The Development of a Religious Real Estate Trust RF Bond (Waqf Sukuk)

The MUIS Waqf Sukuk[1]: RF Asset-Based Bonds Used to Unlock the Value of Real Estate Trusts


This example is a product of a very interesting circumstance that has helped the Singapore Muslim Community (MUIS[3]) unlock the tremendous value of the real estate holdings of different religious trusts. These real estate trusts were pledged to serve the interests of the Muslim community hundreds of years ago (these are called waqf, which means pledged trusts that can only be used for the service of the faith as defined by its objectives). This example shows how MUIS was able to generate critically needed liquidity from the trust in an RF way using RF bonds (sukuk). The capital generated by investing in these RF bonds (sukuk) was used to develop old and undeveloped real estate properties which happened to be located in downtown Singapore into highly valued and market-rated properties. In turn, these developed real estate properties produced a sustained respectable income to help further the growth needs of the Singapore Muslim community.

The world is full of goodhearted people who want to leave a legacy by giving back to society in the form of donations or by pledging a productive asset that can produce enough income to help finance the operation of a place of worship, like a temple, a synagogue, a church, or a masjid (mosque). In the United States, donations of this sort are often motivated by reduction of taxes, retirement planning, and asset transfers to future generations to keep the family legacy alive in addition to making a contribution to the community. The foundations left behind by Ford, Carnegie, Rockefeller, and Kennedy are examples of such efforts.

In Islam, and for that matter the Judeo-Christian-Islamic value system, there is a similar system for giving which is motivated only by the interest of the donors to please God by donating assets that can be used as facilities for worship, education, health care, and administration of peoples' affairs, or that produce income to help the poor and the needy. Donations can also include income-producing assets. The income of these assets would be used to fund education, health care, research, and other public projects and needs. These trusts are called waqf. The word waqf literally means that the title of the asset has been “arrested.” In today's lingo, a waqf is a public charitable trust, in which the assets are pledged to God. The title of the asset is treated as that of a ceased property that is pledged to God. This asset can be a prayers place (masjid), a hospital, a research center, a library, an oil-producing territory or well, a school, a farm land, an orchard or any other income-producing asset, producing a stream of rent, crops, minerals, and oil and gas. These tangible productions can be sold to produce cash income that can benefit the beneficiaries and maintain the asset; if there is a surplus, it can be used to benefit other waqf assets. History shows that charitable waqf giving escalates with economic prosperity; the opposite is also true. Charitable waqf properties are usually not well maintained and are left to run down during times of economic and political decline. According to the Judeo-Christian-Islamic Shari'aa law, assets that can be pledged as waqf can be classified in two types:

1. Immovable: For example, real estate, including land, buildings, and other location-specific assets, such as fruit orchards, trees, water wells, and oil and gas wells.

2. Movable: For example, cash and investments in stock portfolios.

An interesting situation came up during one of my visits to Singapore. The community had lost a prime multimillion-dollar property in one of its most expensive prime neighborhoods in downtown Singapore because they did not have the money to develop it and they were not allowed by the law (Shari'aa) to borrow money with riba. The big dilemma was that two more properties in prime downtown areas were required by the municipality before a certain approaching deadline, to be modernized and renovated; otherwise, those properties would be lost as well. I had a meeting with the leaders of the community and we developed an RF approach to solve the problem. The approach involved the issuing of RF waqf bonds (sukuk) for the first time in the history of Singapore, and the world for that matter. This approach enabled us to unlock the real value of a religious trust (waqf) to generate capital using RF sukuk to develop the real estate properties further.

The following is a summary of what was done, especially in this field of unlocking the vast economic and financial potential of the frozen assets of waqf, which had not been researched for a long time. This approach is now being implemented in many Muslim countries, and a special waqf bank is being sought to focus on this large market demand. The details on the two projects involved will follow.

The Judeo-Christian-Islamic Shari'aa law states that, in general, the pledged assets of a waqf (public charitable trust) cannot be sold, granted to others, nor inherited by others. It must be used always for the purpose it was pledged to fulfill.[4] However, historians and scholars in the law (Shari'aa) have documented some exceptions, which were practiced under unusual circumstances that required modification of this rule.[5] For example, the second Khalifa of the Muslim State (Umar Ibn Al-Khattab 584-644 c.e.) approved the change of use of a masjid (mosque) when he ordered that the old Kufah (a city in Iraq) masjid moved to a new location to improve the services. The old location was changed from a masjid to a market for date sellers. In addition, history records that both the second Khalifa (Umar Ibn Al-Khattab) and the third Khalifa (Uthman Ibn Affan 577-656 c.e.) did approve the expansion of the original masjid of the Prophet Muhammad (pp) in the city of Madinah (a city in Saudi Arabia). This opened to us some very useful and creative ideas.

One of the two Singapore properties was a historic masjid (mosque) in the center of downtown proper and close to the world renowned and prestigious Singapore Management University (SMU). The problem was that the waqf consisted of a masjid in a prime area, and that it also had attached to it a prime piece of undeveloped real estate. The challenge was to see how it could be developed — as required by the local municipality — into a prime commercial building that could generate income for the waqf without violating the law (Shari'aa) conditions regarding the assets pledged as a waqf.

Naturally, the community would be up in arms if the leadership decided to demolish the historic masjid and build a modern and more efficient one along with a high-rise building that could produce enough income to enhance the fortunes of the community. After in-depth discussions with the architects and the developer, a plan was created to keep the masjid intact and to attach to it a long-term-stay hotel for professionals who come to work on special projects for periods ranging from 1 to 12 months. The problem was how to generate the money needed to finance this development. The solution offered was formulated by two Shari'aa advisers, Dr. Mohamad Daud Bakar (from Malaysia) and your author. The solution involved using the LARIBA RF finance model of forming an entity that would raise the capital and appraise the value of the waqf asset. The combination would form a joint venture between waqf and the sukuk investors. The capital raised would be used to develop the property, lease it, and share the rental income while the waqf bought back the shares of the venture from the sukuk investors, using the LARIBA RF finance model in the same way as was described in Chapter 11. In this way, the waqf asset could be kept intact while its real value was unlocked to generate the capital needed to develop the property.

  • [1] Yahia Abdul-Rahman, research presentation at MUIS WAQF Conference, Singapore, March 6-7, 2007.
  • [2] MUIS, also known as the Islamic Religious Council of Singapore, was established as a statutory body in 1968 under the Administration of Muslim Law Act, Chapter 3, of Singapore (AMLA). Under the AMLA, MUIS is to advise the president of Singapore on all matters relating to Islam in Singapore.
  • [3] MUIS is the abbreviated name of the body that serves the needs of the Singapore Muslim community: “Majlis Ugama Islam Singapura.”
  • [4] Based on a saying — Hadeeth — of Prophet Muhammad (pp).
  • [5] The two scholars, Abu Flanifa and Ibn Taymiya, allowed it with the condition that one must prove that there will be benefit to the public as a result of such modification. However, the scholar Imam A1 Shaft disallowed it because it is the property of God.
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