The Application of Value-Based Intermediation Through Waqf in Islamic Banking: A Case Study of Bank Muamalat Malaysia Berhad

- The Islamic financial industry has experienced an exponential transformation that has contributed greatly to the national economic growth. Malaysian Islamic finance is considered one of the most comprehensive Islamic financial systems in the world. Bank Negara Malaysia (BNM) has introduced a new concept of Value-Based Intermediation (VBI). This banking practice focuses on profit and supports social values for a sustainable economy, community, and environment. This study discusses the involvement of Bank Muamalat Malaysia Berhad in waqf development, focusing on business activities in line with VBI. This qualitative study applied document analysis and semi-structured interviews and found that Bank Muamalat Malaysia Berhad is an Islamic banking institution that bases its existence on commercial profits and is able to implement activities related to waqf development, such as cash waqf collection and waqf project financing consistent with VBI.

implementing Islamic banking.VBI is inextricably linked with the Shariah objectives that underly all of its Islamic banking activities.This calls for a transformation of the Islamic bank from a profitoriented entity to a value-oriented entity (Mahyudin & Rosman, 2020).
In November 2019, BNM issued a VBI evaluation framework that outlines the relevant factors that need to be considered by Islamic banking institutions when providing funding and making investments.These factors include environmental, social and governance factors or ESG.Through this framework, Islamic financial institutions are encouraged to guide their customers, investors, and stakeholders in an effort to inculcate more sustainable practices (BNM, 2019a).
Waqf can be considered as one of the VBI initiatives taken up by Islamic banking institutions.Currently, waqf remains marginalized in the Malaysian Islamic financial system despite the country being a market leader.Although Malaysian Islamic banks offer a wide array of financial products, from basic saving schemes to sukuk and other more sophisticated products, waqf has yet to be included (Sinar Harian, 2016).At present, the problem of funding shortages is one of the factors currently hindering the waqf asset development agenda in the country.Most waqf administrators do not have sufficient funding sources to finance development activities, resulting in waqf not being fully used to achieve the objective of safeguarding the Ummah's welfare (Mohd Saadan & Abd Halim, 2014).Therefore, the involvement of the corporate sector, especially Islamic banking institutions, is needed for waqf development.
Considering the significance of waqf in the economic development of the Ummah, this study examined the role of Islamic banking institutions in waqf development in Malaysia.Therefore, the author will conduct a specific study on the initiatives undertaken by Bank Muamalat Malaysia Berhad (BMMB) in waqf development based on VBI.

Role of Waqf in Developing the Ummah
Considering the role of waqf in the development of the Ummah, the essence of waqf goes beyond the concept of devotion to Allah SWT, as waqf also plays a significant role in human interaction based on the principles of love (mahabbah), cooperation, and mutual assistance (ta'awun) (Sulaiman, 2008).Because of its significant role, waqf has become a fundamental component underlying the social sector in the theory of the Islamic economic system (Kastin & Ahmad, 2010).Waqf has always been perceived as a tool for socio-economic development and plays an important role in improving the welfare of the Ummah (Hasan et al., 2019).
History has proven that waqf development has had significant implications for the socioeconomic development of the Muslim community.Most aspects of worship, education, healthcare, and the provision of basic infrastructure such as roads, canals, bridges, orphanages, shelters, and assistance to the poor have been financed through the efficient utilization of waqf assets without any cost from the government.Waqf has also served as a tool for redistributing wealth to achieve economic development in a comprehensive context (Sadeq, 2002).
Economic development through waqf enables the community's economic activities to be driven through the provision of business centers and premises.The existence of business centers and premises developed from waqf funds provide opportunities for the community to engage in economic activities.Furthermore, waqf also plays a role in alleviating poverty.This can be achieved by constructing hospitals for the poor, schools, universities, training and skills centers, and housing (Ab Rahman, 2009).

Funding for waqf development
The issue of obtaining legitimate funds is at the top of the agenda in waqf development in Malaysia and elsewhere in the Muslim world.However, most administrators of waqf assets do not have sufficient sources of funding to fund development activities, thus resulting in the inability of the endowment entity to realize its charitable objective (Zarqa, 1994).All too often it is the case that potential waqf assets are not properly preserved and efficiently managed, one of the root causes being the lack of resources to develop and expand these assets (Hassan & Shahid, 2010).The issue of insufficient funds is a major issue faced by waqf institutions in the effort to develop their assets in Malaysia (Sulaiman, 2008).In general, the waqf assets are readily available.However, they need to be expanded or require additional funds for their restoration and proper maintenance.To date, there has yet to be consistent funding for the development and maintenance of the existing waqf assets.In general, the financial needs with regard to waqf management in receiving contributions from the public and the government are very limited (Ngadimon, 2015).Saadan and Abd Halim (2014) explained that the lack of capital faced in managing and developing waqf is a major obstacle.Most of the income obtained from the waqf assets is used to manage the entity, including maintenance, repair, and administration costs.The effort to generate the waqf fund can support the efforts of the State Islamic Council or Majlis Agama Islam Negeri (MAIN).Mahmood (2007) elaborates that the creation of waqf funds is consistent with the country's socio-economic needs, where it is anticipated that it can yield high profits while easing the financial burden of MAIN in funding the development of waqf assets.Thus, the involvement of the corporate sector is needed for waqf development at present, including the development of waqf in the public health sector (Mahmood, 2007).

