Malaysia: Waqf Foundations – A Unique Shariah-Compliant Wealth Management Solution

Last Updated: 16 September 2016
Article by Labuan IBFC Inc.

Global Islamic funds are forecasted to grow to at least USD77 billion by 2019 and the industry is already hitting its USD60 billion mark, according to a report released by Thomson Reuters on Global Islamic Asset Management Outlook in 2015.

With substantial growth opportunities, the market continues to see its silver lining, in addition to the rising number of high-net-worth individuals (HNWIs) in the Asia Pacific region – with private wealth having risen by 13% to USD37 trillion in 2014.

Malaysia has always played an important innovative role in Islamic financial services, boasting a comprehensive regulatory framework for Islamic banking, finance, takaful and asset management. As an extension and in support to this, Labuan International Business and Financial Centre (Labuan IBFC), has evolved into a test bed for Islamic financial products innovation. A case in point would be the introduction of waqf in a private foundation through the Labuan International Waqf Foundation (LIWF) in 2015.

What is LIWF

As an Islamic private foundation governed by the Labuan Foundations Act 2010, which holds and manages properties for identified beneficiaries based on the Shariah principles on waqf. It is a concept in wealth preservation and management using internationally-recognised foundation laws, thus making Labuan IBFC the first jurisdiction to merge these concepts successfully.

The concept offers the founder (waqif), legal certainty by allowing proper control and management of the waqf in accordance with his wishes. LIWF also offers flexibility and exclusive control to the founder over the way a private foundation can be structured, managed, distributed and preserved.

LIWF is unique as it adheres to its specific objective of preserving a waqf property where it cannot be sold, mortgaged, given away as a gift or inherited. Only the income or usufruct will be distributed to the beneficiaries. However, if there is no longer a beneficiary, the benefits of waqf will be distributed to charitable purpose as agreed by the Shariah adviser of the waqf foundation.

It also recognises and honours the conditions of the founder in accordance with the Shariah principles on waqf.

How it works

  1. The endowment of property under LIWF must be executed by way of waqf as defined by Shariah principles by indicating the intention of the establishment of waqf in the charter (Waqfiyyah). The endowed property will then be legally and beneficially owned by the waqf foundation.
  2. LIWF will act as the trustee (nazir or mutawalli) of the waqf. The charter of the LIWF will form the basis to regulate and administer the LIWF in accordance with the Shariah principles on waqf. Governing law can be either Malaysian law or foreign law.
  3. The key management will consist of a Shariah adviser, a supervisory person, an appointed Council, officer and secretary.
  4. The management of the waqf foundation, its assets and distribution of income to the identified beneficiaries have to comply with the Shariah principles on waqf.
  5. Only Shariah-compliant properties can be endowed into LIWF. These include:
    • Real estate together with permanent furniture and fittings;
    • Movable assets;
    • Money or cash;

      Income generated from the utilisation of the money is spent on the beneficiaries while the principal amount is retained.
    • Shares and sukuk;

      For shares and sukuk, the income earned by the shares or sukuk are spent on the beneficiaries.
    • Rights that can generate income (for example intellectual property rights); or
    • Other properties accepted by Shariah for waqf.
  1. To ensure a strong and effective governances and management framework for LIWF, persons involved in the management or operations should be with sufficient level of competency, integrity and credibility.
  2. The roles and responsibilities of the parties must be clearly defined and understood to ensure efficiency and accountability.
  3. More importantly, the waqf foundation must act in good faith, with prudence and highest standard of care and loyalty and in the best interest of the founder and beneficiaries. It is also essential to have a clearly defined succession procedure.

Types of waqf under LIWF

Below illustrates the four types of waqf that can be established via LIWF:

A vehicle for family succession

The integration of the concept of waqf with private foundations enhances the potential of waqf to play a more prominent role in family wealth preservation and succession.

LIWF has a built-in dimension of preserving the waqf property by protecting it from being sold, given away as a gift or inherited. This safeguards the said waqf property from fragmentation after the death of the founder. It also ensures the waqf will continuously benefit the next generation of the beneficiaries.

It is also worth noting that Islamic inheritance law does not apply in LIWF except in situations where the founder is listed as one of the beneficiaries in the LIWF and only relevant on the portion of the waqf income that the founder is entitled to.

A joint waqf can also be established where a stipulation of percentage of the waqf income shared between the family members and the specified beneficiaries for charitable purposes is made. In addition to serving the religious and family objectives of the founder, establishing a waqf via LIWF also contributes to the socio-economic well-being of the society.

In summation, LIWF is a highly effective Shariah-compliant solution for wealth preservation, estate management and dynamic succession. With the advances of the Islamic ecosystem and infrastructure that Labuan IBFC and Malaysia can offer, the midshore jurisdiction is now fully able to fulfil the unique needs of the global Muslim HNWIs and families, looking to share the benefit of their wealth while ensuring effective wealth management and business secession strategies are in place.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions