The Following Excerpts Concerning the waqf have been drawn from:
“The Provision of Public Goods under Islamic Law: Origins, Contributions, and Limitations of the Waqf System” by Timur Kuran [USC Center for Law, Economics & Organization Research Paper No. C01-13]
Web Address of full paper: http://papers.ssrn.com/sol3/delivery.cfm/SSRN_ID276378_code010725530.pdf?abstractid=276378
Early History and Islamic Identity
The earliest waqfs that satisfy the definition given at the outset seem to date from a period about a century after the birth of Islam.9 Although there exist indications that the term waqf was used early on, initially it appears to have designated booty and conquered land set aside permanently for the benefit of Muslims. Even these meanings probably emerged after Prophet Muhammad’s death in the year 632. The Qur’an does not even mention the waqf institution, let alone specify its legal parameters. True, from the eighth century onward, at least a dozen Qur’anic passages have been interpreted as instructing believers to establish foundations serving religious or charitable purposes. One such passage: “... whatsoever ye spend for good, He replaceth it” (34:39). Another: “O ye who
believe! When ye hold conference with the messenger, offer an alms before your conference” (58:12). Another pertinent hadith has Umar I, the second caliph, asking the Prophet how a certain plot of land might be used in a manner pleasing to God. The response: “Make the property immovable, not subject to sale, gift, or inheritance, and give its revenue to the poor”. Another has a certain Arabian Jew bequeath his wealth to
the Prophet on condition that he use it for charity; the Prophet proceeds to establish the very first waqf . And yet another hadith has Muhammad say: “When a man
dies, all his acts cease but three: recurring charity, beneficial knowledge, and pious offspring who pray for him.”
But these passages readily admit other interpretations. Most obviously, they can be interpreted as instructing believers to be charitable or to pay the Islamic taxes known as zakat. So the Islamic justification for pious foundations has consisted primarily of hadiths—recollections of words and deeds of Muhammad and his companions.10 As with so many other hadiths, many of these were recorded long after the Prophet’s death, which makes their authenticity questionable. They probably emerged as instruments of legitimation at a time when jurists alert to the changing character of the rapidly expanding Islamic community sought to institute a common legal framework to govern
growing numbers of haphazardly established foundations. According to the standard of religious legitimation that gained currency after Islam’s first few decades, an institution not mentioned in the Qur’an could be accepted as Islamic only if it could be shown that it was present in the Prophet’s time and received his seal of approval.11 What can be said with reasonable confidence is the following. At some point after Islam’s initial decades, privately endowed organizations began providing services that the original Islamic state provided through either property expropriated from non-Muslims or taxes collected under the rubric of zakat.12 And the juridical form of the waqf took shape beginning around the year 755, during the second and third Islamic centuries.
Significantly, the rules for establishing a waqf require the endowment to consist solely of
immovables. They also require the property in question to be available forever for the designated mission. Insofar as establishing a waqf provided advantages to the founder, the owners of land and buildings would have been their principal beneficiaries. Currency is movable, and its dissipation is harder to prevent. Earlier, when the seat of Islamic power was still in Arabia, analogous privileges were obtained by the owners of easily concealed and movable wealth. In particular, wealth held in the form of currency and precious metals effectively became exempt from zakat [tax].16 The primary
beneficiaries of this earlier ruling were probably merchants. It is perhaps no coincidence that the zakat system and the waqf system were partial to different economic classes.
Further on we will see that the benefits to waqf founders did indeed involve greater security of property and reduced taxation. Under the regulations that gained acceptance, these benefits were treated as perpetual, which raises the question of why top state officials would have acceded, even formally, to a permanent shrinkage of their revenue base. Had they been interested solely in promoting the state’s long-term interests, they might have resisted the perpetuity principle. However, as members of the wealthy class, they were among those who stood to gain from provisions that enhanced the attractiveness of founding a waqf. Accordingly, the specifics of the waqf system probably emerged as a compromise between the personal incentives of these officials and their incentives as servants of the state.
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The key point is that waqfs supported so many economic sectors that the evolution of Islamic civilization is incomprehensible without taking account of them. “In the Ottoman period,” writes Yediyildiz,, “thanks to the prodigious development of the waqf institution, a person could be born in a house belonging to a waqf, sleep in a cradle of that waqf and fill up on its food, receive instruction through waqf-owned books, become a teacher in a waqf school, draw a waqf-financed salary, and, at his death, be placed in a waqf-provided coffin for burial in a waqf cemetery. In short, it was possible to meet all one’s needs through goods and services immobilized as waqf.”32 In the Venture of Islam, Marshall Hodgson observes that the waqf system eventually became the primary “vehicle for financing Islam as a society.”33 It follows that to understand the economic successes and failures of the Islamic world and, in particular, the distinguishing features of the contemporary Middle East, one must analyze the history of the waqf system, with particular attention to its efficiency.