VBI in Islamic Finance
The Islamic banking system in Malaysia has experienced several changes and improvements.Recently, Islamic banking institutions have entered a new phase in their banking operations, where banking activities are not only focused on Shariah compliance but also on achieving Shariah objectives through VBI.Hassan and Mohamad Nor (2019) stated that VBI is a way in which the Shariah application can be introduced in a more holistic manner that goes beyond mere Shariah compliance.VBI seeks to ensure that the preservation of assets through wealth distribution and ownership protection can be done fairly and equitably.Hence, VBI encourages Islamic banking institutions to contribute to social development and cater to social needs.This practice is harmonious with the framework of the Objectives of the Shariah (maqasid al-shariah).
According to the VBI implementation guideline issued by BNM, several issues and challenges have emerged, such as the capability for risk management, maintaining competitive marketability, and changes in customers' and investors' thinking.Behind these multiple challenges, Mahadi et al. (2019) explained that the local Islamic banking institutions have responded positively and have started to apply VBI in their products and services, particularly through social financial instruments.Nine Islamic banking institutions have confirmed their commitment to the VBI initiative, aiming to strengthen the role and impact of Islamic banking institutions towards a robust financial ecosystem.The banking institutions involved are Bank Islam, Bank Muamalat, CIMB Islamic, Agrobank, HSBC Amanah, Maybank Islamic, AmBank Islamic, Alliance Islamic, and Standard Chartered Saadiq (BH Online, 2017b).
Therefore, the Islamic banking institutions are expected to play their part in steering valuebased banking and administration and ensure that there is a fair practice in banking that is ethical and that there is a sense of responsibility towards the customers and the community consistent with the Shariah objectives (Abu Bakar et al., 2017).
Ramli & Muhamed (2018) and Hamad et al. (2020) highlighted the need to review the reported activities of Islamic banking institutions related to VBI and VBI strategies.This integrated report has been stated clearly in the VBI strategy paper released by BNM.

METHODOLOGY
This qualitative study examined the involvement of BMMB in waqf development from the perspective of VBI, referring to the initiatives that have been carried out.
The study approaches were field study and document analysis.For the field study, information was gathered through interviews with the selected respondents, and the semistructured interview was conducted face-to-face.Meanwhile, the document analysis was carried out to obtain information related to BMMB banking activities involving VBI and waqf.

RESULT
This study discovered that BMMB plays a significant role in waqf development in Malaysia and has implemented several initiatives in line with VBI indicators, such as cash waqf collection, offering end financing, and waqf project financing.

VBI initiatives in Islamic banking
Based on the definition given above, the aim of VBI, as established by BNM, is for the local Islamic banking institutions to act as mediators in delivering sustainable Shariah goals and objectives in all matters pertinent to national finance, the economy, the community, and the environment while achieving sustainable returns and securing the long-term interests of the shareholders.
VBI is not a revolutionary concept that in any way alters the functions of the current banking practices.When adopting VBI, the Islamic banking institutions retain their original aims; however, they commit to observing the full scope of the Shariah, including its aims and objectives, rather than merely fulfilling the technical criteria of official Shariah compliance.In other words, the banks pledge themselves to support social development.
VBI focuses on the mediator role of Islamic banks, which requires them to have a clear focus on generating a positive, sustainable impact on the national economy, the community, and the environment.VBI gives an equal emphasis on upholding positive economic values and supporting ethical practice.Therefore, their business strategy and performance are measured in a wider scope, which goes beyond commercial gain and profit margins.The risk assessment approach also needs to account for a strong business practice when looking at the aspects of providing funding and investment.For instance, a VBI-oriented bank can also offer consultation services in addition to providing funding to its corporate customers in the agriculture sector.The consultation post-funding encompasses ongoing business operations such as reasonable resource management for the purpose of irrigation and environmental recovery (BNM, 2019b).
In the current context of Islamic finance, the study focuses on the banking practices relevant to VBI.For example as outlined in Table 1, Agrobank has collaborated with Padiberas Nasional Berhad (BERNAS) to launch an initiative to increase the production of paddy and the living standards of the local farmers.Agrobank has allocated a working capital worth MYR50 million, while BERNAS has offered free technical consultation services to the farmers.Agrobank's working capital also provides for disabled individuals as an incentive for them to start their own agricultural businesses.Bank Islam Malaysia Berhad (BIMB) has introduced the Al-Waqf Housing Fund to build 76 homes and nine commercial lots.This project is a cooperation between the Penang Islamic Department and a local property development company.BIMB has also formed a strategic alliance with Tenaga Nasional Bhd to prepare the funding to install photovoltaic solar systems.The collaboration is part of the initiative of the Islamic Bank green funding to support sustainable business practices and lifestyles.On the other hand, Maybank Islamic has introduced the Rent-to-Own (Sewa Milik Selangorku) scheme to the low-income groups in Selangor, providing affordable housing.This scheme is part of the bank's VBI initiative to provide a competitive and sustainable solution in home ownership, which is in line with the national agenda in property ownership.Consequently, Bank Muamalat has introduced an entrepreneurial social finance program for the asnaf and B40 recipients.This program is known as iTEKAD Mawaddah and involves MYR10,000 as start-up capital and free business training.In addition, CIMB has allocated MYR250 million as part of CIMB GreenBizReady to facilitate Small and Medium-sized Enterprises (SMSE) in Malaysia.This program is designed as a comprehensive solution to help SMSEs inculcate positive elements in their businesses, reduce their carbon footprint, and create a positive impact in the long term that is in line with VBI values.

