KUALA LUMPUR: Waqf, as an Islamic public instrument, has the potential to be both a source of financing and a mechanism for wealth distribution, said the Regent of Perak Raja Dr Nazrin Shah.
He said waqf, or Islamic endowments, creates greater engagement between the Islamic finance industry and its socio-economic obligations, and could be seen as a savings investment mechanism where funds are diverted from consumption and invested in productive assets.
"The principle of perpetuity embedded in the waqf structure sets it apart from Western-style foundations and charities.
"Such innovative uses have assisted in unlocking its economic potential, as well as its philanthropic objectives. With all these obvious benefits, waqf should be given a more prominent position in the industry," he said in his keynote address at the Islamic Financial Intelligence Summit 2013 here.
Raja Nazrin, who is also the Financial Ambassador for the Malaysia International Islamic Financial Centre, said in Bahrain, the Central Bank of Bahrain and financial institutions with Islamic finance operations established a waqf fund in 2006, returns from which have been used to finance training, education and research at various levels in the Islamic finance industry.
"In Malaysia, Johor Corporation or JCorp is an example of a corporate entity that has developed extensive social responsibilty programmes through its arm, the Waqaf An-Nur Corporation," he added.
He also said many commentators have highlighted the natural attractions of Islamic finance, as the conventional financial system has many times shown a tendency to be unstable and dramatically so in recent years.
He added that the Islamic financial system has demonstrated itself to be less vulnerable to instability and less prone to crises.
"The disillusionment and disechantment with the world of finance in the aftermath of the global financial crisis offers Islamic finance a unique opportunity to present itself as a financial system which is more resilient to the very forces that brought about the crisis in the first place," he said.
Raja Nazrin added that in Islamic economics, as in Islamic finance, the distribution of resources has a clear objective, which is to promote social justice.
The lack of secondary trading in the global sukuk market is one of the many challenges faced by the Islamic financial industry, he said.
"Sukuk issuances have been successful, and, oftentimes, oversubscribed, but the lack of trading has led to investors holding on to the buy and hold attitude of the instruments until maturity.
"Moreover, there remains a stark imbalance in sukuk infrastructure development between jurisdictions, thus curtailing cross-border transactions," he said.
Raja Nazrin added that as a result, sukuk trading has taken place largely at the country and regional levels, limiting the ability of sukuk to be at par with conventional fixed income securities, which are traded extensively on a global scale.
"To allow sukuk to grow as an important liquidity management tool, its secondary market needs to develop more depth and breath.
"A dynamic cross-border framework in liquidity management would enable the expansion of markets and allow Shariah-compliant financial products to reach communities that currently have limited access to them.
"To realise this, however, there needs to be greater integration ampng the various Islamic financial jurisdictions -- a global community of investors and issuers that will make up a vibrant secondary market," Raja Nazrin sai
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