(Ahlul Bayt News Agency) -
Awqaf are Islamic endowments that comprise of an Islamic asset class mix donated by Muslim community as zakat (charity) or for other religious purposes. Awqaf consists of liquid assets such as cash as well as other assets such as land and buildings.
Ernst & Young Islamic Funds and Investment Report 2010 sheds light on the highly undiversified and untapped Islamic endowments that are worth $105 billion in assets. Historically Awqaf institutions have opted for stagnant investment strategy. Industry analysis depicts that 80% of these endowments are invested in real estate and remaining 20% is evenly split amongst cash, fixed income, equity and alternative investments. Hence, the majority of asset allocation is highly illiquid.
“Market movements are not a big factor for us as most of our investments have been gifted to using the property or cash that we hold for charitable purpose – we are not active investors” states Awqaf administrator (E&Y Report 2010)
Long-term investments made by Awqaf were primarily in real estate sector. Global real estate demise has lead to increased considerations about re-channelizing of funds by diversifying the investment portfolio. Sukuk and sukuk funds are now considered to be substitutes for long term real estate investments.
Real estate slump hit the Gulf in 2008 and since then real-estate prices have dropped by 50 percent in Dubai market and 30 percent in Abu Dhabi. The banks reduced mortgage lending and speculative trading was also reduced. Real estate slump affected financing as it was used as a major collateral accepted by banks for various modes of financing such as Shariah-compliant bonds.
According to Ashar Nazim, head of Islamic financial services for Ernst & Young, Bahrain the Islamic endowments deposits in commercial banks are worth about $40 billion. The remaining chunk is locked in rather illiquid real estate investments.
“These are prime properties, with huge scope for enhancing value through professional investment management of the portfolio,” states Nazim. “While awqaf institutions have been successful in mobilizing donors’ money and disbursing it for the defined causes, they typically don’t possess asset management capabilities.”
Ernst & Young Islamic Funds & Investment Report 2010 depicts that unlike global mutual funds that depicted signs of recovery since 2008 the Islamic funds asset worth maintained its stagnant level at about $52 billion. As the Islamic funds launched were offset by Islamic funds liquidated. The year 2009 marked an overall shift of Islamic investment from traditional Islamic asset class to new asset classes such as Shariah compliant exchange traded funds and hedge funds. Islamic endowment institutions are aiming at diversifying their investments from real estate holdings into Shariah compliant products such as sukuk.
“Over the next 18 months, the Islamic endowment segment could prove to be a major stimulus for growth in the Islamic funds industry,” Nazim stated. “They realize that they cannot manage it on their own and they need to involve the formal financial industry.”
Islamic countries are promoting establishment of specialized awqaf funds such as Bahrain Waqf Fund established in 2006 $4.6 million endowments from central bank. In July Maybank Islamic division, Malaysia initiated Awqaf program to allow Muslims to donate through Maybank Islamic unit. Involvement of these specialized asset managers will help in forming a diversified Islamic endowment investment portfolio.
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