explain the Western world also has many universities that were established under the
concept of waqf. Indeed, at least in the case of England, it has been definitely established that
the famous Oxford University was built upon the Islamic waqf model. Oxford University
represents the classical English academic institution. In its early phases of development,
Oxford have owed much to the Islamic legal institution of waqf. The power of benevolent
giving in endowment for higher education has convinced the UK Government that ‘the way
forward (in financing higher education) is through endowment. This will make the sector less
dependent on any single source of funding’. The other famous examples are the University of
Cambridge in the UK and the University of Harvard and Yale in the USA.
Today, issuance of waqf-sukuk become an innovative instrument to mantain and
develop the waqf assets or waqf fund. In the area of waqf, with many of waqf assets or cash,
sukuk issuance can therefore be regarded to finance the development of waqf properties or
using them to be underlying asset. The integration of sukuk and waqf in a single structure is
an interesting development that is worth pursuing. At this point, it needs to develop the waqf-
sukuk as the instrument to finance the HEIs in order to achieve the economic sustainability.
According to Ismal, Muljawan, Chalid, Kashoogie & Sastrosuwito (2015), the waqf linked
sukuk is indeed an impetus for global sukuk issuance if it is realized by government or
corporate for doing financing with societal impacts. Apart from that, it is one of Islamic
financial deepening efforts in the Islamic financial market by adding the innovation structure
on sukuk, which is currently driven by commercial purposes.

3. Waqf-Sukuk, Lesson Learned from Saudi Arabia, Singapore, and New Zealand
In Islam, waqf is a special type of voluntary charity. The growth and development of
Islamic civilisation continues to depend on the growth and development of waqf. It creates a
permanent, cumulative, and ever-increasing capital base and infrastructure for benevolent
activities. Ali (2009), Sadeq (2002), Musari (2016b, 2016c) affirm the waqf institution can be
revitalized by turning it to become a productive waqf to be a self-financing waqf and also to
finance the primary project of the waqf. By assuming the efficiency problems are solved,
Çizakça (1998) states the waqf system can contribute towards that ultimate goal of every
modern economist; massive reduction in government expenditure, leads to a reduction in the
budget deficit, which lowers the need for government borrowing, and leads to a reduction in
the rate of interest. Alpay & Haneef (Eds.) (2015), IDB (2015), Ali (2009) assert that the waqf
fund has capacity to generate revenue and is expected to finance productive activities where
the returns or profits will be retained for future funding and also for social activities.
Then, with regard to financing activities, Ismal & Musari (2009a, 2009b, 2009c),
Musari (2015, 2013) believe that sukuk is a better financing alternative than debt financing
because of its elements of investment cooperation, sharing of risk, and engagement of assets
or the real project as its underlying issuance. Sukuk may finance the economy and reduce the
government's dependence on foreign debt through the utilization of idle funds in the domestic.
For Islamic bank and finance industry, sukuk can serve as an instrument to manage liquidity
and portfolio. By its capability to manage the lack and excess of liquidity, Musari (2010,
2009a, 2009b, 2009c) argues sukuk can maintain the stability of economy because it has

