Leveraging Philanthropy: Monetary Waqf for Microfinance

This paper proposes a Monetary Waqf (MW) to provide microfinance to the productive poor. Combating poverty is the primary goal of wealth redistribution in Islam. MW, as a means to combat poverty, fulfills a major economic goal in Islam. The proposed MW employs philanthropic resources to overcome collecting and administering costs and the risk of loss. It assures lenders of instant liquidity for their withdrawals and insulates them from default risk. The proposed MW has the following features:

• Initial permanent donations of variable size, whose income covers MW administration and maintenance costs;
• Temporary funds extended to MW as interest-free loans;
• Guaranteed repayment to fund providers;
• Use of funds to provide microfinance to the productive poor in Shariah compliant modes;
• Two tiers of philanthropic guarantors, namely, guarantors of liquidity and guarantors of losses.

While funds availability is a transitional issue, MW faces more enduring constraints in terms of managerial talent to screen and assess clients, dispense and recoup funds, assess clients projects and design new projects suitable to the abilities and local economic environment of the poor.