Islamic-Social-Finance-Report-2020

AWQĀF or residential units), and it does not take • T he competent court shall be required into consideration the areas. Furthermore, to punish waqf manager in the case of some of awqāf in Libya are still signing rental negligence of duty. (Article 41) contracts for administrative, commercial and residential use at cheap prices, and are • The waqf manager deducts four not using market-based rentals. Currently, percent of the net proceeds of assets plans are afoot to re-categorize, classify and and allocates them to the maintenance revaluate all awqāf assets in Libya, using services of assets (Article 42). modern valuation methods at market prices. 4. 2.4 TRANSPARENCY, The Waqf in Libya is established in accordance ACCOUNTABILITY & GOOD with the provisions of Law No. 124/ 1971, GOVERNANCE4 which regulates the process and consideration of waqf assets as follows: The accountability and governance system of the awqāf consists of several bodies, • T he waqf shall not be recorded, and as stipulated by the laws and regulations it shall not be valid, and it will be null governing the awqāf, and can be summarized and void unless it receives a certificate as follows: from the relevant court. • Sharī‘ah Supervisory: It is carried • Any ruling of the court regarding out through specialized scholars’ regulating and controlling a waqf asset committees that provide the Shari’ah is a proof of waqf authenticity and the provisions from the Holy Qur’ān and said asset is protected. Sunnah under the Imam Malik doctrine • No action may be taken to replace waqf • J udicial supervision: It is carried out assets, change its features, modify through the Libyan judiciary based on its conditions, borrow it or dispose of Libyan laws and legislation (Law No. it without the prior permission of the 124/1971) regulating the waqf and competent court. (Articles 2, 14, 38, zakāh affairs. The disputes between 43) the GAAIA and other legal entities is settled in Libyan courts. • The court only has the right to appoint waqf managers, question, • Audit and Administrative office: take disciplinary actions (such as Pursuant to Law No. 124/2013 and its dismissal) against them and the amendments, the GAAIA must annually complaints brought against them submit an annual report to the Audit must be addressed to it. (Article 41) Bureau in order to ascertain the validity of its financial transactions, and their • Judicial authorities may prosecute compliance to the local financial and employees of the GAAIA, as well as administrative regulations, especially waqf managers, in the event of any given that it benefits from public criminal, civil or disciplinary liability. budgetary allocations. • E ach waqf manager must submit 4 Mustafa Al-Sadiq Tabala, Badruddin Al-Toumi, annually to the GAAIA a statement Islamic Social Microfinance for Small and Medium of accounts supported by relevant Enterprises, Workshop in Tunis on 10/06/2017 documents on all assets under his/her management. (Article 40) 91

Islamic Social Finance Report 2020 4.2.5 STRATEGIC ANALYSIS & more interest in the awqāf sector. It RECOMMENDATIONS is increasingly being seen to offer greater and unique options to address Strengths various social needs as compared to other official interventions. • There is a systematic attempt to Weaknesses enumerate and record the waqf • Waqf assets in Libya in general assets. In the province of Tripoli only, are characterized by low levels of the first attempt of reclassification, revenues. The GAAIA does not adopt based on the number of properties market price as benchmark for fixing in 2012, identified about 11,000 real the rentals on waqf assets. This estate and 6,000 mosques, and more negatively affects its general income than a thousand schools of Qur’ān and reduces its revenues. memorization. • In many instances, there are either no • A ccording to the statistics of 2014, or improper use of contracts for the the GAAIA has current assets use of waqf assets due to negligence exceeding 500 million Libyan dinars. and administrative corruption in the GAAIA. • T he process of registration of waqf assets is subject to the procedures • M any tenants (including public governed by Libyan law and is under institutions) do not fulfill their the Libyan administrative control obligations and have past dues with which makes it difficult to misuse the GAAIA. them. • There are frequent instances of • There has been a new trend for the misclassification of land as rural and waqf funds investment through of low value, while they have become projects that are generating an annual urban since long time. Therefore, return of approximately 4.5%. there is a need to reclassify them and align the rental rates with the market. • Amendment of rental prices (within the city of Tripoli only), had a major • The GAAIA does not adopt surfaces positive impact on waqf income. (areas) as measurement unit in • The accumulated waqf assets held assets classification, where every by the GAAIA and which are spread asset is recorded as a single unit across most cities of the country regardless of its size. are characterized by excellent • The GAAIA is not open for other locations suitable for development social and financial structures, hence projects of various types - residential, more inclusive strategies have to commercial and social, etc. be built in order to push the sector • Legal texts that characterize waqf further. assets gives them special protection • Instability in the management of the compared to private and public funds. GAAIA, mismanagement of waqf Further, the social position of waqf assets and the use of traditional in the society makes people more systems in asset evaluation, prevent protective towards this institution. a move towards optimal investment. • Libyan society is showing more and These also make it difficult to control 92

AWQĀF and detect deviations and bad Libyan society has been driving practices. people to support and practice waqf • T he staff of GAAIA lack adequate after facilitating it through new and professional experience. There is innovative structures for investment a serious shortage of specialized of endowments such as waqf funds, expertise in the management of shares, and bonds. waqf assets. • T he present regulatory framework Threats involving GAAIA needs a serious revisit. It lacks the characteristics of Political and economic instability, a proactive and enabling framework. chaotic security situation, in addition to • S ome signs of financial and the permeation of administrative and administrative corruption in GAAIA, financial corruption, have all affected which negatively affected its negatively the work of the GAAIA in Libya. performance and weakened the A large scale non-compliance regarding people’s trust. the flow of benefits from waqf assets to intended beneficiaries and encroachment Opportunities of waqf land and real estate constitute major threats to the institution of waqf. In The waqf sector can contribute significantly addition, the administrative instability of to the provision of public goods in Libya. the GAAIA and the administrative conflict This can only be achieved by setting up a at the higher levels within it, are not only strong institution with high administrative impacting negatively the work of the staff competencies to deal with waqf in terms of only, but also awqāf sector in general. The identification, codification, registration of following points summarize the threats the waqf assets and reviewing the regulations GAAIA faces: governing the use thereof. It is also possible to upgrade this institution through • Some of the recommendations and the following: actions are based on inconsistent provisions which would blur the • The institution must benefit from the features of the waqf. conclusions and recommendations from conferences, seminars • M ultiplicity of supervisory bodies, and academic studies that were for example, the intervention of the prepared for the GAAIA on the judiciary in the operations of the importance of waqf, its role and its GAAIA in terms of waqf assets and approaches of development and expenditures and clinging to the the benefits of participating with fatāwa that allowed encroachment financial institutions in the field of of the waqf pose serious threat to development. the sector. • T he failure of the socialist and • W aqf assets and investments capitalist regimes to achieve the are not properly preserved and economic well-being has led to the maintained as required and are increasing recognition of the third or rather neglected or exploited for voluntary sector. cheap prices. This may lead people to move away from this noble • The growing Islamic fervor in the Sunnah. 93

Islamic Social Finance Report 2020 • R e-archiving and documenting waqf assets, using local and international Recommendations experts, and using advanced information systems need to be • There is a need to urgently reconsider urgently undertaken. the laws and regulations governing the work of the GAAIA in Libya. • The contracts for the use of waqf assets by private as well as public • T he GAAIA is a religious institution institutions must be reviewed whose role is limited to following and brought in line with modern up and supervising mosques practices. and schools. However, it should transform itself for greater • The re-enumeration and financialization of the waqf sector. classification of waqf assets throughout the Libyan cities must • The sunnah of waqf must be revived begin. in the hearts of people, by involving a large group of them as well as private • The GAAIA must be given more and public entities in the practice of flexibility in the investment of collective waqf work. This can be waqf assets, and its development achieved through innovative waqf and activation, to participate in types such as waqf funds, equities the economic development of the and bonds for the support and country. diversification of its accumulated assets. • The GAAIA must be assisted in directing its endowment funds • T he investment of real estate assets in financing small and medium under waqf in prime areas and enterprises for economic locations spread throughout the development, and paying more country should lead to establishment attention to investment instruments of large partnerships with the public for waqf: and private sectors in the agricultural, industrial, commercial and tourism * Ijārah: Leasing waqf assets sectors and in services such as at rentals based on prevailing communications, transportation, etc. market conditions. • Considering awqāf as a pillar of the * D ouble rents: Reconstruction of national economy, its importance property by the tenant, and then must be driven home through the leased for a long time by the dissemination of annual reports original owner. of awqāf organizations as well as other relevant information to the * Islamic investment products, public. Waqf-related courses must be such as, waqf funds, mushārakah, offered in the curricula of universities isti�nā‘, muzāra‘ah and musāqāh. and institutes. Other mechanisms of capacity building, e.g. seminars, • Inclusion of waqf curricula in conferences and meetings, may specialized colleges, and the be employed in order to build dissemination of awareness and managerial expertise, and feed culture of the waqf among people. innovations relevant to this sector. 94

AWQĀF 4.3 MAURITANIA5 livestock. 4.3.1 OVERVIEW OF THE SECTOR The emergence of the independent state has been accompanied by enormous The country has known the institution challenges. Among its tasks is the transfer of waqf since the advent of Islam along of the nomadic society to a state of with the emergence of private educational stability and the establishment of a modern institutions - the Mahadras. The Mahadras entity, which necessitates keeping up with were mobile seminaries moving from one developments in the waqf in terms of legal location to another and benefited from the texts and investment methods. profits of the charitable awqāf. The awqāf comprised herds of livestock from camels, 4.3.2. REGULATORY & POLICY cows and sheep, under the responsibility FRAMEWORK of the teachers and mandated persons. In the cities and settlements, the term waqf In this context, in order to organize this was associated with the mosque and important institution, since the late 1970s, its scientific and religious institutions in the Mauritanian authorities have worked addition to some other public interests. The to develop a legislative and regulatory awqāf were in the nature of: framework. Awqāf was part of the mandate of the Ministry of Islamic Affairs until the • Palm gardens and agricultural lands establishment of a national authority for are disposed in the interests of the surveillance of the awqāf properties the mosque and its annexes and in the country in 1982 under decree No. villages of the hosts and to feed the 119/82. This structure has taken three needy people. names throughout its history: • R esidential housing for Islamic • M auritanian Awqāf Institution sciences students and strangers. created in 1982, by decree No. 119/82. • Free water well for people and livestock. • I slamic Awqāf Institution in 1984, under the decree no. 128/84. In addition to these, awqāf were also in the nature of family awqāf that benefited the • National Awqāf Institution - the relatives (daughters, divorced or widows, current name of the institution - in and other relatives in need) that were 1997, by decree No. 57/97. dispersed across the Mauritanian society in the countryside and cities. Such awqāf The waqf sector in Mauritania still were also in the nature of residential suffers from a clear legislative gap. It is housing or gardens of palm trees, farms or managed by regulatory decrees and some miscellaneous articles in laws related 5 Paper “Overview on Zakāh & Awqaf Sectors in to the issue of waqf, such as, the law Mauritania”, Abdallahi Ould Addoud, Deputy CEO of the governing mosques, the law of obligations Awqaf National Institution (Mauritania) presented during and contracts. the Kick-off Workshop of the “Islamic Social Finance Report”, held in Tunis on 10 June 2017 and co-organized by IRTI (IsDBG) and Zitouna Tamkeen MFI 95

Islamic Social Finance Report 2020 However, the text of the Constitution of • The legal order governing public the Islamic Republic of Mauritania, dated institutions does not consider 20 July 1990, states in article 15 that “the the institution of waqf. The right to property is guaranteed, the right characteristics of the main types to inheritance is guaranteed, the property of public administrative and of the waqf and the property of charitable commercial institutions, with institutions are recognized and protected mixed capitals, are insufficient to by law.” accommodate the nature of the waqf institution. The following facts define and describe the legal, regulatory and policy environment for • T he laws governing the awqāf in the country. establishment and functioning of associations and non-governmental • There is no dedicated law to organizations do not refer to the regulate waqf, contrary to most waqf. In fact, the properties of these Arab and Muslim countries. associations are similar to those of waqf properties. Their activities are • T he legal order No. 127/83 similar to the activities of the awqāf. regulating real estate properties and These are properties that are both its amendment does not mention private and public and at the same waqf. time beneficial to the public. 96

AWQĀF 4.3.2.1 INSTITUTIONAL STRUCTURE These resources, which are revenues generated by the printing and publishing The decree No. 57/97, issued on 28 June unit owned by the institution in addition to 1997, established a public institution called the rental of some shops, which constitute the National Awqāf Institution. a total of about twenty percent of the total annual income of the institution. This decree sets out the functions of the institution as follows: Because of this, the role of the National Awqāf Establishment is mainly • C ontrol and maintain all places of concentrated in the following: worship, the mosques, cemeteries, appointing those responsible and • Registration of awqāf and supervising the activities related to preservation of their title deeds them. (often the floor of mosques) and issuance of waqf deeds • Manage all waqf funds. • F ollow-up of disputes related to the • Ensure the rehabilitation and care of awqāf of mosques with the judicial orphans and help the poor. authorities • Coordinate and organize the • Issuing post-inspection assistance provided by foreign statements at the request of some charities of an Islamic nature implementing bodies for some which allowed them to function in projects related to mosques Mauritania. • Recommending some studies • Undertake developmental and directed to funding institutions investment projects in different after examination and analysis and fields. related to mosques and educational complexes. The administrative structure of the National Awqāf Institution consists of: • Preparation of some preliminary studies of projects submitted by the • A board of directors, including the awqāf to the funding agencies. president and eight members that represent various ministries and • Supervising the distribution of charity organizations. some aid such as sacrifice, clothing and food provided by charities • General administration. and embassies of some Islamic countries in some seasons. The National Awqāf Institution continues to rely almost entirely on annual grants • Maintenance and restoration of received from the Government, including some mosques, such as the old workers’ wages and a budget for mosque. management, despite their industrial and commercial nature. The publishing unit of the institution, in cooperation with the Ministry, prepares 97

Islamic Social Finance Report 2020 and translates the Hajj guide and issues • E stablishment of a fuel supply a detailed annual Hijri calendar for all the station including a laundry and national territory, distributed by the ministry maintenance complex. to all mosques in the country. • E stablishment of a unit for the This is in addition to the usual activity manufacture of bricks, which is a carried out by the publishing unit of popular commodity in view of the printing for research, literature, magazines, rapid urbanization that is taking publications and others. place in the country. 4.3.2.2 SUPPORTING INFRASTRUCTURE • O pening a travel agency dedicated to the Ministry of Religious Affairs They are some actors in Mauritania that and delivering visas for Hajj and help improvement of awqāf knowledge Umrah every season. or practice such as Chinguitty Center for Islamic Finance, University of Abdallah The institution is now preparing the Yassin, the Modern University of Chinguitty, necessary studies for the establishment the Mechoura Center, etc. These of some markets, shops and residential institutions organized some seminars buildings on waqf properties, and once related to awqāf with the support of these studies are completed they will be national and international institutions. placed before prospective investors. 4.3.3 CREATION, PRESERVATION & The media aspect: Through awareness DEVELOPMENT campaigns, scientific symposia, conferences and forums inside and outside Policies for promoting the sector are to the country, the institution has sought to develop and improve the following aspects: promote the waqf sector. The legislative aspect: The institution of 4.3.4 TRANSPARENCY, awqāf has witnessed the enactment of a ACCOUNTABILITY & GOOD law to protect waqf property and control GOVERNANCE the behavior of the trustee manager and ensure the achievement of the conditions The programs and activities conducted by of the endower. the Awqāf National Establishment, or other relevant structures such as, the Committee The financial aspect: Through investment of Mosques and Mahadras, are subjected projects, the financial position of the to conformity and regularity checks at three National Awqāf Institution has improved levels: over time leading to an increase in its revenues, and a decrease in its dependence 1. The first stage is internal, and is on the aid provided by the state. The implemented through deliberations institution is also in the process of at meetings of Board of Directors, launching short-term investment projects Management Committee, that are now fully developed and can be Supervisory Committee, External implemented, including: and independent auditors. 98

AWQĀF 2. The second one is intermediate • T he Awqāf National Establishment and is undertaken through general has been working to achieve social inspection at the level of the Ministry stability and a sense of compassion of Islamic Affairs. among the members of society and to protect it from the maladies 3. The third and last one is at the top that usually arise in societies where and concerns three structures: the the spirit of material selfishness General Inspection of Finance, the prevails. General Inspection of State and the Court of Auditors. • T here is a close relationship between the sustainable Islamic 4.3.5 STRATEGIC ANALYSIS & endowment product and the RECOMMENDATIONS objectives and principles of sustainable development. Strengths Weaknesses • W aqf has played an active role in the • T he Awqāf National Establishment cultural construction of the Islamic is yet to reach anywhere near its Mauritanian society through its potential in terms of contribution contributions to the social, economic, to the economic and social political and even environmental development of the country, sectors. although almost four decades have elapsed since its establishment. • Waqf has contributed to the provision of stable resources to provide public • To date, there is no legal framework services and social institutions with regulating the Awqāf National the necessary tools to meet the needs Establishment, which has caused of the national community. interference in its powers with other bodies affiliated to the Ministry of • The system of the waqf has helped Islamic Affairs. reduce stratification among members of society, through material and moral • The Awqāf National Establishment support for the fragile classes of suffers from negligence and society. mismanagement, due to lack of 99

Islamic Social Finance Report 2020 Recommendations accountability and law. As a result, • There is an urgent need it suffers from a huge trust deficit to issue a legislative vis-à-vis ordinary citizens of the framework that regulates country. the functioning of the Awqāf National • T he national institution is yet Establishment and grants to benefit from the investment it full independence from opportunities available to it. the guardianship of the Ministry of Islamic Affairs. • T he National Awqāf Register contains more than a hundred waqf • A wareness of the deeds. However, most of the awqāf importance of awqāf are not subject to the institution’s among investors and guardianship. businessmen needs to be enhanced through training • T he Awqāf National Establishment courses in the field. does not have a clear strategy for the advancement of awqāf. • T he awqāf sector must seek to restore confidence Opportunities between them and the citizens. • T he mobilization of significant additional financial resources • Awareness campaigns from waqf is likely to improve the may be undertaken in financing and development of the various national wilayas Department of Islamic Affairs in the (provinces) with a view to general budget of the Government. spreading the culture of the waqf. • The launching and developing of Islamic financial institutions open a • Successful experiences new perspective for investment of of waqf should be waqf financial assets. documented and shared widely. Threats • The publishing unit of the • L ack of confidence among citizens National Establishment about the public management of should be strengthened awqāf. through partnerships. • Lack of honesty and responsibility • Various investment of certain beneficiaries who are instruments may be in charge of the management and developed to facilitate exploitation of the assets of the financing of the waqf awqāf. assets. 100

AWQĀF 4.4 MOROCCO activating the institution of waqf through mechanisms such as partnership contracts 4.4.1 OVERVIEW OF THE SECTOR for the development of waqf investments and the issuance of waqf bonds to seek Moroccans have shown continuous and public charity. permanent interest in awqāf since the Islamic conquest. They have provided many The code considered His Majesty the King distinct examples that highlight the strong as the highest trustee of waqf. This task position that Islamic civilization attaches is carried out under his direct authority by to the role of community-wide cooperation the Minister of Awqāf and Islamic Affairs, among the members of society. which makes waqf in Morocco a non- governmental sector. In 2019, the code While the rules and regulations of awqāf of Awqāf was amended and completed seem to have taken shape at the beginning by Dhahir No 1.19.46 published in official of the 20th Century, they were dispersed bulletin No 6759 of 11 March 2019, which in various legal texts. Most of them were can enhance the regulations related to issued during the colonial rule. These Awqāf in Morocco. texts have been systematically collated and reviewed, leading to the issuance of a The Directorate for waqf administration has code of awqāf in 2010 which is considered been created inside the Ministry of Awqāf one of the most important pieces of waqf and is managed through awqāf trusteeship. legislation in the Islamic world. The Supreme Council for Financial Control of General Awqāf was created to follow up This code has come into force to preserve and inspect the financial management of the privacy and the particularity of waqf general waqf. and provide it with modern legal means to ensure effective preservation against The revenues from Agricultural properties aggression, crime and injustice. It has (85000 Hectares) ranged from USD 6.2 come with administrative systems that million to USD 8.8 million between the facilitate its utilization and benefits, as period 2006-2007 and 2016-2017. As for well as investment tools that enable it the urban properties, (57,028 units), the to contribute to economic and social revenues increased by 8% from USD 19.4 development projects. The code adopted million in 2007 to USD 36.4 million in 2017; the unity principle to consider waqf as one whereas the revenues from monetary financial entity, emphasize public interest replacement reached USD 66.7 million in its disbursement, and underlined the from 2007 to 2017 and for this period the intention of the waqf founder (waqif). ministry approved 472 Waqf replacements. This regulatory and policy environment Historical context helped the awqāf sector overcome some serious problems related to waqf sales Historically, waqf in Morocco is always and exchanges, family waqf (waqf ahli) considered as an exclusive heritage of and customary rights. It also created Moroccan Muslims, left by the ancestries new possibilities of developing and as a material guarantee of the stability of Islam and the continuation of its rules 101

Islamic Social Finance Report 2020 and principles. The Moroccans recognized recognized the sanctity and the importance the importance and the sanctity of waqf, of awqāf, they kept striving to preserve and they keep on preserving some of their them from any aggression or behavior wealth in the name of Allah for charity contrary to the objectives for which they and solidarity, and therefore the prosperity were created. In the era of Al-Adarissa of citizens was often correlated to the (789-921), the Mosques of Al-Qaraween prosperity of waqf. and Al-Andalus in Fes as well as Bab Dakkala Mosque in Marrakech were Morocco, like other Islamic countries, came built. The era of the Almoravids (1056- to know of general waqf with the arrival 1147) witnessed the construction of of Muslim conquerors. Mosques were the many schools that were a destination for first type of waqf institutions, dating back students of science from all regions at the to the days of Uqba ibn Nafi ‘al-Fihri (681- charge of awqāf. More interest was given 683). And over the successive stages in to science and knowledge promotion, and history, different kinds of waqf emerged in religious, educational, social and health the first library in Morocco was established areas due to the progressive practice of in the era of the Almohads (1121-1269). waqf in the social life of Moroccans. The Marinids (1244-1465) were also interested in the organization of waqf; they In addition, when the Moroccan sultans made trustees for waqf in various cities 102

AWQĀF (trustee for every waqf) and they worked In this period many distinguished awqāf for establishing scientific schools and were created in terms of purpose and the libraries. For example, they built new ones beneficiaries such as awqāf in the city and expanded the old ones in the cities of of Fes, including a house dedicated for Taza, Meknes, Sala, Marrakech and Sebta. wedding and to spend the honeymoon for They also took care of building mosques the poor and needy, waqf for the removal and hospitals by hiring doctors to take of stones from the roads, waqf for good care of patients. In the era of Wattassides loans without interest; awqāf in the city (1462-1554), the interest in scientific of Marrakech, including a refuge/ shelter courses was a governmental mandate where 6,000 blind people could sleep, that was not less than the position of eat and read; and the establishment of the judiciary, fatwa and the ministry and hospitals called “”Bimarstan” in many waqf revenues were used to help the Moroccan cities such as Fes, Marrakech, patient and the homeless. However, the Meknes and Tetouan to treat the sick mismanagement of waqf funds during and the disabled people; and other awqāf this period caused a decline. This was dedicated to washing and burying the dead one of the problems that were faced by from the poor and strangers. Sa’adis (1554-1659). In their period, awqāf organization focused on the construction The significant role of the waqf continued or renovation of mosques, reviving some in the era of French protectorate, where schools and establishing others, the Sultan Moulay Abdel Hafiz (1908-1912) establishment of many watering places excluded the religious institutions and next to the mosques. However, it has been Islamic sanctities from interference by noticed that social waqf was absent in this the protectorate authorities. For the same era. purpose, Sultan Moulay Yusuf (1912-1927) issued more than 35 Dhahir to organize The most important stage in the history waqf and set ongoing acts to protect them. of waqf system in Morocco started with The waqf continued to follow the same Alawite dynasty (since 1640/1666 AD), rules and regulations as those established where new environment and context in the beginning of 20th Century, which emerged and made the Kingdom of was known as the “awqāf regulations”, with Morocco embrace the waqf because special reference to the provisions of the the sultans of Morocco were perfectly Islamic Sharī‘ah derived from the Maliki conservative in the principle that waqf jurisprudence. cannot be sold or lost which create a positive impact in the hearts of Moroccans During the post-independence phase (from who become more encouraged to donate 1956), the organization of awqāf kept using and make waqf. In the era of Mawla Ismail all decrees issued by the King, despite the (1672-1727), all waqf properties were development of the trusteeship institution recorded in special official books known for waqf, which moved from “Benniqa as waqf transfers “Hawalat”. The General Al-Ahbass” and replaced by Ministry of Trusteeship of Waqf was established under Awqāf having a modern structure. With the name “Trusteeship of the Trustees”. the development of Moroccan society, the need arose to organize waqf properties and 103

Islamic Social Finance Report 2020 preserve them with many legal procedures its consequences and effects. for their development and investment, in order to achieve the desired goals. This is The Code mentions that a general waqf reflected in the issuance of the Awqāf Code is a legal entity since (art. 12) that cannot in 2010, combining the legal texts related be seized or acquired by possession or to waqf and its jurisprudential rules in prescription and it may not be acted on or harmony with the Maliki School. disposed of except in accordance with the requirements of the Code (art. 11). In 2019, the code of Awqāf was amended and completed by Dhahir No. 1.19.46 The Awqāf Code affirmed that the debts published in official bulletin No. 6759 of owed to the general waqf are considered 11 March 2019. This amendment can as preferential debts and are not subject enhance the regulations related to Awqāf in to prescription. They have a priority of Morocco. collection after the dowry (Mahr), alimony (Mout’a) and other expenditures due to 4.4.2 REGULATORY & POLICY the wife, children and parents as per the FRAMEWORK family code in Morocco. In addition, the Code provides general awqāf with several The issuance of the Awqāf Code on 23 exceptions regarding the conservation fees, February 2010 and its amendment on litigation, expropriation for public interest 11 March 2019 are considered as a very and for seeking the public charity. important event in Morocco, because the legal framework of waqf has been The Code has five sections in addition updated and modernized to preserve to the introductory section that contains waqf, activate its economic and social general provisions about the definition functions, rationalize its management of waqf, its types and the methods of its and development and overcome the establishment (article 1). This section previous weaknesses in rules governing indicated that the trustee functions are waqf. For example, in the previous assigned to the King and executed under legal texts governing waqf before the his authority with delegation to the Minister issuance of Awqāf Code, there was no of Awqāf and Foreign Affairs (article 2). legal requirement about how a waqf is established as well as its consequences However, the code of Awqāf (2019) and effects, which means that it was stipulated many details in Article 2a necessary to refer to the Fiqh in this matter. related to Awqāf strategy that should be Conscious of the importance of this issue established by the ministry, which should and the necessity to organize it with be based on global and detailed diagnostic decisive regulation that would put an end to of Awqāf properties as well as to: the differences and ambiguity, the legislator of this Code decided to allocate the first • D etermine the goals to be achieved section to this purpose. The first chapter in order to ensure the protection, treats the elements and conditions of waqf development, and valuation of and the second chapter was dedicated to Awqāf. • Determine the means to achieve the mentioned goals. 104

AWQĀF • Establish an accurate timetable for Waqif condition, achieve Waqf objectives implementing this strategy. and its role in sustainable development, as well as improving Waqf culture. • A dopt the governance system in order to properly implement this The first section of the code of Awqāf strategy, including the necessity contains 47 articles that concern the of updating and improving establishment of waqf and its effects. This Awqāf management as well section includes two chapters. The first one as the definition of the tasks is about the elements of the waqf and it and obligations of the various conditions, and the second one is about the stakeholders. effects of the waqf contract. • Establish a joint committee The second section concerns the general to supervise and control the waqf and it contains two chapters. implementation of this strategy and Chapter one includes general provisions, the extent to which its objectives considering that the Waqf is a legal are achieved. entity with several privileges in term of conservation and litigation. The second The main directions of this strategy, as chapter treats the actions that occurred per Moroccan Vision of 2030, include on the general waqf, and it allocated some the preservation of Waqf properties, articles for compensation and exchanges governance in Waqf management, respect 105

Islamic Social Finance Report 2020 in cash and in-kind, agricultural and non- The third section concerns the family agricultural leasing with adequate rental waqf (Waqf Ahli) and joint or mixed Waqf amount, the sale of the tree products, (Waqf Mushtarak). The first chapter has seeds and other land or materials special articles about family waqf and belonging to general waqf in order to its control, in this regard many countries address the violation and injustice to which differed in dealing with the problems of the waqf is currently being subjected, this type of waqf. The Moroccan legislator and to liquidate the customary rights chose to retain the family waqf with its established by general waqf in accordance reorganization under a law issued in with the provisions and requirements to 1977 and then under the Awqāf Code by preserve waqf rights. determining the ceiling of the permissible waqf allowed in three levels: the first In addition, article 60 stipulated that all beneficiary, his children and then the legal actions aim at preserving them, children of his children. This waqf will then developing their incomes in a manner be considered an heir if any. Otherwise it appropriate to their nature, and achieving will be considered as general waqf if the an apparent benefit of Awqāf. To this end, founder (waqif) did not specify another the Endowment Department is charged reference. The chapter indicated that the with investment and management of general waqf rules in term exchanges are these funds in accordance with the rules applied also to the family waqf; clarifying stipulated in this code and in accordance the terms of the trustee, its tasks and with the strategy referred to in Article 2a. responsibilities, and the reasons for termination its task. Other articles in the As per Article 62, the Awqāf department same chapter are about the liquidation of may conclude, in the name of public Waqf, the family waqf especially the control and contracts and agreements for partnership the rules of liquidation, the formation of a with the public or the private sector in liquidation committee to study the cases order to implement investment projects and prepare a report to be submitted to or income-generating social projects, with the government authority in charge of the aim of developing Awqāf income and awqāf to issue the liquidation decision contribution in achieving economic and and then publish each decision for onward social development. These contracts and information of the same by the committee agreements must be concluded within to the concerned people having the rights. the framework of special investment that The second chapter concerns the joint or must achieve the benefit of Awqāf. The mixed waqf (Waqf Mushtarak). partnership must be accompanied by a feasibility study that includes, in particular, The fourth section concerns the control of estimated revenues of the project, the the financials of a general waqf. Basically, obligations, contribution and share of the first chapter contains the principles each party’s as well as the duration of the of financial and accounting organization project, the guarantee of its completion and of general waqf followed by the financial the mechanism for periodic evaluations of supervision and control of general waqf in the various stages of project completion. the second chapter. 106

AWQĀF 107 For example, the article 134 stipulated that the preparation of waqf budget must take into account the objectives and contents of the strategy mentioned in Article 2a as well as the reliability of the estimates in light of economic and social circumstantial data. This budget must be prepared on the basis of programming for at least three years for total resources and expenditures. In addition, the expenditures should be presented in the form of programs, projects and operations. Accordingly, the budget is determined and classified according to a decision of the governmental authority in charge of Awqāf, after consulting the Supreme Council for the Control of Public Awqāf’ Finance (Article 138) And as per Article 143, the budget preparation must respect the financial balance between incomes and expenditures, include all mandatory commitment and comply with the opinions of the Supreme Council of Oulemas related to public Awqāf to ensure the Sharī‘ah compliance. The fifth section includes the conclusions and transitional rules making references - in the absence of a text in the Code - to the relevant provisions and rules of the Maliki doctrine and jurisprudence. To activate the requirements of the Awqāf Code, a decree was issued to establish “the Supreme Council for Financial Control of General Awqāf. The Ministry also worked on the preparation of regulatory texts represented in the following resolutions regarding:

Islamic Social Finance Report 2020 • The status of the Central Controller, services concluded by the waqf financial supervisor’s assistants administration for the benefit of and local controllers who are general waqf. responsible for monitoring waqf accounts as well as the terms and • Enacting the financial and conditions of their appointment. accounting regulations of general waqf. • T he formation of the liquidation committee for the family waqf and The annual budget for general waqf has its functions. been prepared every year since 2014 and it is presented annually to the the Supreme • The determination of the Council for Financial Control of General procedures for auctions, request for Awqāf for approval in accordance with the proposals and the direct agreement provisions and regulations of Article 143. especially for cash exchanges and sales of general waqf. 4.4.2.1 INSTITUTIONAL STRUCTURE • T he determination of the modalities As indicated in the Awqāf Code, the of making in-kind exchanges for Ministry of Awqāf and Islamic Affairs is waqf properties. the governmental authority responsible for general waqf in Morocco. After the • The sale of quarrying materials amendment of the Decree on 26 February belonging to the general and mixed 2016, which provides its functions and waqf organization, the central administration of the ministry includes, in addition to • The classification of general waqf the general secretary and the general budget. inspectorate, seven directorates including the Directorate of Awqāf, which administers • The classification of accounting the general waqf. The latter includes five procedures of general waqf. sections and 20 departments, and its tasks include: • The definition of how to sell tree products belonging to general and • Preparation of plans and strategies mixed waqf. for the general waqf management. • T he application of Article 61 of the • T he management of all waqf issues Awqāf Code. such as the counting of properties, classification and preservation of • The determination of the form of documents, and waqf maintenance waqf bonds, how they are issued and preservation. and the manner of subscription, as well as how to collect donations • T he completion of studies and the in cash and in kind for the development of plans and projects establishment of religious, scientific for waqf investments to take or social projects. benefits from all its potential. • Defining the system of • T aking administrative and transactions and supplies and technical measures related to 108

AWQĀF the construction, maintenance, • P leading before the courts to installation and equipment of extract the rights of waqf properties administrative buildings and waqf from its residents and to confront properties. the claims of others in the case of its establishment. • Controlling the family waqf, maintaining and supervising them, • Development of waqf properties by as appropriate, in accordance with working to raise its revenues and the provisions regulating them. exploiting the surplus to buy new properties if possible. • Tracking various claims and disputes related to waqf properties. • Maintenance of waqf properties to monitor and repair what are • E ducating people about the destroyed. importance of waqf, encouraging them, and supervising the • T o do everything that would procedures. preserve the institution of waqf and the respect of the term and words At the regional level, the Ministry is of waqf founders (Waqif) because represented by external departments of the religious and social value called awqāf trusteeships in number of 36, that reflects the extent of Moroccan they manage Awqāf which are under their adherence to the Islamic religion in territories and they implement the Ministry the form of unity and solidarity. plans. 4.4.2.2 SUPPORTING INFRASTRUCTURE The trustee is still the head of waqf management, his functions are still a The subject of the waqf had and is continuation of what his predecessor had still having great scientific attention in in previous eras. He is still responsible Morocco. In this regard, many lectures on within the area of his powers on issues waqf were given during the holy month of related to general waqf as well as the Ramadan in the hands of His Majesty the control of family waqf. These can be King. The most recent of these lecturers summarized as follows: was in the 2013, with the study and analysis of the subject of “Awqāf and their • Controlling waqf properties by economic and social roles.” counting the location and adjacent area with the statement of the Morocco also held several international resident or the lessee and the paid conferences and seminars on awqāf value. including the fourth forum on Waqf Jurisprudence Issues organized by the • M onitoring the safety of waqf General Secretariat of Awqāf in Kuwait in properties from the attacks from cooperation with the Ministry of Awqāf and others, and to take administrative Islamic Affairs of Morocco and the Islamic and legal measures to face the Development Bank in 2009. The third attack in case of occurrence. international conference about the “Awqāf 109

Islamic Social Finance Report 2020 investments between social performance administration, and it is prohibited and Sharī‘ah and legal rule” was organized to subcontract at all (Article 86). in cooperation with the same institutions in addition to the Islamic Institute for • The lessee is not allowed to acquire Research and Training (IRTI) and Dar the right of rent on waqf properties Al-Hadith Al-Hasaniyah in 2014. These for local or artisans’ use (Article events have received great attention from 90). Moroccan scientists and researchers and all actors in waqf sector in Morocco. • T he judgments and judicial orders issued for the benefit of general Moroccans are showing special interest waqf in the disputes concerning in scientific research in the waqf, where their lease are final and decisive. they have many contemporary works about The lessee cannot appeal (Article waqf such as the Awqāf Journal that has 93). published many of these research studies. The Ministry of Awqāf and Islamic Affairs Among the provisions for the leasing of also has printed and published several non-agricultural waqf property, it should be books on the subject of waqf. noted that: 4.4.3 CREATION, PRESERVATION • The leasing of non-agricultural & DEVELOPMENT waqf property must be for a period that is not exceeding three years, Revenue from rental of buildings and and should only be renewed after agricultural lands is considered as the main the approval of the general waqf source of revenue that feeds the budget of department with an increasing rate general waqf, estimated at about USD 45 of not less than ten per cent of million per year. the leasing value at each renewal (Article 94). For this reason, the Awqāf Code contains • If the lessee does not pay the rent a set of provisions and articles relating to for three months within eight days the lease of waqf properties to protect and from the date of receiving a warning develop their resources (Articles 80-102) as of performance, he is considered to below. be in default, resulting in the right to cancel and annul the contract and • The leasing of general awqāf payment of compensation (Article properties must be authorized by 95). the waqf administration, and the leasing value must be not less than • The administration has the right the market value (Article 80). to terminate the lease contract of non-agricultural waqf property if it • T he lessee does not have the needs the property to establish an right to sublease (Taliyah) institution of a religious, scientific, waqf properties without the social or administrative nature, or written permission of the waqf if the purpose is to rebuild or make 110

AWQĀF significant changes to the property. It should be noted that funds received The lessee has the right to get a from these exchanges should be allocated compensation equivalent to the rent for the acquisition of new properties to of the last three months in the first replace the old ones or for investment of a case, and has the priority to rent of benefit to preserve the waqf assets and to the reconstructed property in the develop its income (Article 60). The cash second case (Article 96). exchanges follow the rules of Articles 63 to 71 whereas in-kind exchanges are subject Among the provisions concerning the lease to the rules of Articles 72 to 75 of the Code. of agricultural waqf, it should be noted that: The exchanges of the real estate and • The leasing of agricultural waqf movable properties, which are estimated property must be for a period not to exceed 10 million dirhams (USD 1 exceeding 6 years, and should million), are subject to the prior approval only be renewable for two periods of the King as the supreme trustee. The after the approval of the general same exchanges are subject to the prior waqf department with increasing approval of the Supreme Council for rate of not less than 20 per cent of Financial Control of General Awqāf if their the leasing value at each renewal estimated value ranges between 5 million (Article 98). and 10 million dirhams (USD 0.5 million to USD 1 million). Real estate and movables • A ll the constructions, trees and exchanges with a value of less than five installations established by the million dirhams, as well as the exchanges lessee on the property as per the of movable assets with the specific values implementation of the contract that are used for benefit of general waqf concluded with him at the end of whatever their value, are subject to the the lease relationship for any reason approval of the Ministry of Awqāf and will be considered as general waqf Islamic Affairs, the governmental authority (Article 99). responsible for Awqāf. • It is not permissible to give the land For the in-kind exchanges of general waqf, of the waqf in Mugharsah mode the replacement asset must be a portfolio, (Article 102). and it is value must be equal or more than the endowed asset. The estimated value The Ministry relies on self-financing to of exchange and replacement should be invest its waqf projects, such real estate determined by a professional accountant and commercial building, help for the certified in Waqf field. construction and repair the mosques, repairing and maintaining waqf properties 4.4.4 TRANSPARENCY, with revenues. Currently, cash exchanges ACCOUNTABILITY & GOOD are the main source of waqf investments. GOVERNANCE A total of 472 cash exchanges have been approved from 2007 to 2017. These The waqf is based on the voluntary payments were a total of about USD 467 initiative of waqf founders. There is million. 111

Islamic Social Finance Report 2020 • T he government authority in charge of awqāf may seek public charity therefore the need to ensure the trust of the automatically for the benefit of founders. This will not be achieved without general waqf and without prior a system of supervision that ensures that permission by collecting cash or in the waqf management does not deviate kind donations or by issuing specific from achieving its objectives and fulfilling subscription bonds, called “waqf the conditions and the purposes of the bonds”, their revenues are allocated founders and to hold accountable those to establish religious, scientific or who violate their obligations towards waqf. social projects. (article 140). The most important provisions of the • T he trustees–within their Code about the principles of financial and functions–are considered to accounting organization of the general be personally responsible for waqf include the following: compliance with the rules of commitment to the expenses • All general waqf constitutes one included in the annual budget independent legal entity, including of general waqf, giving orders all general waqf properties, their for expenditures and liquidation; revenues and all other funds compliance with the provisions allocated for their benefit (Article of the Awqāf Code and the texts 133). adopted for implementation related to the management of general • T he preparation of waqf budget waqf funds, their preservation and must take into account the the development of their revenues, objectives and contents of the especially to comply with the legal strategy mentioned in the article acts and provisions relating to the 2a as well as the reliability of the conclusion of transactions; and the estimates in light of economic and collection of revenues of all awqāf social circumstantial data. This under their control (Article 145). budget must be prepared on the basis of programming for at least • The financial management and three years for total resources and accounting of general waqf shall expenditures (Article 134). be subject to special financial and accounting regulation, and shall be • T he annual budget of general classified under specific accounting waqf includes two parts: the first rules (Article 146) part contains the resources, and the second part contains the • The contracts, supplies and services expenditures. Each part consists of concluded by waqf administration two sections, one for management for general waqf shall be subject to and the other for investment. In special system (Article 147). addition, the budget includes private accounts relating to specific waqf projects (Article 135). 112

AWQĀF • T he waqf administration shall, special supervision and control at the end of each fiscal year, aimed at ensuring the safety of set the management account the operations and transactions relating to the outcome of the related to the implementation implementation of the annual of the accounts and the annual budget for the general waqf budget of the general waqf, (Article 150). maintaining their accounting and monitoring their conformity • The general waqf shall be with the relevant texts. This exempted, in respect of all their control is carried out at the level acts, operations or transactions of the local waqf trusteeship and the associated income, from under the authority of the Central any tax, fee and benefit from any Controller (Article 152). local or national tax deduction (Article 151). • The Central Controller, his assistants and local controllers The most important provisions and in charge of the control of the articles of the Awqāf Code about the accounts of the general waqf control of general waqf are: shall, within their respective competences, be personally • The financial management responsible for the performance of general waqf is subject to of control tasks (Article 155). 113

Islamic Social Finance Report 2020 • In the exercise of their duties, an annual examination of the the waqf trustees and their financial management, and assistants, the central and local finally present every suggestion controllers shall be subject or recommendation aimed at to the disciplinary, civil and improving methods of managing criminal liability rules (Article public Waqf, preserving them 156). and developing their revenues. • A council for the follow-up of • The opinions of the council, the financial management of which may require Sharī‘ah the general waqf, called the authentication and, must be Supreme Council for Financial referred to the Supreme Council Control of General Awqāf, will Oulemas for consideration and be held next to His Majesty the issuance of a opinion in this King (Article 157) regard, and such opinion is considered as binding and must • The council shall monitor be communicated for adoption the financial management of by the governmental authority general waqf, study the issues in charge of Awqāf and to the related to them, give an opinion Supreme Council for the Control on them, and propose all of Public Waqf Finance. measures aimed at ensuring their good management in • I n order to assist the Council accordance with the principles in carrying out its duties, three of transparency and good permanent committees have governance, in order to been appointed, namely Budget preserve awqāf and develop Committee, Examination their income taking into the Committee, and Studies and account the objectives and Research Committee. In principles according to Awqāf addition, the Council can create strategy mentioned in the other permanent or temporary Article 2a (Article 158). committees to study specific issues (Article 161). • T he council conducts all research and investigation 4.4.5 STRATEGIC ANALYSIS & work related to public, submit RECOMMENDATIONS a report of its findings to the King, prepare and present to The following are some of the strengths, Waqf authority the financial weaknesses, opportunities and threats of and accounting organization the waqf sector in Morocco. for approval, provide opinion on classified projects in the Strengths annual Waqf budget and on issues related to Waqf • Waqf has a long history in Morocco. Management, carrying out 114

