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Cash Waqfs: Ottoman Case

The cash waqf (plural; auqaf) was a trust fund established with money to promote services to mankind in the name of God. These endowments were approved by the Ottoman courts as early as the beginning of the 15th century and by the end of the l6th, they had reportedly become extremely popular all over Anatolia and the European provinces of the empire.

The extent of  the  geographical diffusion and, specifically, the creation of waqfs in the Arab provinces, is subject to debate. Originally, it was argued that the supposedly more pious Arab regions refused to have anything to do with this institution (Mandaville, 1979, p.308). This view has been challenged. The widespread establishment of these waqfs in Aleppo has been documented (Masters, 1988, p.l62) and it is possible that new research may reveal further examples in other Arab cities.

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The endowed capital of the waqf was “transferred” to borrowers who after a certain period, usually a year, returned to the waqf principal plus a certain “extra” amount, which was then spent for all sorts of pious or social purposes. These vague terms ‘‘transferred” and “extra” have been used deliberately here. For, whether the capital of the endowment was lent as credit to the borrowers and the return was in fact nothing but the ordinary interest constitutes another debate.

In a society where health, education and welfare were entirely financed by gifts and endowments, the cash waqfs carried serious implications for the very survival of the Ottoman social fabric. They also provided major injections of capital to the economy of the cities where they functioned. Moreover, since once endowed, the principal was considered to have become the property of God they provided a considerable safety against direct or indirect confiscation for the capital. Since the trustees of an endowment could be appointed by the founder for generations to come, cash waqfs were utilised as a means to keep the accumulated capital within one’s family.

a) Legal Background and the Position of the Classical Jurists

The Ottomans, being devoted Hanafis, conducted their business and social affairs within the general guidelines established by this mazhab. It is, therefore, imperative that the analysis of this institution should start with a summary of the classical Hanafi position pertaining to cash waqfs. Let us first consider the thorny issue of the endowment of movable assets. The essence of this problem pertains to the perpetuity of the endowment, the sine qua non condition for any waqf. Real estate, was thought to be the best asset to ensure the perpetuity of an endowment. There were, however, three recognised exceptions to this general principle among the Hanafi scholars. First, the endowment of movable assets belonging to an endowed real estate, such as, oxen or sheep of a farm, was permitted. Second, if there was a pertinent Hadith and third, if the endowment of movables was the customary practice, ta’amul in a particular region. Indeed, exerising judicial preference, istihsan, Imam Muhammad al-Shaibani, had ruled that even in the absence of a pertinent Hadith the endowment of a movable asset was permissible if this was customary practice in a particular location. Apparently, even custom was not always a required condition, for according to al-Sarahsi, Imam Muhammed had, in practice, approved the endowment of movables even in the absence of custom. Furthermore, both Imams Muhammed al-Shaybani and Abu Yusuf had confirmed, absolutely, the endowment of movables attached to a piece of real estate. In view of this, it is not surprising that we often see such combined cash/real estate waqfs in the Ottoman records.

Given the acceptability of movable assets as the basis for creating a waqf, how does one define a moveable asset? More specifically, can money be considered a movable asset and, therefore, be permitted as the basis for the establishment of a foundation? Imam Zufer answered this question affirmatively and ruled that the endowment of cash was absolutely permissible. Zufer went into detail as to how such an endowment could be organised: He suggested the endowed cash form the capital base of a mudaraba partnership and any profit realised be spent in accordance with the general purpose of the waqf as stated in its charter. If the movable assets endowed were not originally in a liquid cash form, then they should be sold in the marketplace and the cash thus obtained could be utilised as described above, i.e., as the capital of a mudaraba.

In summary, three principles constituted the foundation upon which the later Ottoman jurists built the structure of the cash waqfs. The approval of movables as the basis of a waqf, acceptance of cash as a movable asset, and, therefore, approval of cash endowments.

b) Establishment of a Cash Waqf

A further debate in the establishment of Ottoman cash waqfs revolved around the question of the irrevocability (luzum-u vakf). According to Abu Hanifa, the founder of a waqf or his descendants could revoke the original decision and claim the endowed property back. That is to say, a waqf was not irrevocable. Abu Hanifa added, that for a waqf to become irrevocable and valid, a court’s decision was necessary.

