Infrastructure Financing through Islamic
Finance in the Islamic Countries
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3.8. Social Sectors
The institutions of zakat and waqf (pl. awqaf) are among some instruments instituted by Islam
to enhance social welfare and mitigate poverty in societies. Zakat is considered an annual
obligatory alms on the wealth of eligible Muslims who satisfy the threshold condition of nisab
that should be given to defined beneficiaries.18 The Qur’an (9: 60) identifies eight categories of
recipients for zakat as the poor, the needy, people burdened with debt, the wayfarers, people
in bondage or slavery, those who have inclined towards Islam, for the cause of God, and zakat
administrators. A condition of zakat is that the ownership (tamlik) of the alms must be
transferred to the beneficiary. While different rates of zakat apply depending on the type of
asset, the common rate applicable is 2.5% of the wealth of people who fulfil the nisab
annually.19
Waqf is a voluntary act of charity that has features of longevity relating to assets that produce
a return or usufruct. The founder (waqif) of the waqf donates a durable asset as endowment
and identifies the beneficiaries of the returns or usufructs resulting from it. Through the waqf
deed, the founder determines the rules that govern the endowment which include not only the
how and to whom the benefits and revenues of the waqf will be distributed but also how it is
managed and the process of succession of managers. While the main endowment in creating
waqf is usually with immovable assets such as land and real estate, moveable assets such as
cash, books, etc. are also used for its creation. The benefits of waqf may be religious or social.
While the former includes establishing mosques or cemeteries, the latter can entail a variety of
benefits for society at large such as the socio-economic relief of the poor and needy and the
provision of basic social services.
Various kinds of waqf have been established that include those providing various social
services such as public utilities, education and research, and health care. Other unique waqf
serving different needs in society have also been created such as waqf of grain to be used as
seeds, waqf to provide loans to persons who need financing, and providing services and
supplementary income to low income people. Two key sectors in which waqf has contributed
are the education and health sectors. The former not only includes religious education but also
covers scientific research such as physiology, pharmacology, mathematics, astronomy, etc.
Similarly, health has formed one of the key waqf sectors whereby hospitals, health care centres
and medicine have been provided by such endowments.
After the Prophet (PBUH) encouraged Muslims to create charitable assets that keep producing
benefits/revenues that are used for some beneficial goal, many of his companions established
waqf. The tradition became an essential feature of Muslim societies whereby huge assets were
allocated to create endowments that enhanced overall welfare. With the contribution of
Muslims to the waqf sector over the centuries, its size has become significant in many
countries. For example, Schoenblum (1999) reports that in the 19th century three quarters of
the arable land of the Ottoman empire were dedicated to waqf while Algiers had half of its land
and Tunis one-third of its land for the same purpose. The large assets that serve socio-
economic needs have contributed to the empowerment of the poorer segments of society.
18 Nisab is calculated as the value of either 21 ounces of silver (612.36 grammes) or 3 ounces of gold (87.48 grammes).
19 The rate of zakat on agricultural produce is 10 percent if it is watered by rain, rivers or springs or not watered at all and 5
percent if the crops are irrigated by water extracted from wells by animal power (Ahmed 2004).