AWQĀF • W aqf has a developed legal • The existence of many waqf framework in Morocco. disputes and difficulties in judicial execution. • A wqāf has a preferential tax framework through tax • T he weakness of economic and exemptions for all its actions, social impact of waqf investment operations or transaction at projects. national and local level. • The absence of major national • T he possibility of issuing waqf waqf projects in the social bond as instruments for the sectors such as education, health benefit of general waqf in the and social welfare. context of seeking the public charity. • Failure to carry out national campaigns to collect donations • Financial management of and issuance of waqf bonds in general waqf is subject to the context of seeking public financial supervision and annual charity for the benefit of general inspection. waqf. Weaknesses • L ack of prudence in managing the waqf expenditures. • T he absence of a consolidated national policy for waqf. This • L ow levels of annual surplus for does not help to create greater waqf investment. synergies between the different sectors. • W eakness in the disclosure of general waqf funds to the public, • L ack of community awareness adversely affecting creation of about the importance of waqf. new waqf. • L ack of institutional and human • L ack of integration between capacity in the area of waqf, waqf and other Islamic finance which prevents the utilization instruments such as zakāh and of all the possibilities allowed Islamic microfinance. by the legal framework for the preservation and development of • Absence of university programs the waqf. for the development of frameworks and competencies • A bsence of a special procedure specialized in the field of waqf. for the family waqf properties as in the case of general waqf Opportunities properties. • The allocation of important financial resources for some 115

Islamic Social Finance Report 2020 Recommendations: aspects of the awqāf sector • G ive more attention to within the general budget of the strategic planning, which is country reducing the burden on allowed to take advantage the waqf-specific budgets. from Waqf potential as a community development. • T he launching of participatory banks in Morocco, which • E mpower institutional and opens a new perspective for human capacity in the investment of waqf-owned area of waqf, to enhance financial assets. the utilization of all the possibilities allowed by the • Advanced technology-driven legal framework for the instruments available in preservation and development Morocco to raise funds and of the waqf. donations. • G ive more efforts for major Threats national waqf projects in the social sectors such as • L ack of confidence among education, health and social the public as the desire of welfare. waqf founders is not always achieved because of the unity of • Carry out national campaigns financial liability of general waqf to collect donations and considered as one legal entity. issuance of waqf bonds in the context of seeking public • Lack of sufficient awareness of charity for the benefit of the sanctity of awqāf among general waqf. some beneficiaries from investment opportunities in • T he integration between waqf waqf field, and among some and other Islamic finance parties responsible for waqf or instruments such as zakāh intervening in it. and Islamic microfinance. • Expropriation of the waqf lands and properties due to the laws of urban planning development. 116

AWQĀF 4.5 TUNISIA From the awqāf that emerged in the Hafsid and Ottoman era, we find schools 4.5.1 OVERVIEW OF THE SECTOR and health care institutions. These were sponsored by many awqāf of land and Waqf was known in Tunisia since the buildings which made it possible to Islamic conquest. Initially, it took the form construct markets and hotels. Examples of mosques, such as, the Mosque of Uqba include the awqāf by Aziza Othmana and ibn Nafi6 in Kairouan. Since then, the her grand daughter Fatma, as well as the waqf sector expanded to include various Association of Awqāf that founded the religious, educational, health and social Sadiki school11 , reshaped the Zaytouni types, and covered new areas. When education and established the Sadiki Hafsi7 and Ottoman8 sultans realized Hospital, etc. During the Hosseini ruling, the importance of awqāf, they worked on the awqāf were handled improperly and endowing a lot of assets and protecting incorrectly until the First Minister Khaïr- them from all wrong manipulation that eddine Bacha created, in 1874, the Awqāf violates the purpose of its existence. Association that oversees its management and conservation. In the Hafsi era, several schools of science were founded like the prestigious School When the French occupation started in of Kairouan in Medical Sciences and Fiqh, 1881, the assets of the association were with its science and research spreading to used for the interests of the colonization, Western countries during the 13th Century. and this undermined the awqāf. In 1956, The proliferation of sciences in the Hafsi after the independence from the French era was due to awqāf, which was a tool of occupation, the government ceased the education sponsorship. This was in line work of all public awqāf. Then in 1957, all with the foundation of awqāf institutions, private and common awqāf were stopped especially in the era of Abbi Zakaria Al- too, without trying to rebuild and reform Hafsi, and it continued under the ruling of them. Some of the reasons stated at that Bayat9 and Dayat10 until 1705. Then came time, were blatantly false, e.g. the system the Husseini State which increased its of awqāf being a retrospective disruption attention to awqāf. It provided continued to the economy, against Tunisia’s interests, education, health care and social welfare negative for the modernity path, a tool for services until Ahmed Bay ruling (the first tax evasion and fraud by heirs and finally, half of the 19th Century). After that some out of government reach. corruption appeared in the awqāf system. The estimated value of awqāf assets in 6 Founded by the Leader of the Islamic conquest 1944, before ceasing the work with it: Uqba Ibn Nafi’ after conquering 7 Hafsi Dynasti governed Tunisia from 627H/1228 —— Land good for development: 482,292 to 982H/1574 hectares estimated to 401,181,000 8 The Ottoman governance of Tunisia started by francs. the Dayet then the Beyet 9 Bay: in Turkish, it means the Master or the Prince, —— Land for agriculture: 57,504.8 hectares then started to be used for the Minister or the Governor of worth 7,721,960,000 francs. a territory related to the Sultan 10 “Day” is a title that used to be utilized for the 11 Very famous high school in the heart of Tunis Inkishari Warriors then it turned to be a title in the Ottoman Empire. 117

Islamic Social Finance Report 2020 —— Trees and plantation including When Khaïr-eddine Bacha knew about olive productive plantations: valued the deteriorating situation of awqāf, he 554,473,000 francs. legislated the foundation of an organization to repair, oversee and manage its In the form of buildings and construction, development and investment. So came awqāf included 42 buildings, 759 the order of Muhammad As-sadiq Bay residential housings, 3127 shops, 35 coffee in 1874 for the establishment of Awqāf shops, 47 hotels and motels, 21 spas and Association. The Association oversaw 46 bakeries, in addition to other religious the awqāf until 1956 when the sector was facilities, schools, hospitals and diverse made to cease all operations. assets. In 2011, after core political changes in 4.5.2 REGULATORY & POLICY Tunisia, awqāf came under discussion FRAMEWORK again through the formation of a National Commission on the development of Islamic Awqāf organization started in Tunisia finance in 2012. This led to the creation with the beginning of the Ottoman ruling. of sub-commissions to draft laws for The process must touch two important different areas of concern including zakāh dimensions: Sharī‘ah provisions and reality. and awqāf within the Ministry of Religious This was necessary to review the waqf Affairs. The bill was tabled the same year system to make it in line with the needs in the Constitutive Assembly for approval. and requirements imposed by the everyday The subject elicited divided opinions and reality. controversial media comments, which led to its non-approval until today. In 2013 the Before the Hosseini era, meaning during committees of legislation and finances the Hafsid and Ottoman ruling, waqf was within the constituent assembly conducted ruled in accordance with the fiqh of waqf a hearing of different experts in Islamic rules known to Islamic scholars, until the finance and laws who underlined the beginning of the middle of the 19th Century importance of reviving awqāf in Tunisia, when manipulation of awqāf began in the and stressed the fact that this project era of Ahmed Bay Hosseini. He increased guarantees the State supervision on awqāf, military budget and appointed some as it is entrusted to a public institution, as it military persons as heads of awqāf. This is used in different other countries. transferred awqāf leadership from scholars to army and then later to the municipality. The bill of awqāf contains these eight Thus, waqf lost its independence and came parts: under the government control with the supervision of the municipal council at that • Part 1: The general provisions which time. General Hussein was the head of the define the waqf and its different types council at that time and resigned due to as well as the creation of the Public his inability to stop the wrong manipulation Trust that oversees the public awqāf. and corruption of awqāf that was done by the Bay and his companions. • Part 2: The establishment of the waqf, structure, procedures, and conditions set by law to create the waqf. 118

AWQĀF • Part3: The implications and legal * T he variety of waqf formats. consequences of waqf in creation. * I ntegration of the bill in the • Part 4: Management and supervision of Tunisian legal system. the waqf. * I nnovation in organizing the waqf • P art 5: The use and investment of the and creation of new institutions funds generated by the awqāf. commensurate with the idea that the provision of waqf is from • Part 6: The expiration of the waqf. reasonable provisions based on jurisprudence. • P art 7: Judge of awqāf or judiciary specialized in looking into awqāf * Considering the previous awqāf concerns and issues. assets and issuing a final judgment to keep them resolved. • P art 8: The final provisions are part of the main choices that govern this The committee drafted this bill of Law project and these choices can be based on the Tunisian Mudawana Fiqhiya summarized in 6 choices as follows: and the most recent awqāf laws, such as the Moroccan code of Awqāf, AAOIFI * Presentation of public waqf as Sharia Standard # 33 and other laws. the project adopted all the types of waqf: public, private and 4.5.2.1 INSTITUTIONAL STRUCTURE shared waqf. Until eliminating the institution of awqāf * P utting protective measures after the independence from the French necessary to guarantee/ensure occupation, the association of awqāf was the waqf. 119

Islamic Social Finance Report 2020 responsible for supervising the awqāf of Mogharassah. After the deterioration sector. It was founded in 1291 Hijri / 1874 of awqāf, by stealing its assets and and its management includes a president, weakening its management, the occupation vice-presidents and treasurer. created a ministry of Awqāf in 1945 that had been cancelled later, and associated to The agents are responsible for the direct the Great Ministry until 1956. management of awqāf. The association has deputies who represent it in all states After two months of independence, Habib that have awqāf, including Kairouan, Bourguiba, Prime Minister at the time, Sousse, Sfax, Beja, Testour, Jerid and issued an abolishing order of the awqāf Djerba and other regions. The internal and dissolved the awqāf association, after codes and procedures were set by being provided the necessary arguments by superior order in 1874, and contain the lawmakers to make this decision without administrative, financial and management returning to the provisions of awqāf. The regulations of awqāf. They are designed awqāf then were considered state property specifically to prevent the worsening and a massive liquidation took place for of awqāf, such as bad regulation and the benefit of their beneficiaries and heirs. interference by personal and political Since then the work with awqāf ceased considerations, etc. completely in Tunisia. The association has sought to retrieve The Ministry of State Property supervises many Awqāf that were corrupted despite the previously named awqāf since it was its young age, but also created new awqāf. moved under state ownership. It achieved positive results in 1875 with a surplus income of 597,474 riyals. This was The current bill is to establish a public the result of transparency by its chairman institution with non-administrative purpose Beyram V, and the deployment of all the that aims to nominate a general secretariat reports and documents on the pages of the of awqāf and to assume the role of official government journal, accessible to beholder of public and common awqāf, and everyone. to oversee the private awqāf by designating a supervisor if not designated by the waqif. After Khaïr-eddine Bacha left the High Ministry and Beyram V left the presidency 4.5.2.2 SUPPORTING INFRASTRUCTURE of the association, it continued on the same path, led by Sheikh Ahmed Since 2011, several seminars and meetings Ouertani in 1878. Besides, in 1881, the have been held to introduce the waqf French occupation worked to use the sector and the discussion around it has association assets to serve its interests been carried out by associations and and the lands were stolen and given to research centers. These include the Islamic the settlers and its close allies. Thus, the Economics Association, Islamic Finance association deteriorated and especially Association, Islamic Economy Forum after the release of some of the laws as in Sousse and Center for Research and an act of Inzaal, the law of upholding, the Studies in Dialogue of Civilizations and law of netting (replacement) and the law Comparative Religions. Waqf is also taught in academic tracks established recently 120

