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| UKM - One of the Earliest Universities in Malaysia |
Higher learning institution (IPT) is a noble place where people come and gathered together to gain knowledge after the secondary school level. In Malaysia, there are two types of IPT namely public and private IPT or known as IPTA or IPTS respectively. Currently the IPTA is organization which resources are provided and supported by the government, thus the study fees are much cheaper than the IPTS. For the IPTS, it is a profit making organization and the resources are highly dependent on the study fees thus, the fees are higher.
However some of the IPTS out there which specially focus on religious teaching or tahfiz centre, they have adopted the Islamic financial system to support the organization mainly through waqaf and sadaqah system. Therefore, small fees are charged from the students to enable the institution to survive and to create the sense of responsibility and appreciation among the students.
In fact, some of the big universities in the world such as University Al-Azhar in Egypt and 864 higher learning institutions in US and Canada inclusive of University of Harvard in US are those which practicing waqaf or endowment to fund their universities. Shown in the table below are the top ten year 2009 ranking of endowment asset market value in US and Canadian institutions[1].
No | Universities | Endowment fund 2009 ($ in billion) |
1 | Harvard University | 25 |
2 | Yale University | 16 |
3 | Stanford University | 12.6 |
4 | Princeton University | 12.6 |
5 | University of Texas System | 12.1 |
6 | Massachusetts Institute of Technology | 8 |
7 | University of Michigan | 6 |
8 | Columbia University | 5.9 |
9 | Northwestern University | 5.4 |
10 | University of Pennsylvania | 5.1 |
This system which has been long adopted by the small IPTS and the world top ranking universities have proven to be very successful and should be benchmarking to the IPTA to be independent from the government support, shifting the responsibility to the third sector which is the public itself and to the second sector which is in specific the Islamic financial institutions. Observing from the drastic Islamic instruments development in the money and capital market, there are much more options to be adopted by the IPTA to find appropriate instruments which need a very big fund to support its operation and development program.
Listed below are the proposed money and capital market instruments that can be implemented by the IPTA to raise its own fund:
1. Waqaf fund
Waqaf can be collected or contributed in form of cash waqaf or properties waqaf. However in this case the cash waqaf are more beneficial as it can directly be used for the specific purpose. For example, UKM has successfully developed a waqaf fund which aimed to fund such programs:
i. Student’s Welfare and Academic
ii. Student’s Developement
iii. Research and Academic Developement
iv. UKM’s Industry and Community Partnerships
In form of student welfare, the fund will help the deprived students, provide student aid, pay tuition fees, cover basic costs of living, provide interest free loans, funding for various activities involving rural community developments, international training, create various academic awards of excellence and so forth.
To encourage the public to contribute for the waqaf fund, continuous marketing strategies should be done to always aware the public on the existence of the fund and the rewards they will gain in the world and hereafter. The tax exemption scheme will always attract the public to contribute to the fund as a good measured.
In order to confirm the continuous income for the waqaf fund, the institution should perform joint venture with the Angkasa or accountant general department to introduce the payroll deduction system to encourage the government officer to join the contribution program. The waqaf scheme introduced by the takaful operators is also effective. The characteristics of the takaful-waqaf scheme are as follows:
i. The scheme enables the donor to accumulate a fund over a stipulated period (minimum 5 years) and enjoy the tax benefits;
ii. The institution in this case, will the beneficiary and the Takaful operator act as the Scheme Manager;
iii. Upon maturity, the Takaful operator will render the contribution inclusive the return to the institution.
iv. In case of the death or disability happen to the donor during the contribution period, the Takaful operator will render all of the contributions together with the payment of subsequent period to the beneficiaries which are the institutions and the family.
For the property waqf, the institution shall appoint a professional team either from the internal people or through outsourcing to generate profit based on the properties through appropriate investment activities. The profit gained from the activities shall be contributed back to the cash waqf fund and a part of it is to be paid for the administrative cost or for the professional fees.
2. Sukuk
A sakk (singular) is usually referred to as an ‘Islamic bond’ sukuk (plural) are actually more akin to ‘pass-through certificates’, ‘equipment trust certificates’, or ‘investment certificates’, due to ownership attributes, with each sakk representing a proportional or undivided ownership interest in an asset or pool of assets.