How Waqfs Were Used, Benefits Accured:
… The founders of endowed mosques might extend their social recognition by stipulating that after each ritual prayer the congregation should commemorate their benevolence. Such a requirement could be effective for generations on end. Half a century after the abolition of the Turkish monarchy and the relocation of Turkey’s capital to Ankara, congregational services at certain Anatolian mosques still ended, in keeping with their deeds, with prayers for the health of the reigning sultan in Istanbul.48 Successive
sultans took care that the most magnificent and best-endowed mosques were built by them or their wives—part of a strategy to cultivate an image of just and caring administration through the establishment of prominent imperial waqfs. [See “waqf of Hurrem Sultana” for example]
Governments sometimes used the waqf system to extend their power and win over selected constituencies. The Haseki Sultan waqf not only supplied social services but also, through the extension of patronage, consolidated the Ottoman government’s political authority.49 Like gift giving in general, waqf formation could also be driven by a desire to spread an ideology. A donation to a modern university may serve to win converts to a political agenda, as when a donor funds an ideologically charged program. So it is that the founders of educational waqfs frequently required the appointed teachers to be loyal to them personally and resistant to ostensibly subversive ideas. The
ultimate objective of these founders was to gain the political loyalty of students and, through them, control over public opinion.50 [This can be tied together with growing centralization and religious control over education especially in the 16th Century. See Lecture Notes for Oct 15.]
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Whereas relatively small waqfs tended to be established haphazardly, when sultans, members of their households, and other dignitaries endowed massive charitable complexes, they typically did so in accordance with state priorities and implicitly as instruments of state policy. Thus, major investments were typically made in towns or along trade routes considered strategically important. That Hürrem established her famous charitable complex in Jerusalem is no coincidence. It had been just a few decades since the Turks subjugated the Middle East, and they were endeavoring to win
Arab loyalties.138 From a legal standpoint she was free to establish a waqf dedicated, say, to assisting the lepers of Bosnia. But her husband the sultan was equally free to remind her of the Ottoman regime’s geo-strategic aspirations and to withdraw her privileges if she was uncooperative
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For some founders, perhaps most of those other than sultans and members of their
households, the main motive was to shelter wealth. What fueled this fourth motive was that the Islamic world never developed effective safeguards against opportunistic taxation or expropriation. Sultans varied tax rates and forms when it suited their purposes. Where they could do so with impunity, part of the reason is that the Qur’an, the fundamental source of Islamic law, contains few specifics on taxation.51 As with any rational ruler, sultans preferred taxation to confiscation, in order to maximize their subjects’ incentives to produce.52 Yet, in fiscal emergencies, they readily yielded
to the temptation to confiscate. This is because they could not borrow directly from their subjects, at least not enough to meet their needs,53 a consequence of the fact that their repayment promises lacked credibility.54 The upshot is that rulers regularly confiscated private property, often by invoking the Islamic principle that all property belongs to God. The consequent weakness of private property rights made the sacred institution of the waqf a convenient vehicle for defending wealth against official predation.
Expropriations of waqf properties did occur, especially following conquests or the
replacement of one dynasty by another. However, when they occurred, they usually generated serious resistance. During the two and a half centuries preceding Egypt’s fall to the Turks in 1517, no fewer than six revenue-seeking Mamluk rulers attempted to confiscate major waqfs; primarily because of judicial resistance, their efforts were largely unsuccessful.55 In the 1470s the Ottoman sultan Mehmed II expropriated scores of waqfs to raise resources for his army and his unusually broad public works program. His conversion of hundreds of waqf-owned villages into state property generated a strong
reaction, and it influenced the succession struggle that followed his death. Moreover, his son Bayezid II, upon acceding to the throne, restored the confiscated lands to their former status.56 Such episodes underscored the relative security of waqf property.
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Metin Kunt finds, likewise, that between 1550 and 1650 it was extremely rare for Ottoman elites to establish waqfs whose benefits were confined to family members.76 These figures confirm that the cost of sheltering wealth through a waqf was anything but negligible.