5
capacity as the investment function, the alternative monetary instruments, and the fiscal
sustainability instrument.
Today, the nascent development of sukuk and the unique nature of waqf to be involved
in such a structure is an interesting development to pursue. There are three best practices of
the issuance of waqf-sukuk in the world, i.e in Saudi Arabia, Singapore, and New Zealand. In
Saudia Arabia, Ahmed (2004), Sukmana, Khalid & Hassan (2009), Abdul-Karim (2010a),
Kasri & Saeran (2016) ilustrate sukuk al-intifa’a as an innovative instrument for developing
waqf since the early year of 2000. In Makkah, King Abdul Aziz Waqf (KAAW) has
developed a multiplex of high towers named Zam Zam Tower, located near Masjid Al-Haram.
KAAW acts as a nazir. Nazir is a body that collects waqf properties from the waqif and also
manages the properties. KAAW for the two Holy Mosques owns land adjacent to the Grand
Mosques. The waqf has leased the land to the Binladin Group on a build-operate-transfer
(BOT) concession contract for 28 years. According to the contract, Binladin Group must build
a shopping complex, four towers, and a hotel for KAAW as a payment. The Binladen Group
in turn has leased the Zam-Zam Tower project to Munshaat, a real estate company based in
Kuwait. Munshaat will finance the construction of the project, operate it, and then transfer the
towers back to the waqf through Binladin at the end of the 28 year-lease-period. The building
has spaces ranging from the low prices until royal suites. To raise funds for the project,
Munshaat issued US$ 390 million sukuk al-intifa’a (timeshare bond) for 24 years. This
usufruct right will be divided into weekly time shares. Investors who bought this sukuk are
able to rent a space for a specific time or sub-leased their space to Moslem who coming to
Makkah from all over the world. Munshaat will gain the profit from the rent rate
difference between the rate received from sukuk holders and the rate paid to Binladin Group.
In Singapore, Hanefah, Jalil, Ramli, Sabri, Nawai & Shahwan (2011) explain waqf
administration is vested under Islamic Religious Council of Singapore (MUIS). MUIS acts as
the overall administrator of all waqf funds through waqf funds group. The promulgation of
The Administration of Muslim Law Act (AMLA) in 1968 empowered MUIS to administer all
matters relating to waqf. Section 58 of AMLA in particular clearly mentioned that all awqaf
created are vested in MUIS.
Abdul-Karim (2007, 2010a, 2010b) mentions musharakah bond was issued based on
two tranches by the MUIS. The first tranche was a $25 million musharakah bond for the
purchase of a building at 11 Beach Road. The second tranche was the raising of $35 million
for the mixed development project at Bencoolen Street. At Bencoolen Street, the project
belongs to a waqf named Shaikh Ali B Omar Aljunied. The objective of the waqf is to provide
for the maintenance and upkeep of the mosque at Bencoolen Street. The income was
generated from the adjacent shop-houses belonging to the waqf. The mosque and the shop-
houses are in a dilapidated state. The property location is central, adjacent to it is the
Bencoolen Hotel rated as a 4-star hotel. The busiest and famous shopping belt area in
Singapore, Orchard Road, is within walking distance. The area has also been earmarked for an
educational belt; within the area are the Singapore Management University Campus and the
Nanyang School of Fine Arts.
Under the waqf-sukuk, Hasan (2011) mentions liquidity is generated in a risk-free
manner with the use of risk-free bonds (sukuk). The funds obtained are subsequently used in
order to renovate old and under-developed real estate properties into highly valued and
market-rated properties. A musharakah sukuk was issued by MUIS to raise the capital. The
initial stage was a musharakah venture between 3 parties, i.e., waqf, baitulmal and warees
(wholly-owned subsidiary of MUIS). The waqf contributed the land and capital, the baitulmal
provided $35 million from investors and warees provided a nominal amount along with their
6
expertise. The second stage involves a leasing contract agreement that was entered between
the special purpose vehicle (SPV) and Ascott International Pte. Ltd. The latter agrees to lease
the property for a period of 10 years thus a steady flow of income was secured and this can be
complemented with returns to the investors. Since it is a musharakah venture, the profit shall
be apportioned accordingly within the proportion of the capital invested by the 3 parties.
In New Zealand, the Awqaf New Zealand has experience in generating income from
the waste products of sheep and cows slaughtered for Qurbani. This has enabled the awqaf
industry to thrive in New Zealand and is now being replicated in many Muslim minority
countries like Australia, Canada and the United Kingdom. What is needed now is to catapult
this industry at the global scale in order for it to benefit the Muslim ummah. One of the ways
to do this is to issue waqf-sukuk as a way in which to generate the money needed to purchase
farms and create a sustainable awqaf industry.
Kasri & Saeran (2016), Benyounis (2014, 2015) explain a muslim minority
prospective in New Zealand have effort in turning unused charitable resources into awqaf
revenues. Waqf-sukuk can bridge the gap between the profit and non-profit sectors and link
the two industries. Waqf-sukuk engineering has aimed to maximum utilisation of their
charitable resources with a project to turn wasted charitable resources into awqaf revenues.
The needs to do is taking awqaf from local to global with minimum risks because the
availability of Adahi/Qurbani of Muslims in the West (5 million sheep/year). The challenge
now is how to establish awqaf farms to supply 5 million sheep a year and the legislation of
waqf, donor, issuance and beneficiary in different countries. Then, Awqaf New Zealand as a
non-profit organisation from the non-banking sector which set up in 2011, designs global
awqaf sukuk and awqaf certificates. Finally, in 2013, Awqaf New Zealand received the first
prize award in the Islamic Economy Award on the Awqaf category. This country via waqf
institution become a reference in the development of waqf-sukuk application to develop the
livestock industry. New Zealand's expertise is recognized worldwide and have helped the
expansion of waqf for the livestock industry in Sudan, Australia, Canada and United
Kingdom. Collaboration waqf and sukuk instrument could potentially be a tool to control the
national meat supply. Sukuk become a means of mobilization of funds that can be used to
growth and strengthen the livestock industry.
The steps taken by the institution of Awqaf New Zealand is empowering the waqf
assets such as mosques and schools collected from approximately 50 thousand Muslims in
New Zealand as underlying. Through waqf-sukuk, Respati (2014a, 2014b, 2014c) explains
that this institution raise funds to buy the farm and sheep that will be expected to supply 100-
220 thousand sheep per year. Initiative to develop the livestock industry is based on the desire
to make zero waste of sheeps. Millions of sheep are estimated to be slaughtered every year
during the Muslim holiday of Eid al-Adha. Instead of simply distributing their meat to the
poor, Awqaf New Zealand aims to create a sustainable cycle out of the process by using all
parts of the animal to produce revenue that goes back to the poor. Some of the meat is canned
for future distribution by aid agencies. The wool and skin go to refugees (along with training,
sewing machines and medical insurance) to make relief blankets (sold back to aid agencies at
low cost), or items like moccasins that help refugees in the West preserve their heritage. In the
future, Awqaf New Zealand plans to use the bones to make halal gelatin and, possibly, the
blood for fertilizer. Then, for the investor of waqf-sukuk, they would not get profit sharing. If
they buy waqf-sukuk and has helped establish 10 farms, their name will be immortalized in
the name of farms.

