Proposing an Effective Waqf Model for Ensuring Poverty Reduction among Refugees in Malaysia

3.1 Poverty

Poverty is known as one of the primary challenges combating humanity. One of the most critical missions of the United Nations Sustainable Development Goals (SDG), founded in 2010, is to eliminate poverty by 2030. Poverty is characterised as a situation in which a community or a segment of the population can only meet their basic needs, such as food, clothing, and shelter, to maintain a minimum standard of living (Mohr, 2016). The Global Monitoring Report (2009) defined poverty as the population living on less than $1.25 daily. According to the World Bank (2019), two billion eight hundred people (2.8 billion), or nearly half of the world’s population, live on less than $2 per day, and 1.2 billion live on less than $1 per day. Addae-korankye (2014) elaborates on the causes of poverty as unemployment: the absence of any economic activity that could provide a steady flow of profits. Vulnerability to Income Fluctuations: Many households experience income fluctuations and may have to go to bed without food for family members. Powerlessness is the inability to change anything or do something to improve the situation.

3.2 Microfinance and poverty reduction

According to Srinivasan and Sriram (2003), microfinance involves providing financial services to small and medium enterprises that lack access to banking and related services due to high transaction costs and qualifying factors. Seibel (2003) outlines the following priorities for microfinance institutions (MFIs) in developing countries: 1. Alleviating extreme poverty and hunger 2. Achieving universal primary education 3. Promoting gender equality and women’s empowerment 4. Lowering infant mortality 5. Improving maternal health 6. Establishing income-generating activities (creating jobs) 7. Acquiring properties 8. Consumption stabilization 9. Risk protection 10. Encouragement of new businesses 11. Developing a strategy to build global financial systems that meet the needs of the poorest people. Numerous case studies demonstrate how microfinance has contributed to eradicating poverty. It primarily achieves this through:a) Microcredit b) Micro Savings c) Micro-Insurance.

The emergence of the Microfinance Movement has altered perspectives on supporting impoverished individuals in Asia and Latin America. Many countries have issued noteworthy loans, particularly to low-income families or individuals who would typically be overlooked by formal financial institutions (Nazrie Mohd Nor and Kumar, 2019). According to Md Saad (2012), the microfinance objectives set at the 1997 Microcredit Summit have largely remained unmet. The very poorest are the least likely to benefit from microfinance, and despite the availability of microfinance, there has been no improvement in wages. A significant portion of the loans is used for consumption, with the remaining funds earmarked for quickly-planned projects. Nevertheless, there have been notable benefits, such as consumption smoothing and the creation of social networks, which can be equally important. The claim about fiscal sustainability argues that for-profit MFIs would be able to reach a larger number of impoverished people. Equity-Based Crowdfunding

Equity crowdfunding, also known as crowd-investing or investment crowdfunding, is a method used by startups and early-stage businesses to raise capital. It involves offering the company's securities to potential investors in exchange for funding. Each investor receives a proportionate share of the company based on their investment. Unlike rewards or donation crowdfunding, equity crowdfunding offers a more traditional method of raising capital by providing financial securities to investors (Di Pietro, 2020).

Crowdfunding is conducted using specialised online platforms like Wefunder and StartEngine. The digital aspect of the crowdfunding platform promotes a more permissive and open approach to funding (Nehme, 2018). As a result, equity crowdfunding appeals to a broader audience, unlike traditional capital-raising approaches for early-stage firms, which rely mainly on contributions from a small community of professional investors. The primary goal of equity crowdfunding is to collect the necessary money by soliciting small investments from many investors (Di Pietro, 2020). Malaysian ECF platforms have grown significantly in response to the government’s call for financial service providers to adopt technology to create a more inclusive, creative, and competitive capital market. As of December 2019, investments totalled RM73.74 million, with 80 successful campaigns and 77 successful issuers. According to the investment demographic, 46 percent of participants were under the age of 35, and 52 percent of the investment came from the retail sector (Ibrahim et al., 2018).