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Among the non-relatives commonly named waqf beneficiaries were freed slaves who, under the prevailing understanding of Islamic law, could not inherit property even from a master who died without heirs. By including a manumitted slave among the beneficiaries of his waqf, the founder hoped to ensure, and frequently achieved, the former’s gratitude and loyalty. He also averted the danger that his Qur’anic heirs, lacking his own sentimental attachments to the freedman, would neglect him.81 In the sixteenth and seventeenth centuries, Gabriel Baer has shown, the founders of certain large waqfs in Turkey and Egypt reserved major posts for freed slaves and their descendants,
sometimes at the expense of Qur’anic heirs.
To sum up thus far, Muslims have had various motives for founding waqfs—religious, social, political, and economic. These motives were by no means mutually exclusive: a person could establish a waqf both to shelter wealth and to gain entry to heaven. The economic motives stemmed from two factors: weak property rights and restricted testamentary rights. Driven to lasting achieve control over their assets, early generations of Muslims established an institution to enhance the security of property. This institution was then given religious legitimacy as a means of reining officials tempted to confiscate immobilized properties. In effect, the waqf’s sacredness enabled the state to commit itself to upholding private property rights. Although examples of confiscation are plentiful, waq fowned properties were substantially less likely than privately owned assets to be taken over by the state.
The Waqf of Hurrem Sultana:
… There is abundant evidence that even a single waqf could carry great economic importance. Jerusalem’s Haseki Sultan charitable complex, founded in 1552 by Haseki Hürrem, wife of Süleyman the Magnificent and better known in the West as Roxelana, possessed 26 entire villages, several shops, a covered bazaar, two soap plants, eleven flour mills, and two bathhouses, all in Palestine and Lebanon. For centuries the revenues produced by these assets were used to operate a huge soup kitchen, along with a mosque and two hostels for pilgrims and wayfarers.
…major investments were typically made in towns or along trade routes considered strategically important. That Hürrem established her famous charitable complex in Jerusalem is no coincidence. It had been just a few decades since the Turks subjugated the Middle East, and they were endeavoring to win Arab loyalties.138 From a legal standpoint she was free to establish a waqf dedicated, say, to assisting the lepers of Bosnia. But her husband the sultan was equally free to remind her of the Ottoman regime’s geo-strategic aspirations and to withdraw her privileges if she was uncooperative. The assets that Hürrem used to form the Haseki Sultan waqf were probably acquired in the first place with an understanding that they would be used partly to supply social services.
… The Haseki Sultan waqf not only supplied social services but also, through the extension of patronage, consolidated the Ottoman government’s political authority.
One more source of flexibility remains to be considered. There is evidence that it was possible, increasingly so after the fourteenth century and especially so in Turkey and the Balkans, to circumvent a feature of the waqf system that was critical to static perpetuity: the legal requirement that waqf assets be limited to immovables. The holders of liquid wealth, particularly moneylenders, naturally favored the relaxation of this requirement in order to gain the asset sheltering privilege available to owners of real estate. “Cash waqfs” thus emerged as early as the eighth century, earning income generally through interest-bearing loans.124 Uncommon for many centuries, these waqfs provoked intense controversy as their numbers multiplied, because they violated both waqf law and the prohibition of interest.125 According to their critics, not only was the cash waqf doubly un-Islamic but it consumed resources better devoted to charity and religion. Interestingly, the defenders invoked neither scripture nor the law. Conceding that the cash waqf violates classical Islamic principles, they pointed to its popularity and inferred that it had to be serving a valuable social function. In effect, they held that the cash waqf should be tolerated because it passes the utilitarian test of the market—the irreligious test now commonly used to justify popular, but perhaps ethically troubling, economic practices. The defenders of the cash waqf, who included prominent clerics, also lamented that their
opponents, though perhaps knowledgeable of Islam, were ignorant of both history and the prevailing practical needs of their communities.
Because they met important needs and encountered little opposition outside of legal and
religious circles, cash waqfs became increasingly popular. By the sixteenth century, in fact, they accounted for more than half of all the new Ottoman waqfs. Most of them were on the small side, as measured by assets.127 One factor that accounts for their enormous popularity is the ubiquitous quest for wealth protection. Another was that there existed no banks able to meet the demand for consumption loans, only moneylenders whose rates reflected the risks they took by operating outside the strict interpretation of the law. Where and when the cash waqf enjoyed legal approval, it allowed moneylenders to operate more or less within the prevailing interpretation of Islamic law. If nothing else, the sacredness that flowed from its inclusion in the waqf system insulated its interest-based operations from the charge of sinfulness. A further impetus to the formation of cash waqfs came from cash-rich individuals seeking to establish steady revenue streams to finance charitable services whose expenses were expected to remain roughly constant, for example, schools whose primary expense would consist of teacher salaries.