Other great jurists of the Hanafi school did not agree with opinion. Abu Yusuf, for instance, argued that when Prophet Mohammed (pbuh) endowed his property, his personal property rights became null and void. Moreover, neither the Prophet (pbuh) nor any of the four caliphs or the ashab ever reversed their decision to endow their properties. These jurists further argued that the establishment of a waqf was an irrevocable act, based upon the Hadith pertaining to Omer’s endowment.

This legal debate among the great Hanafi scholars was resolved by the Ottomans as follows: A man wishing to establish a waqf informed the court of his intention thereby creating the waqf. He later revoked his decision and demanded the trustee of the waqf to return his capital. When the latter refused to do so, the case was brought to the court where the request was flatly rejected by the judge who declared that a waqf, once established, was irrevocable and definite (luzum ve katiyyet). Thus the condition determined by Abu Hanifa, i.e., the court’s decision was met and the waqf became irrevocable and definite.

c) Cash Waqfs in Historical Reality

In order to understand how cash waqfs functioned in Historical reality a group of cash waqf inspection registers kept among the Bursa Ottoman court archives have been studied. In what follows a brief summary of this study will be presented.

(i) Survival of the Cash Waqfs: Since perpetuity is considered to be the condition sine qua non of any waqf, an analysis of the survival rate of the cash waqfs assumes great importance. The question that we researched was “what percentage of registered waqfs were perpetual”?. But First, the term “perpetual” must be defined. For all practical purposes, a perpetual waqf is defined here as one which survived for more than a century. Thus, those waqfs which had survived for at least one hundred years were sought.

In order to find the answer to the problem of perpetuity, altogether 2,688 cash waqfs of the city of Bursa were fed to the computer. This constituted the total population of the research. Within this total population, however, there were 761 individual waqfs which were repeatedly identified across several different years, hence the much larger total population figure. The main question can thus be restated: what percentage of these 76l waqfs were “perpetual”?

This number was 148, that is to say, out of 76l individual waqfs, 148 definitely survived for more than a century. This gives us a “perpetuity percentage” of 19 percent. It is quite clear that had it been possible to incorporate into the general population those waqfs which could not be traced to a specific district, mahalle, this percentage would have exceeded 20 percent.

(ii) The Management of the Cash Waqfs: Having observed the “perpetuity percentage” of the cash waqfs, the obvious question to ask at this point is one of management: How was it that some 20 percent of the cash waqfs succeeded in surviving for more than a century in the first place? To answer this question we need to take a careful look at the way these waqfs were managed. More specifically, we will be mainly concerned here with the manner in which the capital of the waqf was invested by the trustee.

A typical 18th century cash waqf entry would read like this: muhasebe-i mahsulat ve ihracat-i evkaf-i muslimin bera-i avariz ve nuzul mahalle-i orhan gazi der brusa der zaman-i esseyid halil aga el-mutevelli bil vakf el-mezbur fi gurre-i muharrem el-haram sene 1200 ila gaye-i zilhicce el-serif li sene el-merkum, which can be translated as: “the account of the revenue and expenditure of the Muslim endowments for the purpose of (assisting) the avariz and nuzul taxes for the (residents of the) Orhan Gazi district of the    city of Bursa during the trusteeship of Esseyid Halil aga,the trustee of the said endowment from the beginning of the month of Muharram of the year 1200 (1785) until the end of Zilhicce of the same year (B 227/455-1/lb)”.

This particular cash waqf was endowed with an initial capital of 2377.5 grus. To this, the “profit” of the previous year was added which increased the capital to 2544 grus. Later, we have three other waqfs further contributing to this 2544 grus. The first contribution, 50 grus, was provided by the waqf of the Ayse Hatun for the purpose of reciting the mevlid. The second 85 grus, came from the waqf of Hatim Hatun, for the same purpose. Finally, the third contribution, 50 grus, also came from the waqf of Hatim Hatun but, this time, for the purpose of buying candles for the Orhan Gazi waqf. The total capital of the endowment thus, increased from the original 2377.5 grus to 2729 grus, an addition of 351.5 grus altogether.