AWQĀF in some Tunisian universities, including to build mosques, financial or in-kind Zaytouna University, Sfax University, contributions to build them or to endow the Higher Institute of Technological their furniture, books etc. Anecdotal Studies, Bardas and others. Theses have evidence shows that some companies in been prepared in the field of research Tunisia have been allocating part of their and analysis, dealing with the Tunisian profits to the poor and needy on recurrent experience and other experiences from basis. around the world. 4.5.4 TRANSPARENCY, 4.5.3 CREATION, PRESERVATION ACCOUNTABILITY AND GOOD & DEVELOPMENT GOVERNANCE The establishment of the waqf in Tunisia The establishment of the Awqāf began on the basis of the Aqedah and the Association in the era of Khairuddin Pasha reality inherent in the Shari’ah, which was was a qualitative shift and an attempt to based on the Qur’ān and Sunnah and was promote the endowments of the waqf done according to the Maliki doctrine. and the direct supervision of the vast When the Ottomans came, they brought property, in addition to the appointment the Hanafi doctrine. Consequently, both of agents and placed the organizational doctrines were used in the courts. However, hierarchy accountable and have a central when differences emerged in the fatāwa, administrative system with elected the scholars usually took a tolerant view deputies in different regions. This is why, based on ijtihad approach. the Association had special interests such as the Office of the Registrar of After the abolition of the endowment Disputes and Financial Affairs, the Office system in 1956 and the dissolution and of Accounting for Agents, the Real Estate liquidation of the Awqāf Society, the public Department, the Land Survey Department endowments were attached to the state and the Inspection Department. According property, and the latter paid the expenses to the internal arrangement, the Association of the association and returned the private is obliged to submit a report on its status at bonds either to the two positions if they the end of each year13. were alive or to their heirs12. With regard to the annulment of waqf, we find that Within the framework of the current draft this work was on the basis of putting law, rules and arrangements have been an end to some of the practices in the put in place to ensure transparency, sector, including the establishment of a accountability and good governance, moratorium on male children to deprive especially in the first chapter on the role women of inheritance. It can be said that of the General Secretariat of Awqāf and the endowments in Tunisia, despite their the fourth chapter on the supervision abolition, are still implicitly practiced. This is manifested in the donation of lands 13 Sheikh Mohamed Bayram V: Achievement of the Shibani in Benghlith Sfax 2011, on the paper “Experience 12 “Amrali” dated 20 Shawwal 1375 AH provides of the Reformed Khair El-Din in the Tunisian Awqaf” for the State to bear the expenses of the Assembly. The presented at the Awqaf Conference, organized by the official Journal of the Republic of Tunisia No. 58 dated Tunisian Association for Islamic Economy and the General 1957 Secretariat of Awqaf in Kuwait in March 2012 in Tunis 121

Islamic Social Finance Report 2020 of the waqf and the fifth chapter on the • D ifficulty in retrieving the waqf exploitation and investment of waqf funds. properties for loss of documents. 4.5.6 STRATEGIC ANALYSIS AND • Weakness of the religious faith, RECOMMENDATIONS with respect to raising funds for the benefit of the waqf or voluntary To further diagnose the status of work, and the absence of highly endowments in Tunisia and then propose competent professionals and practical steps to achieve the desired frameworks in the field of waqf and situation, we present below the SWOT volunteers for charitable work. analysis and recommendations for the sector. • Poor control over public funds, including waqf funds, which leads to Strengths corruption and deviation, with weak legislation or absence of deterrence. • Waqf has a long history in Tunisia. Opportunities • Waqf, before the abolition of the legal framework, was based • The Tunisian desire for civil work on the system of jurisprudence and its drive for volunteer charitable of the Maliki School and the work. Hanafi doctrine and added to the contemporary fatāwa and systems • Easy use of modern means of developed by Khairuddin Pasha marketing for the importance of the when it founded Awqāf Association endowment and fundraising. for the advancement of the sector. • Possibility of benefiting from • Subjecting the waqf funds to the the studies, conclusions and public financial control and the recommendations of the incentivization within the framework conferences and seminars that were of the draft law, as is the case prepared about the endowment, its for companies of all types, with importance, its role in development, exemption from taxes. and its participation with the public and private sectors. Weaknesses • Potential of waqf to address many • L ack of awareness and marketing of the problems that the state was of its importance aggravated by a unable to resolve and its inability to complete absence of any discussion provide adequate public services, in the media and mosques. especially in health, education and employment. • L ack of interaction between economists and sociologists • P ossibility of issuance of sukuk and the decision-makers on the and mobilization of waqf funds for benefits from endowments and their the benefit of public endowments positive role in economic and social with investment methods that development. correspond to the economic reality, especially after the ratification of 122

AWQĀF the Islamic sukuk law, giving the • E mergence of some of the work that waqf body the nature of the financial led to fatāwa and false jurisprudence institution in the draft law authorizing that would compromise the unique the financing and service activities as features of waqf. other financial institutions. • M ultiplicity of bodies of governance • T he bill of law related to social and the lack of competent judiciary. and solidarity economy, especially chapters 4, 5 and 6 that evokes • L ack of sufficient awareness of the a social and solidarity economy sanctity of the endowments and institution (very similar to Waqf related investment opportunities. institution), supposed to be voted on in the 2nd Quarter of 2020. • A bandonment of most of the “high- quality” waqf lands or those suitable Threats for construction and the buildings making the process of recovery • P olitical and economic instability almost impossible in many cases. and insecurity with increasing administrative and financial corruption. • Existence of a hostile economic policy of the waqf based on ideological issues. 123

Islamic Social Finance Report 2020 Recommendations reference to the organs of the state, except in the field of supervision and The current financial difficulties experienced by coordination, so that the waqf has an Tunisia and the weakness of political and socio- independent legal status with adequate economic system calls for the restoration of the legal roles and responsibilities and that awqāf system because of its expected positive protects the waqf from the effects of impact on economic and social development. political and economic fluctuations. • Preparation of a clear strategy to • Rethinking development methods determine the investment policies of as a comprehensive value with the waqf institutions and how to manage participation of the three sectors, them while adhering to the legal controls especially the civil sector, including the and keeping away from the excessive waqf. risks involved in order to preserve capital and endowment. • R aising awareness of the importance of waqf, especially among the educated • Approving the draft law of endowments and influential people. to set up a body that manages this sector and helps to develop and • Reference to the documents and maintain the suspended funds: the first archives of the Ministry of State Property part of the draft law of endowments. and the Ministry of Justice and the archives of the courts and states to • E nactment of laws governing the work of reach the fact of the moratorium before this body and its composition and giving the abolition, using the experts and the it the nature of the financial institution to use of advanced information systems. be able to raise funds and invest funds in order to achieve its objectives. • Reviewing the impact of the waqf contracts in line with recent • S tarting the revival of the waqf by developments and finding the inventory following the methods of awareness- and classification of seized assets, building and marketing with the including the property that was participation of private and public incorporated into the state property. entities in the practice of waqf and the use of Friday sermons. • Reviewing the legislation and laws of waqf to be able to keep pace with the • E stablishment of economic institutions reality of the contemporary waqf and with high economic returns in all sectors give the Commission a wide range of so that the waqf becomes a reality and investment assets and endowment cornerstone of the national economy, development and activation in order to even under other names. be able to participate in economic and social development. • D irecting the suspended funds to small and medium enterprises and activating • Directing waqf funds to finance small Islamic investment formulas such as and medium-sized projects and paying mudharabah, isti�nā‘, leasing, istisqaa, attention to the forms of investment etc. of waqf funds, especially in activating Islamic investment formulas such as • W ork on the independence of the awqāf leasing, participation, endowment funds, organization and management without and sukuk. 124

05 ISLAMIC MICROFINANCE 5.1 ALGERIA with a maturity between 12 to 601 months. The public authorities consider it as a 5.1.1 SECTOR OVERVIEW tool aiming to achieve development and increase employment rates as it targets Since independence, Algeria has made the most challenged among its population huge efforts to recover all its rights who have been suffering from high and sovereignty including independent unemployment rates. monetary policies and issuing a local currency. It started with launching the The first microfinance experience in Algerian central bank in 1963 and the Algeria goes back to 1999 and aimed Algerian dinar later in 1964. at creating 15,000 projects in several sectors. However, it has not met the During the 1970s and in the beginning expected success as highlighted in the of the 1980s, the changes that were 2002 international conference which brought to the Algerian financial sector was a meeting of several prominent have demonstrated some limitations and microfinance experts to discuss “the weaknesses and addressing them has Algerian microfinance experience” and its become urgent from both management resolutions. and governance points of view. Before that, the creation of the financial money 5.1.2 LEGAL FRAMEWORK AND market in June 1989 gave the opportunity MICROFINANCE POLICIES to the non-banking financial institutions to access the money market. From that Microfinance in Algeria is a key component moment, the Algerian banking sector has of the public policy to fight unemployment witnessed several improvements and and social exclusion. Between 1999 adjustments in order to cope with the fast- and 2002, the government has launched paced financial industry. These upgrades a microfinance program under the have been more and more inclusive leadership of the social development to further cover SMEs and very small agency2, providing loans ranging from businesses, namely through microfinance. 50,000 Algerian dinars to 350,000 Algerian Microfinance in Algeria is considered 1 Official Journal N° 6, 2004 a key vehicle to absorb unemployment 2 As a representative of the Ministry of Labor, and alleviate poverty. Financing amounts Social Protection and Vocational Training, through microfinance vary from 50,000 and is replaced locally by the representative Algerian dinars to 400,000 Algerian dinars of Youth Employment and the National Unemployment Insurance Fund 125

