Waqf-Based Microfinance: Realizing the Social Role of Islamic Finance

Habib Ahmad
2007
Islamic Research and Training Institute.
Paper written for the Internations Seminar on Intergrating Awqaf in the Islamic Finacial Sector in Singapore March 6-7, 2007

Waqf based poverty focused microfinance institution

Sustainability and Operational issues of a waqf-based MFI-

• Mitigating Credit Risk
• Resolving Moral Hazard Problem
• Economic viability
• Operational and Risk Management issues

Financing of activities

• From waqf funds (these can be used for qard)
• From deposits (these can be used for qard and loans??)

Asses, Liability and Risk Management issues

• Different reserves – takaful, profit equalization, capital reserves
• Depositors and withdrawal risks

Maaging risks and returns – risk of decay of the endowment must be eliminated – choosing a proportion of low-risk assets in such a way that the returns on theses assets can cover the expected loss from microfinancing activities