7
4. Proposed a Waqf-Sukuk Model for Higher Education Institutions
Actually, many schemes can be applied in waqf-sukuk. Sukmana, Khalid & Hassan
(2009) mention there are some ways to finance the investment waqf (secondary waqf project)
such as mudharabah investment, musyarakah investment and fund from issuing sukuk. The
proposed model for HEIs is following.

Mudharabah Waqf-Sukuk
Figure 1 show the proposed generic model for mudharabah waqf-sukuk for helping
HEIs to develop their project. Mudharabah waqf-sukuk facilitates HEIs to finance the project
of HEIs by using the asset of waqf institution or HEIs as underlying to issue a waqf-sukuk for
the retail/corporate investor or Islamic banks or other Islamic financial institutions (IFIs)
through special purpose vehicle (SPV). SPV enacts the waqf asset as underlying and also as a
project by using the fund from the issuance of waqf-sukuk. SPV will designate the developer
to build the project of HEIs into productive waqf properties. The return of productive waqf
properties will flow to Islamic banks or retail/corporate investor in the form of
incentives/rewards or profit-loss sharing for Islamic banks or IFIs. The profit-loss sharing in
the turn will be distributed by these institutions to nanofinance6 for the very micro society
through qardh hassan contract.

Figure 1. Mudharabah Waqf-Sukuk for HEIs

Source: Musari (2016a, 2016b), Developed and Modified

The last, the most important, the main return of the productive waqf properties will be
back to maintain, to expand, and to enlarge the properties to achieve the social benefits of
HEIs. This is in line with the confirmed by MIFC (2014), waqf structures are utilised to fund
real economic activities or financial investments and the returns from these are then used to
achieve the societal welfare and social benefits. We can see, through mudharabah waqf-
sukuk, HEIs may have low cost funds to finance their project or their assets without interest

6 See Musari (2016a, 2016b). Nanofinance is a small financing that operates according to Islamic law with simple
processing system to very poor for the emergency needs (for food, healthcare, education, death, wedding, daily livelihood,
small trading or very micro enterprises). Nanofinance has mission to avoid the very poor to go to the loan shark to borrow
money with high interest rate; encourage the very poor to be independent and have the minimum necessities to live a decent
life by working hard and taking responsibilities of their own lives; build sufficient internal financial and human resources and
to use them to leverage resources from external sources.
8
rate. As well as the Islamic bank or IFIs may have low cost funds to do nanofinance for the
very micro society. That’s why waqf-sukuk must involve Islamic banks or IFIs. According to
Ismal, Muljawan, Chalid, Kashoogie & Sastrosuwito (2015), Islamic finance has a social
sector which is potential to further boost the commercial sector and reciprocally has serious
benefits for societal welfare. This relationship could become a potential catalyst for
sustainable economic development and also one of Islamic financial deepening efforts.

Musyarakah Waqf-Sukuk
Thus, figure 2 shows the proposed generic model for musyarakah waqf-sukuk.
Musyarakah waqf-sukuk through SPV also integrates the waqf institution as underlying
provider to issue waqf-sukuk to retail/corporate investor/Islamic banks/IFIs, and developer or
management for project of HEIs.