This enhanced capital of 2729 grus was then distributed as credit to 20 individuals. These investments generated a return of 257.5 grus, murabaha fi sene-i kamile, which represented 9.4 percent of the invested capital. Out of this return of 257.5 altogether 86.5 grus were spent to assist the payment of avariz and n­uzul taxes, to recite the mevlid, to buy candles, to pay the trustee and the bookkeeper, and for miscellaneous expenses. The remaining 171 grus was called the ziyade ez masraf and was added the following year to the capital of the endowment.

This demonstrates, in brief, how a cash waqf actually functioned. In a nutshell, the endowed capital was distributed as credit to a number of borrowers and the return from this investment was spent for religious and social purposes. If the return exceeded, as in this particular example, the expenses, the remainder was then added to the original capital of the endowment the following year. In this brief explanation, there are many points which cry out for an explanation. First, let us consider the enhancement of the initial capital.

The original capital of an endowment could be expanded two ways; either the return of the invested capital exceeded the expenditure and the resulting profit was added to the capital, or other endowments assigned part of their revenue to the endowment being considered. The waqf for the provision of food to the members of the guild of sipahiyan constitutes a good example: the original capital of this endowment was 2010.5 grus. Four other endowments contributed to the capital of this waaf  increasing it to 2180.5 grus (B 227/455, p.2/2B). There is no satisfactory explanation for this frequently observed phenomenon of transfer of funds between endowments. Whatever the explanation, the increased capital was invested in its entirety through transference to borrowers.

Having observed above that the original capital of the endowment could be increased either by a reinvestment of the profit generated or by contributions from other endowments, it will be argued here that there must have been a relationship between “perpetuity” and enhancement of the initial capital. Put differently, we have the impression that the “perpetual waqf’ owed their survival to the enhancement of their initial capital.

It has been stated above that 148 perpetual waqfs were studied. Of this total a 25 percent sample (36 perpetual waqfs) was created and the relationship between the enhancement of their capital and their perpetuity was examined. Out of these 36 perpetual waqfs only 7, or, 19 percent had not have their initial capital expanded. The remainder, i.e., 81 percent of these waqfs had gone through a process of capital enhancement. Thus our impression that the enhancement of the initial capital appears to have been an important factor in explaining the perpetuity of the endowments was confirmed.

iii) The Return: Let us now examine the nature of the return of the invested capital, the irad or murabaha: Was it based on a certain percentage of the capital invested i.e., a rate of interest pure and simple or, was it solely the profit generated by the invested capital? If the former is true, it goes without saying that this would be in contradiction with the well-known Islamic prohibition of interest. In such a case an explanation as to how the prohibition was circumvented would, be necessary. If the latter alternative is correct, i.e., return equals profit realised, then the return could conceivably entail not only a situation of profit but also a loss thereby causing a potential depletion of the initial capital as well.

A cash waqf could invest its capital in one of these three methods: 1. mudaraba 2. bida’a 3. muamele-i seriyye. The first two methods are well-known forms of Islamic finance and need not to be lent explained here. The third expression - is a general terminology covering various methods by which money could be lent to borrowers within the framework of Islamic jurisprudence. While these muamele-i seriye methods were permitted by the jurists, it seems they were simple legal devices intent on obeying the letter of the law while violating its spirit.

One of the most popular of these devices was know as istiglal, and has been described (Gerber, 1988, p.128) as follows:

“In 17th century Bursa istiglal designated an interest-bearing outwardly construed as a sale: the borrower handed over to the lender a piece of real estate, supposedly as a sale, but actually in pawn. If the borrower redeemed his debt after one year, the  asset reverted to him. In the meantime, the lender leased the asset to the borrower (so that the borrower could go on using it) and the “rent” which was often exactly 10 percent of the loan, was nothing but interest. In short, we have here a simple interest-bearing loan with a piece of real estate as security.”

