Leveraging Philanthropy: Monetary Waqf for Micro Finance

The paper proposes a Monetary Waqf (MW) of a variable size, whose major assets are monetary, to provide microfinance to the productive poor. MW depends, as in any waqf, on initial permanent donations whose expected income covers the administrative and maintenance needs of the MW. A novel feature in the proposed waqf is the mobilization of temporary funds extended to MW as interest-free loans, on call or for a fixed term. MW guarantees repayment to providers of funds, and uses the funds to provide microfinance to the productive poor in various shari’a-compliant modes, at terms that sustain the waqf but are most favorable to recipients. To strengthen its guarantee, MW must have two tiers of philanthropic guarantors: Guarantors of liquidity and Guarantors of Losses. Guarantors of Losses help insulate fund providers from risk of default by microfinance recipients. This helps to attract to MW temporary funds many times larger than the guarantee commitments. Payments to make up the losses ca