THE ROLE OF WAQF-BASED FINANCIAL STRUCTURES IN CONTEMPORARY ISLAMIC BANKING: CHALLENGES AND OPPORTUNITIES"

Abstract

Waqf, an Islamic endowment institution rooted in Shariah principles, has historically played a pivotal role in supporting social welfare, education, and religious services in Muslim societies. In recent decades, the integration of waqf-based financial structures into contemporary Islamic banking has emerged as a promising innovation to enhance socio-economic development and promote financial inclusion. This paper explores the role of waqf in modern Islamic banking frameworks, analyzing both the opportunities and challenges it presents. Waqf-based instruments such as cash waqf, waqf sukuk, and waqf-based microfinance are gaining traction for their potential to mobilize dormant resources and align banking practices with ethical and developmental objectives.

Despite its potential, several challenges hinder the optimal use of waqf in Islamic finance. These include legal ambiguities, lack of standardized regulatory frameworks, insufficient awareness, and inefficiencies in waqf asset management. Moreover, integrating waqf with formal financial systems requires robust governance structures, transparency mechanisms, and collaboration between religious scholars, financial experts, and regulators. Through qualitative and empirical analysis, this study highlights successful models from countries such as Malaysia, Indonesia, and Turkey, demonstrating how waqf-based finance can be institutionalized and scaled within contemporary banking practices.

The paper also discusses the alignment of waqf principles with Maqasid al-Shariah (objectives of Islamic law), particularly in promoting social justice, equitable wealth distribution, and economic empowerment. It concludes that waqf has the potential to become a transformative pillar in Islamic banking, provided that regulatory reforms, technological advancements, and strategic public-private partnerships are implemented to overcome existing barriers. This research contributes to the ongoing discourse on Islamic financial innovation and offers recommendations for policymakers, Islamic financial institutions, and waqf administrators to harness waqf for inclusive and sustainable development.