The cash waqfs undoubtedly limited one of the problems associated with static perpetuity. They enabled the transfer of waqf capital across economic sectors simply by redirecting loans from one set of borrowers to another. Where a waqf of immovables might have its capital tied up in an increasingly unproductive farm, a cash waqf’s commitment to a particular sector was limited only by its loan periods. Yet, cash waqfs were by no means free of operational constraints. Like the founder of an ordinary waqf, that of a cash waqf could restrict its beneficiaries and limit its charges. Yediyildiz
points to the deed of an eighteenth-century waqf whose founder required it to lend at exactly ten percent and only to merchants based in the town of Amasya.128 The restrictions imposed on a cash waqf typically reflected, in addition to the founder’s personal tastes and biases, the prevailing interest rates at the time of its establishment. Over time, these could become increasingly serious barriers to the waqf’s exploitation of profit opportunities. Precisely because the cash waqfs were required to keep their rates fixed, observes Çizakça, only a fifth of them survived beyond a century.129
Why might the founders of cash waqfs have fixed the rates that their mutawallis [managers] could charge for loans? Perhaps such a step was considered critical to having the cash waqfs qualify as waqfs.Given that static perpetuity was among the defining principles of the waqf system, it may have been thought that fixing its nominal fees was the least the founder of a cash waqf needed to do to meet the requirement of immobilizing the waqf corpus. By forcing mutawallis to charge a rate presumably
consistent with meeting the waqf’s designated expenses, he could ensure its permanent viability. Since it rests on the notion of an unchanging economy, this logic was bound to spell trouble in times of mounting interest rates. As nominal interest rates rose in credit markets outside the waqf system, the mutawallis found growing opportunities for enriching themselves through arbitrage. Revealingly, the borrowers of the eighteenth-century cash waqfs of Bursa included their own mutawallis. These mutawallis lent on their own account to the moneylenders of Ankara and Istanbul, where interest rates were higher.130 Had the endowment deeds of these cash waqfs permitted greater flexibility, the gains reaped by mutawallis may well have accrued to the waqfs themselves.
Cash waqfs have been likened to rudimentary banks, but there were important differences. Whereas a bank pools the deposits of multitudes of individuals, a cash waqf was typically formed through a single individual’s savings. Moreover, just as there were legal impediments to resource pooling by waqfs of immovables, so it was with cash waqfs. This limited the size of the average loan, and probably also the size of the business enterprises formed. True, there was nothing to keep borrowers from pooling capital themselves by taking loans from multiple cash waqfs. But borrowing is never costless, and the cost of taking many small loans undoubtedly exceeded that of taking an equivalent large one. There was, in fact, very little pooling on the demand side of this credit market. Insofar as the cash waqfs lent to individual borrowers, they generally made small-scale loans to consumers rather than to businesses.131 To evolve into a type of bank, the cash waqf would have had to overcome an additional restriction of Islamic law: its aversion to the concept of a juristic person. This did not happen. Created as a device to circumvent the Islamic law of inheritance and enhance the credibility of private property
rights, two major legal restrictions, it was unable to transcend the anti-corporatism of the law. This anti-corporatism was rooted in early efforts to unite the nascent community of Muslims by denying recognition to all political boundaries except those separating areas inhabited by Muslims from those inhabited by unbelievers.132 I have suggested elsewhere that this anti-corporatism became an enduring trait because the existing set of institutions prevented merchants and producers from gaining political influence, thus limiting social pressure for legal reforms.133 The key point here is that the cash waqf arose in a legal setting lacking familiarity with even the concept of a juristic person. Partly as a result
of this limitation, the cash waqf failed to develop into a lending organization capable of raising large amounts of capital, responding flexibly to market opportunities, and refining its own business methods. Modern banking arrived in the Islamic world in the nineteenth century, through the impact of the West.
ORGANIZED USE OF WAQFS
Whereas relatively small waqfs tended to be established haphazardly, when sultans, members of their households, and other dignitaries endowed massive charitable complexes, they typically did so in accordance with state priorities and implicitly as instruments of state policy. Thus, major investments were typically made in towns or along trade routes considered strategically important. That Hürrem established her famous charitable complex in Jerusalem is no coincidence. It had been just a few decades since the Turks subjugated the Middle East, and they were endeavoring to win
Arab loyalties.138 From a legal standpoint she was free to establish a waqf dedicated, say, to assisting the lepers of Bosnia. But her husband the sultan was equally free to remind her of the Ottoman regime’s geo-strategic aspirations and to withdraw her privileges if she was uncooperative. The assets that Hürrem used to form the Haseki Sultan waqf were probably acquired in the first place with an understanding that they would be used partly to supply social services.