Figure 2. Musyarakah Waqf-Sukuk

Source: Musari (2016a, 2016b), Developed and Modified

In this scheme, waqf institutions use their waqf assets as underlying to issue
musyarakah waqf-sukuk by SPV for retail/corporate investor/Islamic banks/IFIs as the
supplier of fund. Then, the fund will be used to finance the HEIs’ project by developer or
management for project. The waqf institution, SPV, retail/corporate investor/Islamic
banks/IFIs, and developer or management for project each other agree to have share in the
project of HEIs. At the time, SPV will distribute the return of project activity and flow it to
each shareholder in form of incentives/rewards or profit-loss sharing, etc. HEIs may have low
cost funds to finance their project from retail/corporate investor/Islamic banks/IFIs. Particular
to Islamic banks/IFIs, they may have low cost funds to do nanofinance for the very micro
society.
As a note, mudharabah waqf-sukuk and musyarakah waqf-sukuk is a form of the
public partnership financing, the core element of Islamic finance, which provides an
important source of funding for the socio-economic development. Ismal, Muljawan, Chalid,
Kashoogie & Sastrosuwito (2015) affirm the project based sukuk with the spirit of real sector
development through social sector can be innovated. Particularly, waqf linked sukuk with
waqf assets as part of underlying assets is proposed to finance governmental projects and
9
infrastructure development. There are potential issuance of the waqf linked sukuk structured
through strategic alliance across government institutions and corporates through Public
Private Partnership (PPP) to contribute to sustainable economic development and social
welfare. It is hoped that the realization of waqf linked sukuk could become an impetus to the
global sukuk issuance within Islamic finance landscape.

Cash/E-Waqf-Sukuk
Figure 3 shows the proposed generic model for cash/e-waqf-sukuk. The scheme is more
fitting to be applied because more flexible. This scheme is designed to contribute for both
capital redistribution and capital accumulation. Adopted from Aziz, Johari & Yusof (2013),
the waqf bank (or Islamic anchor bank) can be entrusted to issue cash/e-waqf-sukuk and/or
collect cash/e-waqf from the public via waqf institutions or telecommunication provider
(through mobile waqf) or corporate or other institutions or also Islamic banks/IFIs for special
purposes disclosed and easily available to the donating public. In this scheme, waqf
institutions or telecommunication provider or corporate or other institutions or Islamic
banks/IFIs which organizing waqf fundraising may have incentives/rewards or profit-loss
sharing, etc from waqf bank (or Islamic anchor bank).

Figure 3. Cash/E-Waqf-Sukuk
Source: Musari (2016a, 2016b), Developed and Modified

As a note, this scheme maybe difficult to implement because many Islamic countries
have no waqf bank or Islamic anchor bank which consolidate the Islamic banks. Because of
that, this scheme also encourages the government in the world Islamic countries to establish a
waqf bank for managing all waqf asset, including for issuing cash waqf certificate or
government waqf certificate. The collected fund in the turn will be distributed to support the
waqf properties, issuing waqf-sukuk, do nanofinance, etc.
Overall, mudharabah waqf-sukuk, musyarakah waqf-sukuk, and cash/e-waqf-sukuk are
the waqf linked sukuk with waqf assets as part of underlying assets is proposed to finance
governmental projects, infrastructure development, public facilities, and also the development
of HEIs. This model can be adjusted for another kind of sukuk. However this paper

10
emphasizes the use of waqf-sukuk as the financial instrument to finance the development of
HEIs in order to achieve the economic sustainability.

5. Conclusion
Historically, waqf funds were used for the provision of public goods including the
educational institutions. The Western world also has many universities that were established
under the concept of waqf. A significant number of waqf-based universities have established
and have been continuously maintaining academic and professional programmes and
activities and also their welfare services.
In Islamic economic perspective, the waqf is a truly economic sustainability while
synergize to Islamic finance will provide opportunities offer prospects to unlock the new
growth borderline. Today, in order to achieve the economic sustainability, the collaboration
waqf and sukuk can be a funding source to get low cost fund to finance the HEIs. The
successful issuance of waqf-sukuk in Saudi Arabia, Singapore, and New Zealand can be
inspiration to revive the waqf-based HEIs. The issuance of waqf-sukuk become an innovative
instrument to maintain, to expand, and to enlarge the properties to achieve the social benefits
of HEIs. The structure of waqf-sukuk can be integrated into HEIs through many schemes,
such as mudharabah waqf-sukuk, musyarakah waqf-sukuk, and/or cash/e-waqf-sukuk. Project
of HEIs based sukuk are assumed to have real sector development impacts as the sukuk are
structured to finance governmental projects as well as infrastructure development of
corporates with fixed tangible assets for project development as an underlying asset. The
project of HEIs based waqf-sukuk can benefit the social welfare by having a cross sector
financing to the waqf institution. The last, this is clearly a limitation of this paper. But,
hopeful this paper may provide a platform for future studies on waqf-sukuk for economic
sustainability in HEIs, particularly in the world Islamic countries.

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