3.3 Developing waqf and crowdfunding-based microfinance (WCM)

As Htay et al. (2015) highlight, many researchers and academicians vibrantly advocate for more robust development towards endowments and waqf to ensure the welfare of the Muslim ummah and society as a whole. Furthermore, as the topic and effort on poverty reduction being emphasised by a significant amount of academic community from different backgrounds, Saiti et al. (2020) highlighted that this issue still continuously affects millions of Muslims whilst urging for further development of waqf that could be contributing to the real potential towards poverty reduction and alleviation. Based on the literature reviews in the sections above, this study attempts to develop an effective model for addressing the issue of poverty in Waqf’s body of knowledge (Olalekan and Hakeem, 2012). Remarkably, the model attempts to corporate elements of waqf through utilising undeveloped waqf land and involvement of Islamic microfinance institutions and crowdfunding platforms in agriculture-based microfinance programmes.

3.4 Importance of microfinance for refugees and immigrants in malaysia

Malaysia is recognised for granting asylum until their return or relocation to another nation. According to reports, Malaysia had the most refugees in Southeast Asia as of January 2018 (UNHCR, 2019). There were 178,140 refugees and asylum seekers in Malaysia as of January 2021. The bulk of them lived in Selangor (66,030), Kuala Lumpur (27,370), and Penang (18,660), while the least number lived in Putrajaya (450) and Perlis (280) (Mohamad et al., 2021). More than half of these people are Rohingya refugees who hail from Myanmar (Mohamad et al., 2021). Programmes based on waqf and microfinance may be crucial for this sizable population of immigrants and refugees.

According to Wahab (2017), even though refugees work difficult occupations to make a living, they only receive poor pay. Some of them make less than the RM1000 minimum wage that the Malaysian government established in 2016. Wahab (2017) also found that some self-employed refugees rented trading licenses from local traders to operate their businesses since they are not legally permitted to apply for licenses to own businesses. Other self-employed refugees received financial assistance from microfinance institutions or family and friends to set up their businesses. Then, these independent refugees assist their fellow refugees by providing them with employment and products (Wahab, 2017). The economic and financial difficulties they experienced have resulted in a number of other problems, namely in health and education (Mohamad et al., 2021).

4.1 Waqf and crowdfunding-based microfinance [WCM]

The waqf and crowdfunding-based microfinance model incorporates waqf and crowdfunding elements in the microfinance programme. The waqf element utilised in this proposed model is undeveloped waqf lands abundant in Malaysia. This can be seen as a study by Mahmood et al. (2017) highlighted that Yayasan Wakaf Malaysia (YWM) estimated that there are around 30,889 hectares of waqf lands in Malaysia, whilst a paper (Mohammad, 2009) has reported that around 90% of the waqf lands are still undeveloped (Mohd et al., 2020). Therefore, sources of funds to carry out this programme come from two sources, which are (i) undeveloped waqf lands under the management of waqf institutions, and (ii) collected funds from a crowdfunding platform which is categorised as equity-based crowdfunding. Islamic microfinance institutions will act as intermediaries in channelling the undeveloped waqf lands and collecting funds to carry out the Waqf-based Microfinance Programme.

Potentially, an adaptation of how SIB works and the payment-by-success element can be implemented under this waqf and crowdfunding-based microfinance. This can be seen through one of many success stories of SIB, such as Peterborough SIB, the world’s first SIB that was issued for a social programme project to reduce the re-offending rate of HMP Peterborough’s short-sentenced offenders. Its first programme successfully reduced the re-offending rates, resulting in investors’ getting their return. Most of the parties to this waqf & crowdfunding-based microfinance model are government-related, and utilisation of the crowdfunding platform is in line with the size of the project, which is about providing a microfinance programme through the utilisation of undeveloped waqf lands and microfinancing, all for the purpose to help people to reach financial independence and freedom, as well as reducing poverty. Therefore, emphasising the similarities between the SIB flow and this proposed poverty reduction model aligns with various national development agendas on goals in alleviating poverty (Saad et al., 2023).