Waqf as a VBI initiative
Waqf endowment practices are considered part of philanthropy and reflect the positive aspects of goodness, love, compassion, generosity, and caring for other people.The sentiments of kindness, generosity, and compassion motivate some wealthy individuals to donate some of their assets or properties in the form of money, time, energy, and so on to benefit others (Othman, 2017).The participation of corporate bodies in establishing waqf is a significant step forward in assuming their social responsibility, especially if they follow a specific standard as a reference.As noted by Yusoff et al. ( 2021), there is a pressing need for a detailed standard or guideline for managing waqf endowments in Malaysia.This standard should include a governance framework, best practices, and the development of consistent and clear reporting disclosures specific to local waqf institutions.Adopting these strategies will markedly enhance waqf management and promote increased accountability for its stakeholders.In the context of the Islamic banking institutions in Malaysia, initiatives related to waqf are considered part of corporate social responsibility.For instance, BMMB's effort to link with government agencies like Perbadanan Wakaf Selangor to collect and manage waqf funds ensures the well-being of the residents in Selangor.From this collaboration, the Selangor Muamalat Waqf was founded.Bank Muamalat and the corporation formed a joint management committee to formulate and implement waqf activities for improvement and development, especially in the education and health sectors.The collected funds will be channeled towards welfare projects that are not limited to religious projects but include any activities of public interest, such as the development of educational institutions like colleges and universities and health institutions like hospitals and clinics (Abdullah et al., 2019).A more specific example is the funding for medical equipment provided to Sungai Buloh Hospital and the funding for dormitory equipment for Maahad Tahfiz Al-Quran Wa-Ulumuddin (BMMB, 2013).However, it is conceded that these activities are more in line with corporate social responsibility than VBI.
Waqf can be categorized as a VBI initiative when it fulfils the characteristics stated in the strategic paper issued by BNM as outlined in Table 2.These characteristics include that the Islamic banking institutions act as mediators to achieve Shariah goals and objectives related to finance.More specifically, the waqf-based initiative must have a positive and sustainable impact on the economy, community, and environment and offer sustainable returns and long-term interests to the shareholders.Other than that, initiatives for the development of products or programs that support and empower the community can also be considered consistent with VBI.This can mean providing financial solutions through development, funding, and effective implementation that benefit the community as a whole.The aim is to generate a positive impact in the community and open new business opportunities for Islamic banking institutions as stated by a BMMB officer (interviewee research participant).

1.
Role Act as a mediator to deliver goals or objectives of the Shariah in matters related to finance.

2.
Program impact Provide a positive, sustainable impact on the economy, community, and environment.

Responsibility to the shareholders
Grant sustainable returns and long-term interests.

Community empowerment
Provide financial solutions through development, funding, and effective implementation on community-relevant issues to produce a positive impact on society and open up new business opportunities for Islamic banking institutions.
Source : Bank Negara Malaysia (BNM, 2018b) Given that one of the Shariah propositions is to prevent or minimize harm or negative impact and to secure the benefit or positive impact, the VBI Scorecard assesses to what extent financial intermediation of Islamic banking institutions has created positive and sustainable values for all stakeholders and the community at large.Based on the document (BNM, 2018b), this assessment focuses on the impact of intermediation activities on the wider group of stakeholders, including the community, environment, and the economy.The document makes frequent reference to the "triple bottom line," which focuses on the following three aspects: i. Social empowerment -education, health care, social inclusion, and affordable housing.
ii. Environmental regeneration -renewable energy, sustainable agriculture, green building, energy and water efficiency.iii.Economic resiliency -micro-financing and economic inclusion.

