New Framework to Facilitate Offering of Islamic Funds with Waqf Features

The Securities Commission Malaysia (“SC”) in its Islamic Fund and Wealth Management Blueprint (“Blueprint”) launched in 2017, had outlined their plan and recommendations to counter impediments to growth and innovation for financial development. The Blueprint had identified the development of waqf as one area of significant potential for social development, greater public good and wealth distribution and the SC has viewed the effort of increasing the level of sustainable waqf assets through fund management or capital raising as a priority among its recommendations.
Waqf, traditionally an endowment of property to be held in trust and used for charitable or religious purpose, may be utilised to enable the growth of the Islamic social finance segment. Towards this end, SC has on 12 November 2020 introduced a framework to facilitate offering of Islamic funds with waqf features.
This new framework by SC will broaden the market segment in the composition of a comprehensive Islamic financial market in addition to Islamic banking, takaful and the Islamic capital market and will provide the public access to Islamic funds that allocate whole or part of the funds returns towards socially impactful activities via waqf.
The framework is applicable to existing and newly launched unit trust and wholesale funds and involves a revision to the Guidelines on Unit Trust Funds and Guidelines on Unlisted Capital Market Product under the Lodge and Launch Framework.
Under the new framework, the fund allows the unit holders to retain rights over the units purchased and waqf all or part of the distribution of the income received. The distribution policy of the fund must include the percentage of distribution to be channelled for waqf purposes. The fund must also disclose a detailed description of the waqf arrangement including the name of the waqf recipient and the policies and processes relating to the selection of the waqf recipient which would promote transparency of investors’ investments and the waqf distribution. The distribution for waqf purposes may only be channelled to a state Islamic religious council (“SIRC”) or any institutions authorised by the SIRC to act as the waqf administrator or collection agent for waqf purposes.
Amendments to the Guidelines on Unit Trust Funds includes the insertion of a new Chapter 14 while amendments to the Guidelines on Unlisted Capital Market Product under the Lodge and Launch Framework involves the introduction of a new Chapter 6 under Section B: Part I (Wholesale Fund), both of which, sets out the additional requirements for the offering of Islamic funds with waqf features. The aforementioned guidelines can be found at the SC website.
For enquiries please contact Sharifah Shafika Alsagoff (Partner) and Hafidah Aman Hashim (Partner) of the Islamic Finance Practice of Skrine.