Islamic Social Finance Report 2020 dinars at a 20 percent interest rate. This strategy through and big network of program has not succeeded due to several local associations and partnerships handicaps and constraints3. to facilitate access to financing6. It offers two types of financing There are three other major initiatives of which one is a partnership of undertaken by the Algerian government five public banks. The first one in order to reduce unemployment and is a 36-months interest-free loan promote very small businesses and SMEs to buy raw materials (Agency– programs. This consists of creating Beneficiary) and is given directly specialized national agencies which are: through the agency and should not exceed 100,000 Algerian • T he National Agency to Support dinars. It targets the people who Youth Employment4: It was have basic production equipment created in 1996 and had a special and machines but without funds purpose. It operates under the to buy raw materials (we note lead of the prime minister and that the financing value in the the supervision of the minister southern region can reach 25,000 in charge of employment and Algerian dinars). The second one has an independent funding and is three parties financing (Agency- management, and has 48 regional Beneficiary-Bank) and consists of and local branches across the loans granted by the agency and country. a bank to create projects which would not cost more than 1,000,000 • The National Agency for Algerian dinars. The agency gives Microfinance Management5: It 29% of the loan value and the bank is a decentralized network of 49 70% of the remaining amount. The units in each region of the country entrepreneur comes with only 1% of spread across the country and the funding. supported by follow up cells in the smaller rural regions. This body • T he National Fund for provides fast loans with small Unemployment Insurance7: Created amounts (1,000,000 Algerian dinars in 1994 as a national institution maximum) with a short or long tenor of social security, 8it has been and which are generally subject to in charge of monitoring and a government subsidy in terms of supervising the social benefits for soft interest rates and a guaranty the dismissed employees as part of from the collective guarantee fund a restructuring plan. for microfinance. Based on its recent publications, the agency has These three bodies offer technical and granted 726,359 loans up to now. financial assistance to small business All of them are interest free. This owners through subsidized loans with agency builds a decentralization preferred pricing and also through training 3 Website of the Ministry of National Solidarity, 6 Microfinance Gateway, Alegria Portal: https://goo. Family and Women’s Issues gl/tM8cGj 4 www.ansej.org.dz 7 www.cnac.dz 5 www.angem.dz 8 Under the tutelage of the Ministry of Labor, Employment and Social Security 126

Islamic Microfinance programs in the fields of financial and • E xecutive Decree No. 04-14 of 29 administrative management of SMEs. Dhul-Qa’da 1424, corresponding to 22 January 2004, which includes It is worth noting that there is a difference the establishment of the National between the three institutions in terms Agency for the Management of of the maximum amount which could be Microfinance and the definition of granted and the nature of the targeted its basic law. population and the social objectives despite that they all operate almost in • Executive Decree No. 04-15 the same manner in implementing their dated 29 Dhu al-Qa’da 1424, programs. corresponding to 22 January 2004, sets out the terms and conditions We note also that the banks are key of the subsidy provided to partners to these institutions given that beneficiaries of microfinance. they offer the complementary financing to the small projects according to the • E xecutive Decree No. 04-16 partnerships requirements between the dated 29 Dhu al-Qa’da 1424, institutions and the banks. corresponding to 22 January 2004, includes the establishment Concerning the legal and regulatory of the Joint Guarantee Fund for framework of the sector, it is defined by microcredit and the definition the Government. The Ministry of National of its basic law, amended and Solidarity, Family and Women’s Issues has supplemented. developed proposals for the development and improvement of the legal framework • Executive Decree No. 05-414 of 22 of microcredit institutions. The Ministry of Ramadan 1426, corresponding to Finance is responsible9 for overseeing the 25 October 2005, specifying the legal use of funds under the microfinance modalities for the management framework provided by the Ministry of of special allocation account No. National Solidarity. 302-117 entitled “National Fund for Microfinance Support, amended and Below are a number of decrees, including completed10. the organization of the sector, namely: The Government has officially waived • E xecutive Decree No. 134-11 interest on loans for microfinance. In dated 17 Rabi ‘Al Thani 1432 parallel, the ceiling of interest-bearing corresponding to 22 March 2011 small loans has been raised, particularly amends and completes Executive those for the southern states. According Decree No. 04-15 dated 29 Dhu to Presidential Decree No. 13-73 on the al-Qa’da 1424, corresponding to Microfinance Authority signed by the 22 January 2004, which defines President on 25 April 2015, microfinance the terms and conditions of the recipients can benefit from an interest- subsidy provided to beneficiaries of free loan to buy raw materials to start microfinance. the activity, not to exceed 10 million centimes (before it was limited at 3 million 9 Ministry of Finance Website 10 Official Journal 127

Islamic Social Finance Report 2020 centimes) and could reach the amount of Program DEVED-GTZ and with the 25 million at the level of the ten southern participation of the Ministry of Small and states. Medium Enterprises in the city of Ghardaia. 5.1.3 ISLAMIC MICROFINANCE By the end of 2008, FIDES Algérie was INITIATIVES established in cooperation with the Al Baraka Bank of Algeria to facilitate the Non-governmental organizations access of artisans to adequate financing for the practice of their craft activities. NGOs play a prominent role in This institution studies and evaluates microfinance. Some of these organizations craftsmen’s projects and their access to have recently begun to become finance. On the basis of this study, the independent financial institutions licensed Financial Services Corporation sends in accordance with the banking laws in these applications to Al Baraka Bank force. Founded in 1989, Toussia Algerian of Algeria to provide financing for such Association11 is one of the most important approved projects. The Financial Services associations with significant experience Corporation, under the agreement with Al in the field of microfinance through the Baraka Bank of Algeria, ensures continuous establishment of a program that includes follow-up of craftsmen who receive providing support to small business financing. owners. It is currently improving its working methods and procedures in supporting 5.1.4 STRATEGIC ANALYSIS AND borrower activity and is currently working RECOMMENDATIONS on becoming a specialized financial institution in the field. Strengths: Local Development Bank • 98% of the Algerian people are Muslims. The Local Development Bank is urging Islamic finance to be launched through the • 75% of the population are in the Ijārah, Mudaraba and Murabaha modes, youth category. which have been approved so far and are widely known among Algerians. These • Application of Islamic law in the funds are expected to be directed towards affairs of citizens. investment and finance of housing and real estate projects as well as consumer • Variety of approved forms of finance, which are the most sought after by financing. citizens. In addition to financing, a savings- related product is expected to be launched • V alidity of financing modes for all in which the saver will take a profit margin. sectors. Al Baraka Bank Weaknesses: It is part of a development project funded • The lack of a financial system for by the German International Cooperation granting Islamic microfinance. 11 www.touizaalger.jimdo.com 128

Islamic Microfinance • L ink with public banks that do Recommendations not pay sufficient attention to microfinance because they • Simplify and ease access to the focus their expertise on other administrative procedures so activities. that file processing and project approval becomes more flexible. • Absence of private banks that encourage competition • E stablish microfinance in microcredit, eliminating the institutions focused on financing incentive to grant such loans. business, craft and service activities as well as consumer • Difficult administrative and loans. executive procedures in processing files and approving • Set up a retail bank for low projects. income customers, providing all kinds of financial instruments for • Lack of specialized microfinance. competencies in Islamic microfinance. • E stablish cooperative financial networks that are in line with the Opportunities: specific social and economic realities of Algeria so as to meet • P opular demand for funding in the needs of the population in accordance with the Shari’ah. rural areas and in this context can benefit from the experience • G eneral orientation of the of the National Fund for government towards Islamic Agricultural Cooperation. finance in general and Islamic microfinance in particular. • E stablish independent and specialized branches in Islamic • P ossibility of positive effects microfinance at the level of on the national economy by commercial banks. financing the real economy. • Cancel tripartite funding and Threats limit bilateral funding and raise the ceiling between agencies • Slowdown in finding the and banks. necessary legal and regulatory framework. • Strengthen governance in MFIs. • A bsence of clear strategy for • A lign the MFIs with their social developing the sector. mission. • U nequal competition with • P rovide training for specialized traditional microfinance. human resources in Islamic microfinance. 129

Islamic Social Finance Report 2020 5.2 LIBYA in failure of most of these projects. It should be noted that in Libya, the focus 5.2.1 OVERVIEW OF THE is on financing small and medium-sized SECTOR12 enterprises, not micro enterprises because of the relatively high average income of During the last century, successive Libyan Libyans. Therefore, investors are able to governments did not pay any attention to finance micro-family projects from their small and medium projects, due to political own income or savings, so their interest reasons, and due to dramatic changes in or their need for financing is for small and political administration from a socialist medium enterprises, however, the Libyan economy to the capitalist economy. law did not neglect them, and they refer to Moreover, the Libyan economy depends on them in Law 321/2002. the oil sector as the sole source of income, and therefore, Libya is not interested During this decade, especially after in any private economic activities that issuance of legislation related to Islamic may help to promote or participate in the finance, and the abolition of interest-based economy. Recently, however, the Libyan banking, attention has been given to this government has changed its strategy, and sector. For example, the establishment allowed the private sector to participate of a group of Islamic Finance Funds to in economic development, and to alleviate finance small and medium enterprises the burden on the state. Accordingly, a under the supervision of the National series of state-owned investment projects Program for Small and Medium Enterprises has been privatized, and allowed the (NPSME), which provides assistance for establishment of individual and collective these projects. Despite this initiative, the private enterprises, in the form of joint political divisions, security chaos and the stock companies. During 2001-2002, difficult economic conditions experienced approximately USD476 million was by Libya recently have prevented funding or allocated from state budget to finance implementation of any project. small and medium-sized enterprises. The number of projects that were financed 5.2.2 MICROFINANCE LEGAL & through banks amounted to 6,329 POLICY FRAMEWORK productive activities and 1419 service activities. However, this did not contribute For a long time, there was no clear to economic development due to the lack policy in Libya regulating the work of of appropriate environment. For example, small and medium-sized enterprises, or administrative chaos, conflict of laws and cooperative societies, because of the legislation, and political and administrative state’s totalitarianism and its reliance confusion of the governments has resulted on oil income in economic development. However, during the last two decades, there 12 Thurya Alwerfally, Requirements for the was a new direction towards capitalist Qualification of Small and Medium Enterprises, economy. It allowed the establishment of Supervision of the Globalization and North African individual projects, partnerships or joint Economies, University of Hassiba Ben Bouali Balchlef - stock companies in all economic fields, Algeria First International Forum 17-18 / April 2016 including health service, education service, 130

Islamic Microfinance financial service, trade sector, industry rights locally and internationally, for sector, agriculture sector and the tourism the initiatives under the supervision sector (Figure 6). A number of laws and of the (NPSME), when it is achieved. regulations have been issued, such as Law 321 of 2002, which regulates, defines • Article 47 of Law No. 472 of 2009 and classifies microenterprises, and small states that financing of micro- and medium-sized enterprises. This law enterprises through the Rural Bank also covers supporting infrastructure and shall be the priority of financing tools of financing. Law No. 73 of 2011 projects that run by women. also stipulates that small and medium- sized enterprises are financed by various In addition, among the policies adopted financing methods (lending, Musharaka, by Libyan government in accordance with Murabaha, finance lease, etc.) through: Article 7 of Law No. 472/2009, priority should be given to granting loans to the • D irect finance: Borrowing from following projects: various financial institutions. • P rojects established in less • Financing through commercial developed areas such as rural and banks, and by sponsor of lending remote areas. guarantee fund, for operating purposes, from funds allocated to it • P rojects using technology that from state budget. will preserve the environment and protect natural resources, which • F inancing from funds allocated to develop renewable energies and SMEs from state budget, and this is work towards food security. done through specialized banks. • Projects that provide job • F inancing through funds allocated opportunities for Libyans and for pilot projects and Funds’ contribute to the development of innovation. human resources and improve their capabilities. It is also within the policy of the government to encourage SMEs by getting • Projects that are established by the following exemptions and advantages: women and having a positive impact on the national economy. • A n exemption from fees for procurement services and • P rojects that rely on local resources consumption tax. to be converted into final products. • A n exemption from production In general, micro-enterprises in Libya are and income taxes for a period of classified into three types: (1) service five years from the date of actual projects, (2) production projects, and (3) operation of the project. craft projects. Most of micro-enterprises are self-financed because investors do • S upport the procedures of the not need external sources of finance. They conservation of intellectual property rely on their savings to finance this type of project. 131