Sukuk is currently among the popular instruments in the Islamic financial market acted as debt certificate to replace bond. In this case, sukuk can be an attractive mode of instruments to attract the public to join the program as it has maturity and the money will be returned back to the buyer/lessor/rabbul mal depending on the contract undertaken. Among the benefits and features of sukuk are:
i. Tradable shariah compliant capital market product providing medium to long term fixed or variable rates of return. Sukuk are assessed and rated by rating agencies, which investors use a guideline to assess risk/return parameters of a sukuk issue.
ii. Regular periodic income streams during investment period with easy and efficient settlement and a possibility of capital appreciation of the sukuk
iii. Liquid instruments, tradable in secondary markets
In this case, the sukuk will be issued by the institutions for development project. There are few types of sukuk:
i. Sukuk Ijaarah
This is one of the most common suku issuance types, especially in project finance. Sukuk Ijarah is a leasing structure coupled with a right available to lessee to purchase the asset at the end of the lease period. The certificates are issued on stand alone assets identified on the balance sheet.
The rental rates of return can be fixed or floating depending on the agreement. The cash flow from the lease including rental payments and principle repayments are passed through to investors in the form of coupon and principle payments. The sukuk ijarah provides an efficient medium-to-long term mode of financing.
ii. Sukuk Mudharabah
This is an agreement made between a party, who provides the capital and another party, to enable the entrepreneur to carry out business projects, which will be on the profit sharing basis, according to predetermined ratio. Losses are born by the provider of the funds only. This sukuk is used to enhance public participation in a big investment projects.
iii. Sukuk Musyaarakah
This is investment sukuk represent ownership of musyarakah equity. It requires both parties provide financing to the projects. In case of losses, both parties will lose in proportion to the size of their investment. It is used to mobilize funds to establish new projects or develop an existing one of to finance business activity in the basis of partnership contracts.
The IPTA may use any type of the sukuk relevant to any development project such as new faculty and new building development which require a lot of money.
1. Qardul Hasan
Qardul hasan contract differ from the waqaf at the point of ownership. For qardul hasan contract, money that is borrowed from the public has to be returned back at the agreed period. On the other hand, money or property contributed for the waqaf will be owned by the public, thus the contributor/donor is not allowed to take it back.
Qardul hasan type of loan can be borrowed by the IPTA to fund its development project or deficit in its cash flows activities. It can be done through 2 ways:
i. Normal qardul hasan contract
This is where Islamic financial institutions can play their role to help the society through CSR programs as explained earlier in the Question 3 above acting as the social bank. The banks may offer benevolent loan to the IPTA for the project development or to support the IPTA’s cash flows. The loan will be paid according to pre agreed term without any charges imposed.
ii. Sukuk Qardul Hasan
A part from the normal qardul hasan which focus on the sources from the banks, the sukuk qardul hasan can also be implemented to achieve the institution’s objectives. The sukuk qardul hasan in this context is wider in form of the contributors and not confined to the banks alone. The sukuk may be offered in form of Islamic bond to the public that concern on the higher learning institution development. The sukuk will be paid back to the lenders after the term have matured. In addition, the term can be made as long term and short term depending on the financial situation of the institutions.
2. Musyarakah
Musyarakah is a relationship between two parties or more, of whom contribute capital to a business, and divide the net profit and loss pro rata. In this context, the IPTA can form a partnership contract with the appointed contractor for hostel facility development. The IPTA will provide the land for the development and the contractors will provide the construction facilities such as raw materials, machines and labors. Through this concept, the hostel will be co-owned by both parties until certain pre determined period that benefits both parties is concluded.
After the hostel has completed, both parties based on the agreement will rent the rooms to students (especially for those who afford) on the ijaarah concept. The proceeds from the rental charges will be divided to both parties as per agreed.
Other than sukuk musyarakah, the contract can also be formed based on:
i. Original musyarakah concept.
If it is based on musyarakah concept, the rental income that received by the IPTA can be invested or also can be transferred to the waqaf fund/reserve fund which ever appropriate. Therefore, the co-ownership contract will be long enough in order to ensure the contractors will breakeven and gain profit for the project or otherwise, the IPTA will pay certain amount to conclude the contract.
ii. Musyarakah mutanaqisah (MM) concept
On the other hand, if it is based on MM contract, the proceeds received from the rental will be used by the IPTA to re-purchase the shares from the contractors. The contract will be ended when all of the shares have been bought by the IPTA from the contractors subject to the market value of the share/rental.
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