Are you sure your income is Halal? Is your money clean? How sure are you that your riches came from Shariah compliant investments?

These are questions asked by, and to Muslims a lot. In today’s world, where the Halal (permissible) industry is booming, Muslims are provided with ample choice to make sure that their income is generated through halal sources. Halal food, halal financing, and even the halal Tourism industry has been growing over the years, creating a niche market for a group of audience that wants their lifestyle to be rid of riba (interest), maysir (gambling), gharar (uncertainty) and other haram (prohibited) elements.

On a global scale, more than 1.8 billion Muslims spends a total of $1.9 trillion in assets across all Halal sectors, with the biggest sector being the Islamic finance sector that has assets valued above $2 trillion. Looking at a breakdown of the different sectors, the value of the assets are reported in billions, with unprecedented growth estimated by the year of 2023 as illustrated below:

Source: State of Global Islamic Economy (Report 2018/19)

Even though the halal industry has risen over the years, there are still instances where money earned by Muslims may not be fully Shariah compliant. Maybe it is through investing in a stock that is not 100% Shariah compliant, maybe it is by being involved in a transaction that was mixed with Islamic and conventional finance or maybe it is because an Islamic Financial Institution has not adhered to all Shariah principles when conducting a transaction. In such instances, any Shariah non-compliant (SNC) income needs to be purified by donating the total SNC income to sadaqah (charity). But the question is, is donation to charity the only option to purify such wealth? Or can the money be routed to something that could have a bigger, long-term impact on the society? In other words, why not Waqf it?

From the figure above as well, it is clear that the biggest portion of the Islamic economy is that of the Islamic Finance industry. And this sector is also the sector that faces SNC risk when conducting their operations. Before we go ahead, what is SNC risk? This is type risk that only arises in Islamic institutions and is defined by Islamic Financial Services Board (IFSB) as risks that arises from failure of Institutions (other than Insurance Institutions) offering only Islamic Financial Services complying with Shariah rules and principles determined by their respective Shariah Board or the relevant body in their jurisdiction In Islamic financial institutions, there are measures put in to make sure that this risk is mitigated, the main such measure being the establishment of the Shariah Board and the Shariah department that monitors all activities conducted by the institutions. Even so, financial institutions such as Banks still faces instances where they have to declare SNC income. In the year 2018, many of the major Islamic Banks in Malaysia reported SNC income as follows, that was routed to their chosen charities:

Source: 2018 Annual Reports of Respective Banks

While the above numbers are for very few Islamic banks that operate in Malaysia, it still is a high volume which can be routed to social impact projects such as establishment of Waqf educational institutions and more. The number may not be extremely significant for high investment purposes, but if these donations are routed to Waqf projects, it could help NGOs aid communities to build up spaces necessary for their development or to aid children in getting better education through Waqf facilities or even establish mobile healthcare services such as for dialysis in rural areas.

Note that Banks are not the only institutions that faces SNC risks. Individual investors may also face SNC risk in their income in cases where their money is invested in a pool of assets that are mixed with both conventional and Shariah compliant assets. One such example is the case of Employees Pension Fund (EPF) in Malaysia. In August 2016, the Simpanan Shariah initiative was introduced by the EPF to cater to members who wanted to have their account managed and invested according to Shariah principles. As a result, effective January 2017, a total value of RM 100 billion was allocated for the initial Shariah fund, with 653,037 members switching to Simpanan Shariah in January 2017. For the 2018 fund, RM 50 billion was allocated and as of April 2018, a total of 705,485 members had switched to this fund from its conventional counterpart. However, this is a small portion of the total active and contributing members in the EPF which is at 7.19 million (KWSP, 2019). Considering that Muslims are the majority in Malaysia, it is assumed that many of Muslim EPF members are yet to switch from the conventional EPF to the Shariah compliant fund. And this means that this group is acquiring SNC income, which is a mix of Shariah investment of 32% as well as conventional investment of 68%. So, in order to purify their dividend income, these Muslims members would need to donate 68% of it to charity. For instance, for Muslim member who receives RM 15,000 dividend, the purification amount will be calculated as below:

Now imagine the total amount that can be accumulated by the Muslim EPF members who have not yet switched to the Simpanan Shariah. This amount, if routed to Waqf projects could lead to a positive, perpetual impact on the society and towards those who are in need.

It should be noted that the topic of Haram income being donated to Waqf may be a topic for discussion amongst scholars that needs establishment of ijtihad[1], however the prospect of the positive impact such donations could have in the society is extremely high. However, to have a positive impact on the society, the money must be routed to the right projects. Yes, it is easy to just give the money to a family in need or a poor person, but is it sustainable? Does it help that person(s) in the long run?

In order to cater for sustainable societal development, Finterra Technologies have developed a WAQF Chain platform that allows its users to donate to charitable, Waqf Causes. These Causes, published by respectable NGOs allows users to donate to Causes that target communities in need, that includes the essences of Waqf which are perpetuity, inalienability and irrevocability. And the fact that the WAQF Chain is built on the latest technology of Blockchain allows the users to keep track of their donations, ensuring that their money has been utilized for the purposes as intended. This WAQF Chain platform is the only blockchain crowdfunding platform that is catered to Waqf projects, with the aim to revive Waqf, a tool that is extremely beneficial in ensuring sustainable benefits to communities in need.

With platforms such as Finterra’s WAQF Chain, Islamic institutions and individuals can easily route their SNC income to worthy Waqf projects which can not only purify their wealth but contribute to the society in a transparent manner that they can easily track as well. It ensures that the money is put into projects that benefit the society long-term rather than being consumed at once. And wouldn’t you say that is a win-win for everyone?


[1] Ijtihad is an Islamic legal term referring to independent reasoning or the thorough exertion of a jurist's mental faculty in finding a solution to a legal question.

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