Islamic Social Finance Report 2020 Regarding SMEs, the Libyan legislator exceed LYD 1 million and has from 6 to 25 did not ignore it in Law 321/2002. SMEs employees. (3) Medium-enterprises: for are financed by borrowing from, or by which the capital does not exceeds LYD 2.5 subscribing to their capital through the million and has from 26 to 250 employees. financial market. As for the financing of The law also stipulated the establishment these projects, theoretically, laws and of a Credit Guarantee Fund to guarantee regulations have been issued regarding the potential default related to financings finance of SMEs. However, in practice, granted for productive purposes. they have not yet existed for several reasons: including the political and In 2007, Decision No. 845/2007 was security instability during last years, and issued to establish the national program the reluctance of some state institutions for SMEs (NPSME), followed by the Law (including Islamic banks) to engage in No. 73 / 2011 regarding reorganization of Islamic finance for higher risks in the the NPSME. Thus, it became an institution Libyan environment. independent of the Ministry of Economy, with the following aims13: In the current stage, Islamic finance for small and medium enterprises in Libya • Planning and development of depends on political and security stability, programs for the development of providing the appropriate environment and small and medium enterprises and providing the necessary support from local creating a supportive environment and international institutions for this sector. for their development. The financial resources of these projects are provided from funds allocated in the • Addressing difficulties and state budget under development. Loans obstacles of the implementation of are granted through specialized banks the policies of the work of small and (agricultural, industrial and rural banks). medium enterprises. As for the regulatory framework, the • S election of proposed projects that organization of small and medium need to be financed. enterprises in Libya began during the last decade with the issuance of Law No. 321 • P roviding training and development of 2002. This was amended by the Law of workers, equipping them with No. 205 of 2019 that further identifies and necessary skills, conducting explains micro-enterprises and small and feasibility studies, and granting medium enterprises in Libya, and how they assistance for the establishment will be financed. The latter law classifies and management of projects. small and medium enterprises into three categories: (1) Micro projects: for which • Development of initiatives to the capital does not exceed LYD 100,000 become real projects, funding them, and has up to 5 employees. (2) Small- providing necessary consultations enterprises: for which the capital does not at all stages and following up on their work. 13 the Law No. 73 / 2011 132

Islamic Microfinance • Concluding agreements with different financial institutions to obtain funds for lending of SMEs. However, as noted above, micro-enterprises are mostly self-financed by Libyan investors. They use their personal savings. This is because of their high incomes (relatively) compared to neighboring countries. Funding of small and medium enterprises is coordinated with the commercial banks and the specialized banks, namely Agricultural Bank, Industrial Bank and Rural Bank. Finance is achieved by various financing methods, such as lending, participation, Murāba�ah, finance leasing and others. One important milestone has been reached which has negatively affected the revival toward the improvement of the Micro, of various types of economic projects in Small, Medium Enterprises (MSMEs) Libya, and thus negatively affected the financing ecosystem in the beginning Libyan economy in general. of 2020, when the Central Bank of Libya issued the Resolution No. 1/2020 dated Chart 7 illustrates the institutional 12/2/2020 urging banks in the country to structure of the NPSME. It is an institution establish administrative units specialized affiliated to the Ministry of Economy, in financing MSMEs, to conduct feasibility headed by a General Manager assigned studies for them and to provide them by the Ministry, followed by a group of with the required technical and economic advisory and legal departments, and five advisory and support. major executive departments, including department of strategic development and It should be noted that after the abolition planning, department of human resources, of interest-based banking, the Central Bank department of incubators and business of Libya can no longer activate monetary centers, department of administrative and policy as it did in the past in terms of financial affairs, department of project directing credit to productive projects, monitoring, and technical support. These including small and medium enterprises, departments include group of sections and through the use of interest rates in directing units as shown in chart 7. bank credit to certain sectors or certain investments. The Central Bank of Libya has not yet developed an alternative monetary instrument instead of interest rates, 133

Islamic Social Finance Report 2020 Chart 7 Organizational Structure of the NPSMEs Ministry of Economy National Program for Small & Medium Enterprises Executive Manager Advisory Committee General Manager Legar Affairs Strategic Parternership Audit Internal Department of Media Technical Incubators & Dpt of Strategic Support Business Centres Planning Administration & Human Financial Affairs Resources Unit of Finance Gneral Incubators Business General Development Unit Incubators of Centre Technical universities Research & Support Special Business Studies Unit Centre Small Incubators IT Unit Financial Affairs Unit Unit of Staff Affairs Building Capability Unit Service Unit 134

Islamic Microfinance The aim of the (NPSMEs) is to establish in Chart 8 include Benghazi University incubators and business centers. It is Business Incubator, University of Tripoli the main component of the program for Business Incubator, and business reducing the failure rate of the emerging incubators of Faculty of Engineering projects, by supporting projects to start in Misurata, business incubator of the in early stages, and providing necessary Technical College of Bani Walid, business technical support and advice. The Incubator of Information Technology main business incubators described and Communication, and Incubators of Agricultural Technologies. Business Incubator (BI) BI University of Benghazi BI of BI of IT Technical of Agriculture BI College of BI University Technical of Tripoli BI of Engineering Faculty Source: Administration Department of the National Program for Small and Medium Enterprises. 135

Islamic Social Finance Report 2020 The main business centers shown in Business Center, Business Center for Chart 9 include Tripoli Business Center, Disabilities, as well as other business Benghazi Business Center, Sabha Business centers in different Libyan cities that will be Center, Misurata Business Center, Women’s established soon. Chart 9: The Established Business Centers and Business Centers under Establishment BC of Tripoli BC of BC of Misurata Benghazi Business Centers (BC) BC of BC of Sabha Disabilities BC of Woman BC of BC of BC of BC of BC of BC of BC of Ajilat Gheryan Tubruq Darna Ejdabya Zentan Zawya BC under Establishment Source: Administration Department of the National Program for Small and Medium Enterprises 136

Islamic Microfinance Chart 10 shows the organizational and It has also seven different departments administrative structure of Islamic including finance and investment finance funds for small and medium-sized department, small enterprise department, enterprises. It is one of the main bodies medium enterprise department, incubator of the Ministry of Economy, and has an department, financial and administrative independent Sharī‘ah Supervisory Board. department, and audit department. Chart 10: Organizational Structure of Islamic Finance for Small and Medium Enterprises COUNCIL OF MINISTERS MINISTRY OF ECONOMY ISLAMIC FINANCE FUNDS OF SMALL & MEDIUM ENTERPRISES SHURI’A SUPERVISORY BOARD Dept of Financial Finance and Legal Department Audit Internal Dept and Aminsitrative Investment Dept Affairs Dept of Incubators Dept of Medium Dept of Small Enterprises Enterprises Source: Administration Department of the National Program for Small and Medium Enterprises. 137

Islamic Social Finance Report 2020 5.2.3 ISLAMIC MICROFINANCE reduce dependence on the public INITIATIVES treasury, through involvement of private sector in small and medium In the context of diversifying sources of enterprises. This is proved by financing for SMEs in Libya, and the new allocation of funds in state budget trend towards Islamic financing formats, to finance such projects by granting four Islamic finance funds were established them loans through specialized in accordance with the Laws No. 515, 516, banks. 517 and 518 of 2013, in order to regulate and finance SMEs. The laws allow the • E stablishment of institutional establishment of Islamic finance funds to structure, incubators and business finance small and medium-sized projects centers, and creation centers. according to Islamic law, with a capital of 800,000 LD (640 million dollars) distributed Weaknesses on four major Libyan cities, each city granted 200,000 LD (160,000 dollars). • F inancing difficulties: Establishment These four Islamic financial funds are: of difficult conditions for borrowers by banks to prevent implementation • Fund of Theqa (Trust) for SMES in of these projects. Sabha. • Organizational difficulties: Absence • F und of Mubadara (initiative) for of clear administrative and SMEs in Darna. regulatory structures in Libya, as well as administrative instability of • Fund of Ebda’a (creation) for SMEs supporting institutions. in Benghazi. • Functional difficulties: Daily • F und of Ebtekar (innovation) in problems faced by projects’ Misurata. owners, which include problems of production and marketing. 5.2.4 STRATEGIC ANALYSIS & RECOMMENDATIONS • Competition difficulties: High production costs, lack of quality, Strengths as a result, such projects unable to compete locally or internationally. • Issuing a group of laws and legalizations that regulate and • O ther difficulties are: organize SMEs since the last decade. —— The absence of institutions supervising these projects in • E stablishment of Islamic Financial various stages. Funds (IFFs) to finance SMEs. —— Lack of adequate • T he intention of government to encouragement such as diversify Libyan economy, and exemption from taxes and customs duties, reduction of interest on loans and banking 138

Islamic Microfinance facilities and protection from resolution urging the banks foreign competition. operating in the country to establish administrative units —— Lack of infrastructure such specialized in financing MSMEs, as industrial zones for to conduct feasibility studies establishment of projects in for them and to provide them different Libyan cities. with the required technical and economic advisory and support. —— Administrative bureaucracy and complex administrative Threats procedures, both in obtaining licenses, or import of • Political and economic machinery, equipment and instability in Libya are the most raw materials. important obstacles to growth of this sector. Opportunities • Administrative and financial • T he existence of the intention corruption in many public of the government in terms of institutions are an obstacle to interest in the issuance of laws the success and development of and regulations that organize it. the SME sector. • T he existence of the supporting • Failure of Islamic finance bodies, as well as financial institutions such as Islamic institutions. banks or banks that have Islamic windows in financing of • T he ability of using Islamic small and medium enterprises in Microfinance in financing these Libya. projects, whether in Islamic or specialized banks or even Recommendations commercial banks. • E nact legislation and laws • L ibya is a rich country, it has governing the SMEs as various wealthy sectors include facilitating the procedures for oil, agriculture, tourism, fishing, or obtaining licenses, financing and human resources. marketing. • Possibility to diversify its • Regulate human resources of economy, and allow participation these projects and provide them of the private sector in economic with legislative cover to preserve development by establishing and guarantee their rights. small and medium enterprises based on this diversity. • M otivate private sector to establish small and medium • The recent Central Bank enterprises. 139

Islamic Social Finance Report 2020 • More interest for providing 140 training and rehabilitation programs, and attract graduates and provide consultancy and feasibility studies. • E stablish a database and linking it with banks, and investment funds. • E numerate and evaluate Awqāf assets and reinvestment. • Identify the activities and areas of interest of each bank. • Determine funding ceilings for projects according to the number of jobs in each project and nature. • P rovision of land and industrial zones for the establishment of projects. • Formation of legitimate bodies and committees in supporting institutions for small and medium enterprises. • U tilize Islamic financing tools to finance such projects. • Cooperation with international support bodies such as Islamic Development Bank. • B enefit from the experiences of others in the development of Zakāh funds and Waqf funds.