In waqf and crowdfunding-based microfinance models, at least three central contracts will be applied throughout the whole model; Ijarah, Musharakah and Commodity Murabahah (Tawarruq). First, an Ijarah contract will be made between waqf institutions and Islamic microfinance institutions to utilise the undeveloped waqf lands in waqf-based microfinance programmes. In this matter, payment under the Ijarah contract will be made by IMFI to the waqf institution using weekly repayments made by microfinance clients. The next main contract is a profit-loss sharing arrangement in the form of Mudarabah, made between Islamic microfinance institutions and crowdfunding investors through the crowdfunding platform (Mohd Ali et al., 2015). Since the crowdfunding will be equity-based, IMFI will approach the crowdfunding platform to launch the equity-based crowdfunding project with the clause of payment-by-success, strengthening the relevance behind the utilisation of the Mudarabah contract. Finally, the commodity Murabahah is another main contract that will be utilised under this model in providing microfinance to the microfinance client. In Malaysia, most microfinance institutions provide shariah-based microfinancing using the Commodity Murabahah contract. One of the examples is Amanah Ikhtiar Malaysia (AIM), a government-based microfinance institution that offers micro-financing to its microfinance clients through Tawarruq/Commodity Murabahah arrangement (Engku, 2019). Initially, microfinancing offered by AIM was under the contract of Qard. However, after a review by Shariah panels in 2010, it was made clear that the best contract to be used in AIM microfinancing is Tawarruq due to the 1% management fee imposed by AIM on every microfinancing given (Engku, 2019).

The model starts with waqf institutions (mutawalli) channelling the undeveloped waqf lands to the Islamic microfinance institutions, as the institution is the one who will be carrying out the microfinance programme. Being the intermediary, Islamic microfinance institutions will then approach crowdfunding platforms to launch the crowdfunding project for the microfinance programme through equity-based crowdfunding. During the approach, Islamic microfinance institutions will provide the crowdfunding platform with documents that signify the programme’s authenticity, target funds needed, and documentation of principal and return. Once the targeted fund has been collected, the crowdfunding platform will channel the collected funds to the Islamic microfinance institution. It then follows with the carrying out of the waqf-based microfinance project that will be channelling three elements to the targeted and chosen microfinance clients towards this programme, which are (i) undeveloped waqf lands, (ii) microfinancing, and (iii) agriculture and entrepreneurial training.

In the waqf-based microfinance programme for agriculture, repayments shall be made by microfinance clients according to the norms of Islamic microfinance institutions. Adapting the repayment and risk mitigation techniques applied in the microfinance programme under Amanah Ikhtiar Malaysia (AIM), the programme will be adapting group lending, small weekly repayments during central meetings, and social collateral as risk mitigating techniques in avoiding potential defaults and failure of the programme (Engku, 2019). From the repayments, returns will be channelled to the equity-holders of the crowdfunding project through the crowdfunding platform as per the agreed term, whether annually, semi-annually or quarterly. In addition, some parts of the repayments will be channelled to waqf institutions as the charge for utilising the undeveloped waqf lands for the microfinance programme, and this will also cover a 1% management fee for Islamic microfinance institution for being an intermediary in managing the overall sources of fund and carrying out the waqf-based microfinance programme. Figure 2 illustrates the flow mentioned above and a description of the waqf and crowdfunding-based microfinance.

Figure 1. (Source: https://corporatefinanceinstitute.com).

Figure 2. Model Flow (Source: Author’s).

i- STRENGTH: the flexibility of the instrument in ISF in terms of aiding the society

The proposed model addresses the issue of waqf properties, referring to crowdfunding to develop waqf properties and overcome the lack of financing problems to certain levels. Crowdfunding is an innovative tool that has been known for the past ten years, showing successful stories in the West and Muslim countries. However, there were a few successful platforms like MyWakaf.com.my, Ethiscrowd, Kapital boost, Launchgood, Global Sadaqah and others. By visiting these platforms, we have observed various successfully funded projects like housing projects, SME empowerment, waqf and other social campaigns.

In order to strengthen the position of the main argument of this paper, we would like to point out several articles written on the issue of undeveloped waqf properties. For example, Allah Pitchay et al. (2018) claimed that there are more than 11,000 thousand hectares of waqf lands in Malaysia, where only 7 percent of the total area has been developed due to a lack of financing. In addition, Dahlia Ibrahim and Haslindar Ibrahim (2013) emphasised the importance of Cash Waqf, which in our case will be in the form of obtaining a small amount of money invested from a large number of people in a Sharia-compliant manner through an online platform. This instrument is seen as a low-cost way to raise Sharia-compliant equity capital. Therefore, the proposed model, “Equity-based crowdfunding for waqf financing”, gives entrepreneurs access to a wide variety of capital, allowing them to mobilise money for financing.