Thus, through istigial and other similar measures it was possible for cash waqfs to lend money (on interest) and still remain within the law. But did they actually lend money on interest or pseudo interest? We searched for the answer to this question by examining the murabaha/capital ratios. This search also shed light upon a recent debate between modern economic historians and jurists. This debate started with the Barkan and Ayverdi study which mentioned that the cash waqfs simply lent money on interest. These authors were then joined first by Mandaville and then Gerber.

The views of these historians that the cash waqfs lent with interest and thus violated Islamic law became known to a large body of modern-day jurists specialising in Islamic law when these views were summarised and published in Turkish in a recent book (Ciller-Cizakca, 1989). In a following symposium convened in Istanbul, the historians’ views were criticised on the grounds that all of the methods by which the cash waafs transferred their capital to the borrowers had been scrutinised carefully by the Ottoman jurists and were therefore legal. More specifically, it was argued that historians have been confused by some of the terminology used in the endowment deeds. The term istirbah, for instance, which some historians wrongly interpreted as resorting to riba or interest, simply meant that the capital of the endowment was not transferred as qarz-e-hasan, lending without interest, but that a share of the profit to be earned by the investment of the endowed capital was to be paid back by the borrower to the waqf. The term ilzam-i ribh, likewise, meant that the borrower was required to make a profit and return to the waqf the principal plus a share of this profit. The term, onu onbir üzere, which can be translated as “eleven out of ten”, specified this profit share and meant that for every ten dirhams earned by the borrower or the entrepreneur, one dirham should be returned to the waqf (Döndüren, 1990).

The crucial word here is “earn”. Indeed, if as Döndüren suggests, the amount returned to the waqf the borrower was a percentage of the profit earned, then this would be a profit share, not interest. So, herein is the basis for yet another debate. Using the long-term data we have at hand we are at a position to test. To do this we can investigate the profit/capital ratios for each cash endowment. If Döndüren is right and the return of the capital was in the form of a profit share then we would expect that the profit/capital ratio would exhibit a fluctuating trend reflecting the ever-changing amounts of profits (or losses) accruing to the invested capital. If the return, however, was in the nature of interest then we would expect to see more or less constant profit/capital ratios reflecting the constant returns to the invested capital.

Before we start this analysis, however, we need to make a distinction between judicial and economic interest. Even if the profit/capital ratios exhibit a constant trend and the return is therefore identified as interest, it must be remembered that this pertains to an economic interest and not to a judicial one. This is because, as far as judicial interest is concerned, the issue had been resolved centuries ago by the jurists. Istiglal and other methods of lending which modern historians consider simply as interest, pertain in actual fact to economic interest. As far as the legal establishment was concerned these instruments permitted and not categorised as interest. Most of the Ottoman jurists had no doubts about the legality of these instruments.

To find an answer to the question of whether the murabaha or irad constituted an economic interest, 1563 waqfs and their respective profit/capital ratios covering the period 1078-1220/1667-1805 had been entered into the computer. This evaluation constituted a major part of an earlier study (Cizakca, ISAV, 1993). Only four of these waqfs exhibited significant fluctuations while all the rest, i.e., 1559 of them, produced returns of between 9 and 12 percent. Thus we conclude, although the financial instruments utilised by the cash waqfs were considered to be legal and approved by the courts, these constant ratios strongly suggest that an economic interest prevailed.

(iv) Cash Waqfs and the Poor: In this section we will conceal on the way the cash waqfs provided important social services the society. These services were financed by spending the return generated by the investment of the endowment capital. All registers analysed contained valuable information about such expenditures. The analysis of the expenditure patterns has revealed that the Bursa cash waqfs spent their returns basically on the following categories: education, provision of food for the poor, sadaqa for the poor, founder’s family, construction and maintenance of mosques, maintenance of waqf buildings, religious expenditure, alleviation of the tax burden of a district, water works municipal services, waqf administration.

The data at hand has permitted us to study the changes in the expenditure patterns of the Bursa cash waqfs from 1555 to 1823. In this long period covering almost 300 years there has been a marked increase on the expenditure on food for the benefit of the poor. Looking at the percentage of total spending by all the waqfs allocated for food to be distributed to the poor, we note that this percentage has increased from 0.7 percent in 1667 to 20 percent at the end of the period in 1823.

