The economic significance of awqaf

There is a positive correlation between private sector participation in the economy and national economic progress.

THE dynamism of the institution and mechanism of awqaf (an Islamic instrument of wealth distribution that can provide perpetual benefit) can contribute significantly to the economy.

Firstly, if the awqaf institution is properly and effectively organised, a huge sum of wealth can be accumulated by the state from the private sector for public purposes.

This voluntary contribution of the private sector can reduce the size of government expenditure, which can eventually reduce public sector participation in the economy.

The public goods made available through the awqaf institution can replace the government’s burden and responsibility.

This voluntary contribution and participation of the private sector due to religious encouragement can act as great impetus for the society to contribute to its stability and development.

Secondly, active society’s commitment to social economic requirements can prevent government borrowing through deficit financing. Deficit financing normally has a negative financial implication for the government.

In the present volatile and globalised world economic condition, it is advisable for the public sector to be involved in less public borrowing.

The previous financial crisis that affected this East Asian region had serious implications for countries which had undertaken huge borrowings by the public and private sectors, particularly from external sources.

Thirdly, through voluntary contributions of the well-to-do for the public purpose, awqaf can have a positive implication on the redistribution of wealth in the society. This voluntary approach has a far more positive reach than redistribution through taxes and government transfer expenditure.

The instrument of taxes has a greater cost implication in its implementation. Sometimes, due to a lack of proper tax formulation, the costs of collecting taxes can be a great burden to the government. A great cost is also involved in the transfer of government expenditure.

In the case of voluntary contribution of awqaf, the costs of collection will be very marginal and in most cases, it will involve no costs at all.

by Nik Mustapha Haji Nik Hassan.

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