Moreover, the problem of locked financing could be unlocked using the crowdfunding platform, the funds raised from different donors via the internet. The collection of funds is to be realised quickly as the targeted audience is enormous. Biancone and Radwan (2019) assert that this is a unique model and could alleviate funding problems affecting the waqf industry.

ii- WEAKNESS: analysis of its applicability and feasibility

Although the proposed model appears at first glance to be effective and has excellent potential for success, this is a basic model, and further studies are needed to develop a comprehensive framework. Moreover, the framework must encompass different perspectives for effective implementation and execution. There is an actual need to address the regulatory framework governing crowdfunding platforms in Malaysia. In terms of compliance, the Equity-based crowdfunding for waqf financing structure needs to consider the necessary due diligence on the raised fund. There is a chance of money being collected from illegal sources or activities where investors might be involved in money laundering, drug trafficking, etc.

Secondly, Waqf projects need millions of ringgits to be developed. Nevertheless, a platform like mywakaf.com was an initiative of AIBIM to crowdfund different Waqf projects. However, the platform failed to meet the target and raise funds for most projects. Hence, based on our study, the funds that can be raised through crowdfunding may be successful for small projects. However, this can be practical if the big project is divided into several campaigns launched on multiple platforms and with reasonable and attainable targets. Moreover, incorporating Islamic Finance products like Musharakah, Mudarabah and Sukuk will become necessary for the efficient and effective development of waqf projects.

Thirdly, this study is a conceptual paper with no empirical studies. Therefore, an empirical study must be considered for a robust finding and result. The following suggested areas be covered in the empirical studies:

iii- OPPORTUNITIES: the possibility of the waqf instrument in aiding the government during an unsystematic crisis like COVID-19 (Developing waqf land, Food securities, and Employment)

ISF’s concepts are based on the Islamic value of philanthropy, which includes standardised giving behaviours to meet the needs of the poor. This is in line with the United Nations’ belief that ISF assists governments and societies in meeting various development needs (Abdulkareem et al. 2021). Moreover, according to Khalil, Ab Rahman, Thaidi, and Rahman (2020), waqf could alleviate the community’s burden during and after the implementation of MCO in Malaysia. The benefits of waqf are beneficial not only to the community and society but also to the government and the nation’s development. Similarly, the proposed model in this paper aims to improve undeveloped waqf lands in Malaysia via collection of investment funds from global investors and multiple local and international shariah-compliant equity-based crowdfunding. The model will provide the waqf institution with adequate financing to implement a sustainable project like agriculture activities, which will provide job opportunities and generate income from the produced product to mitigate the sufferings of refugees and other vulnerable people during the pandemic.

iv- THREAT: analysis of the failure potential

Another structure in which the model may not succeed is the unskilful human capital Awqaf institutions have. For instance, the crowdfunding platform successfully funds a RM 20 million project. The fund will be channelled to the Awqaf institutions to manage the fund and the execution of the project. However, the project might not be fully implemented in the determined timeline if the human capital taking over the full responsibility for the project’s execution lacks expertise. There should also be a guarantee that the waqf institution managers will provide a periodic return to the investors. Moreover, lack of transparency is another issue that might arise if the crowd or investors are willing to track the progress of the funded project. In addition, a periodic report update of the project that will ultimately be shared with the crowd via the internet should be produced.

7.1 Limitations

The main objective of this study was to develop a novel waqf model that can efficiently contribute towards poverty reduction in society, tailored explicitly for low-income households and refugees and immigrants to sustain financial independence. For this purpose, the necessary information was collected through the review of the existing scholarly literature. The major limitation of this study was that no primary data was collected from the experts in the waqf arena. Their opinions could have bolstered the arguments presented in this study about the usefulness of the model presented here.

7.2 Future implications

It is expected that if the necessary steps are taken to implement the model presented here by the waqf institutions, it can play a significant role in alleviating the poverty of the refugee and immigrant people. Eventually, this will contribute towards reducing the suffering of these people and bringing smiles to their faces. In addition, future researchers working in this waqf area will have some new ideas to work on and improve the model to make it more effective and robust.