The next category related to the poor, social spending and alms, sadaqa, also increased substantially from 1 percent in the year 1767 to 7 percent in 1823. Once again the percentages pertain to the ratio of total amount spent on a single category by all the endowments to the total amount spent by all the endowments on all categories.

The final category that is directly related to the poor was the alleviation of tax burden. These taxes essentially comprised the avariz and nüzul taxes for which there was collective responsibility. These taxes were apportioned between the districts, mahallas, and every household was proportionally held responsible for the payment of these taxes. Consequently, any attempt, no matter how incomplete, to relieve the residents of a certain district from this burden must have been greatly appreciated. Thus, it can be safely argued that a person who establishes a waqf for this purpose must have enjoyed an instant boost in his social standing. These arguments are confirmed by the enormous popularity of the avariz-nüzul waqfs among the founders: We note that from 1667 until 1786, the percentage of the total expenditure allocated to this particular category fluctuated between 20 percent and 32 percent.

Thus, if we put together the expenditures made by the Bursa cash waqfs on the three categories; provision of food for the poor, the sadaqa and the tax alleviation then we reach to the very rough conclusion that by the 18 century about half of the spending of these endowments were made directly for the benefit of the poor. The indirect benefits such as construction of the mosques, payments made to the prayers who were often poor persons or the municipal services, etc. are not included in this percentage.

v) Capital Accumulation and Redistribution: Since altogether 761 cash waqfs existed in the 18th century Bursa, an entrepreneur theoretically could accumulate substantial amount of capital by borrowing from a multitude of endowments. If so, then the cash waqfs can be envisaged as a major instrument of capital accumulation.

The point just made may be investigated by a careful analysis of the borrowers. Such an analysis is made possible by the fact  that after the year 1749, the Bursa waqf registers contain a section for each waqf that informs us about the persons who borrowed from the endowment. Looking carefully into  these  sections  it  should  be possible to identify frequent borrowers, or those who borrowed regularly from a multitude of endowments. Our analysis of the borrowers has revealed that in a given year during the 18th century more than 6,000 persons were provide with credit by the cash waqf system in the city of Bursa. But what does this figure imply? Since it has been estimated that for most of the 18th century Bursa probably had a population of about 65-70,000 we can conclude that about 8.5 percent to 9 percent of the total population of Bursa resorted to the cash waqfs of the city as a source of credit.

At this point, however, we must point out another difficulty in analysis-the repetitiveness of the data. We do not know if these approximately 6,000 borrowers were 6,000 separate individuals or if a particular group of people borrowed from a multitude of endowments in a given year implying capital accumulation mentioned above.

Further research into the details of borrowers has indicated that capital pooling was practiced by only 7.5 per thousand the borrowers. This gives, as a very rough estimate, the impression that out of the 6,648 borrowers only about 50 were involved in capital pooling. Moreover, in all probability, these 50 individuals were not entrepreneurs attempting to enlarge their capital base. They were the trustees of the endowments borrowing from their own endowments at a relatively low rate of economic interest and lending this borrowed capital to the money dealers, sarrafs with a mark-up. This argument is supported by a previous study which showed that another profession that would have been most likely to utilise the cash waqf sources, i.e., the silk sector, rarely did so. In fact, the ratio silk credits/total credits never exceeded 3 percent during the period 1749-1785 (Cizakca, 1993, p.722).

These findings lead us to the conclusion that the cash waqfs injected substantial amounts of capital into the economy. In this context the concepts of capital redistribution and capital accumulation need to be clearly distinguished: Cash waqfs were foremost institutions of capital redistribution. The capital accumulated in   one   way   or   the   other   by   their   original   founders were distributed to a myriad of borrowers and the data revealed that bulk of the credits went to small-scale consumers rather than to capital pooling entrepreneurs. Moreover, about half of the returns generated in this process were spent for the benefit of the society, especially of the poor.


Source: Poverty Alleviation in Pakistan: Present Scenario and Future Strategy, Mohibul Haq Sahibzada. Republished with permission.