VBI Waqf Initiatives in BMMB Practice
As mentioned earlier, waqf can be categorized as one of the current VBI initiatives when the bank acts as a mediator in achieving specific Shariah goals to achieve a positive and sustainable impact on the economy, community, and environment, in addition to securing the long-term interests of the shareholders (BNM, 2018a).
In the case of BMMB, there are three major waqf-related initiatives worth mentioning, namely, the bank's cash waqf service, project or bridging financing, and end financing.Regarding the cash waqf service, BMMB is the first Islamic banking institution in Malaysia that offers a cash waqf collection service and works cooperatively in managing the funds through a joint management committee with five selected State Islamic Councils (MAIN).BMMB launched its waqf program in 2012 under the name Wakaf Selangor Muamalat (WSM) in cooperation with Perbadanan Wakaf Selangor (PWS).Besides WSM, BMMB has collaborated with four State Islamic Councils, namely Negeri Sembilan, Kelantan, Kedah, and Pahang.Among the projects implemented through the cash waqf gathered is the distribution of health and education equipment.Table 3 outlined some of the projects that have been implemented through the cash waqf fund which include the distribution of medical equipment such as the ultrasound machine, dialysis machine, patient monitoring machine, prosthetic body parts, ambulance, nitrogen storage tank, embosser machine, and automated external defibrillator.In the education sector, the BMMB initiatives included school buildings, school equipment, school vans, dormitory equipment, computers, and a training center for converts as summarized in Table 4.The fund collection activities can be regarded as a VBI initiative, as stated in the VBI Preview Report 2017-2020 (AIBIM, 2021).The funds collected through bank channels are used as waqf in health, education, and economic empowerment, which is consistent with the second characteristic outlined in the VBI strategic paper issued by BNM and benefits the community in the long-term.In the Muamalat Waqf Model, the collected funds will also be used for investment through Islamic finance instruments.The profit gained from the investment will be used for community and economic empowerment.Therefore, this initiative is also in line with VBI requirements.Other than the cash waqf initiative, BMMB is also involved in bridge and end financing of waqf property development projects as listed in Table 5.This is to support housing development on waqf lands by the State Islamic Council and selected developers.This development project benefits those in need of affordable housing, thus the Shariah objective of fulfilling the basic needs of individuals, which are shelter and basic well-being.In addition, the waqf asset is developed and managed for the benefit of the wider community, which can enjoy new facilities in the form of affordable housing units and business premises below the current market price.Therefore, BBMB's involvement in property financing through end or project financing is consistent with the community empowerment principle as outlined in the VBI strategic paper.
On 1 st November 2019, BNM issued the Value-based Intermediation Financing and Investment Impact Assessment Framework as a reference in evaluating any financing or investment activity in line with the VBI framework.One of the basic principles employed in the evaluation is to achieve socio-economic harmony and to safeguard the well-being of all members of society.According to this principle, Islamic banking institutions need to determine the potential benefits and detriments of a financing activity beforehand (BNM, 2019a).The evaluation of the impact has to be consistent with the notion of sustainability as well as people, planet, and profit.In the context of financing the waqf property development of BMMB, the housing project developed on waqf land has supported the efforts of MAIN which they can later use the generated profits for community empowerment.This is consistent with the principle stated in the VBI strategic paper issued by BNM.

CONCLUSION
The study findings have shown that Islamic banking institutions can play a significant role in waqf development by providing funds and offering banking facilities.The Islamic banking institutions are profit-oriented entities.However, they can participate in waqf development.
There are several Islamic financial instruments that can be used in waqf development.This study found that the initiative of collecting the waqf fund and channelling it to deserving recipients for a good cause, such as in public health and education, project financing, and end financing facilities are in line with VBI.Nevertheless, Islamic banking institutions can enhance their involvement in financing waqf property development through project and end financing, as there is a noted scarcity in this respect.Other than that, the waqf institutions face the challenge of insufficient funds for waqf development and should collaborate more closely with the Islamic banking institutions.For example, sukuk is a suitable financial tool for waqf funding and is consistent with VBI.As an Islamic banking institution, BMMB has played its role in waqf development in Malaysia by implementing several initiatives such as cash waqf collection, offering end financing, and waqf project financing.All of these initiatives provide significant benefits to the community, especially in terms of healthcare, education, and social development.It is hoped that more Islamic banking institutions in Malaysia will follow suit.

Table 1 :
VBI initiatives of Islamic banking institutions Source:Value-Based Intermediation Strategic Paper, Bank Negara Malaysia (BNM, 2018a)

Table 3 :
Waqf contribution to healthcare

Table 4 :
Waqf contribution to education aspect