Author: Mohamed Hamza Ghaouri, Intern at FINTERRA
In the first blog, we have discussed the importance and the potential of Cash-waqf as an avatar for the Waqf sector. This blog, which is an initiation to the Waqf and Cash-Waqf utilisation in different sectors, highlights the use of the Islamic endowment in various forms to support the welfare of the society and its increasing contribution to the 2030 Agenda for Sustainable Development.
Accordingly, the second blog presents the great potential of Waqf to support Muslim and non-Muslim societies around the world by explaining the alignment of its objectives with the ones of the sustainable development. This alignment may attract sustainable investors, those who take into consideration ESG factors in the investment decision-making process.
This multisectoral potential can be harnessed effectively if it is supported by financial technologies. As argued in the previous blog, technological intervention is essential for the development of the Waqf sector. Blockchain and Smart contract technologies has unlocked new opportunities for this sector by improving governance, reducing transaction costs and increasing trust between stakeholders.
As an extension of this Waqf blogging series, the current blog is an essay presenting a case study of an innovative project, launched by Finterra, which combines Waqf, FinTech and sustainable development impact (environmental and social).
Finterra is a technology provider company that have been able to employ Blockchain in various fields mainly Waqf sector. However, this leading technology-based company has recently started a new adventure in the plantation field by lunching Finterra global plantation project. Through this project, Finterra offers an exceptional investment opportunity to the investors aiming at making a sustainable development by being part of this green investment. The overall vision of this project focus on making an environmental impact while generating profit without excluding the Waqf component which is considered as essential.
In line with the government’s commitment to plant 1 million forest trees over a period of 10 years for the rehabilitation of degraded forest, Finterra Global Plantation is a perfect illustration of the possibility of the mobilization of Waqf for an environmental purpose while achieving a return on investment and a social impact.
Similar to the WaqfChain model discussed in the previous blog, Finterra is connecting various stakeholders in a shariah compliant financial arrangement to achieve the FGP project. Different Islamic finance contracts have been used such as Islamic redeemable preferential shared structured under Musharakah contract, with elements of Wa’ad and Tanazaul. This innovative arrangement is giving Waqf sector a new dimension by making it more profitable. With FGP investments, contributors can combine between receiving a return on their contribution together with the hereafter reward (Ajr).
To carry out this project, the first step is to lease the land. The owner can be a private or a public institution while the land could be Waqf or non-Waqf land. After that, the FGP Ventures Sdn. Bhd signs a joint venture agreement with United Paulownia Tree Plantation, which is a forestry farm management company specializing in Paulownia farming. The company mobilizes its expertise in the field of plantations to plant a special species of Paulownia that is fast growing and non-invasive. This farming company is also in charge of providing the necessary care, maintenance, and finally harvesting the threes. The same company agrees to purchase the entire production. This gives confidence to the Investors / Waqif since there is a demand for their contributions. To raise funds, two scenarios are possible.
- First scenario:
Contributors will make a temporary Cash-Waqf. The duration of the agreement will be defined between both parties and upon maturity the capital will be given back to the Waqifs without any increase. The collected funds will be used to finance the project and generate income that will be directed to a Waqf pool. If the land leased is a Waqf land, Finterra global plantation will be contributing to the Waqf in two levels at the same time. Firstly, by developing an idle Waqf land and secondly by contributing to a Waqf pool which is used for social purposes.
- Second scenario:
This financial arrangement is addressed to sustainable investors who are motivated by social and environmental causes. For this range of investors, Finterra Global Plantation provides an innovative opportunity that combines lucrative, social and environmental components in one. With a minimum of RM 60,000 over a forty-month period, investors can earn between 8% and 12% return per year on a quarterly basis. Investors are given the option of using part of their return on investment to contribute to the Waqf pool. However, regardless of the contribution of investors, 10% of the project revenue is dedicated to Waqf projects. At the end of the investment period, the initial capital will be given back to the investors. By joining the FGP project, investors have the chance to get involved in a socially responsible project, make an ethical investment, while benefiting from constant and steady returns.
During the project period, which extends over forty months, two million seven hundred thousand threes will be planted. This will help in addressing the timber shortage both in Malaysia and internationally which has resulted in deforestation of native forests over time. The FGP is aligned to meet global demands for timber and help Malaysia to meet its carbon footprint commitments. Through this commitment, it contributes directly to the thirteen and fifteen Sustainable Development Goals (SDG) which are:
- SDG 13: Take urgent action to combat climate change and its impacts;
- SDG 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity.
Furthermore, through the funds injected to the Waqf pool, the FGP has an indirect implication to other SDGs such as:
- SDG 1: End poverty in all its forms everywhere;
- SDG 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture;
- SDG 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for al;
- SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all;
- SDG 10: Reduce inequality within and among countries.
The role of the technology in this project is very important to ensure trust and transparency. In the blockchain system, investors/Waqif can see where their funds are invested and follow closely through the years the development of the plantation. In fact, each plant has its respective QR code that is uploaded in the system. This QR code contains information related to that specific plant, from the day of planting to harvest and sale. In addition, blockchain technology underlies smart contracts related to each stage of this financial arrangement. These smart contracts are the logical representation of project rules in the form of computer code. Although this might seem complicated, the use of the blockchain is presented to investors/Waqif in a very simple and user-friendly mobile App. From their phones, Investors / Waqif can follow the development of the project with actual pictures and constant updates. Each quarter, investors are sent notification informing them of the return on investment with an option to contribute to the Waqf pool that is contributed to social causes. Updates regarding these contributions can also be followed by the contributors from the same App.
Finterra global plantation is a leading model in the Waqf sector. Its ability to provide a highly profitable investment opportunity benefits both the Waqf industry and the environment whilst driving more investors towards this industry. This shows that Waqf is not just charity and about rewards of the hereafter, but it can be an investment that profits contributors and beneficiaries. And this is one of many such projects that Finterra has developed to harness the return on investment across various industries to the Waqf sector.
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