Decline of the Ottoman Cash Waqfs

At this point the reader may wonder about the relative staying power of the cash waqfs vis-a-vis the real estate waqfs. Bearing in mind that some major sultanic real estate waqfs could be maintained for centuries and many are still in service, it may be thought that the real estate waqfs should have much greater possibilities for survival. But the relevant question here is not the survival rate of some major sultanic waqfs, which could be extended even over a millennium, but the average rate of survival of all. In any case, unfortunately, we are not yet in a position to conduct comparative research because the survival rate of the real estate waqfs in any particular locality has not yet been studied. But the survival rate of the cash waqfs of Bursa has been calculated. Our research has revealed that slightly more than 20% of the Bursa cash waqfs survived for more than a century (Çizakça, 1995: 317-320). Thus, although probably less impressive than the real estate waqfs, the survival rate of the cash waqfs should not be underestimated.

If we look at the problem of survival not from the perspective of cash versus real estate, but cash waqfs as a whole, we encounter a totally different picture. Thanks to recent research, we have been informed about the substantial decline in the relative importance of cash waqfs as a source of credit (Öztürk, 1995: 26; eyhun, 1992). Öztürk has shown that in the year 1908 the total capital of the cash waqfs was equal to 90,750,000 gru and rose to 321,989,000 gru in 1923 and to 11,111,423,000 gru in 1943. He thus gives us the impression that the system was doing perfectly well but Eldem informs us that in the same year the Ziraat Bankasi, an agricultural bank, alone advanced 563,000,000 gru , as credit. The credit advanced by the Ottoman Bank, on the other hand, had reached a staggering 1,102 million gru (Eldem, 1970: 234). In short, modern banks as suppliers of credit superseded the cash waqf system.

Apparently there were two distinct reasons behind this decline: economic and administrative. Let us first concentrate on the former. It has already been mentioned that the cash waqfs charged a fixed rate of “economic interest” which did not change over the long run. The rigidity of this rate was caused by conditions stipulated by the founders at the time of the establishment of these endowments. Once determined by their founders, these rates could not be changed in response to the changing economic conditions and any attempt to do so was considered to be against the law.

While the rates charged by cash endowments thus remained fixed, there developed other sources of finance, which were not hampered by such limitations. The sarrafs, money changers, charged rates determined by the supply and demand for money. Consequently, there developed a capital market in which two different rates of interest prevailed. It was argued above that under these conditions, it would make sense to borrow money from cash waqfs, which supplied the relatively cheaper capital and then sell this to the sarrafs who would re-sell it with a mark-up to the public. It was further argued that the trustees of the cash waqfs were in an ideal position to perform such transactions and indeed, it was shown as evidence for the above argument that they were emerging as major borrowers of capital from the very endowments that they controlled.

Even more definitive evidence supporting this idea has been found in the archives of the Chamber of Commerce of Marseille. The correspondence of French merchants residing in Istanbul inform us that, indeed, the market rate of interest prevailing in that city was substantially higher than the “economic interest” charged by the cash waqfs of Bursa.

In one of the French documents, it is clearly stated by the two “deputés” Conston and Reimond that the situation in Istanbul differs substantially from that of Europe. They report that the sarrafs obtain capital at 12% to 13% interest, which they then lend to the members of “our” nation with at least a 20% interest without any regard to usury prohibitions. This approximate rate of 12-13% is roughly 2% above the rate at which the cash waqfs provided capital. The 2% difference therefore may represent a mark up charged by the trustees when they re-sold the capital to the sarrafs. That the sarrafs, indeed, borrowed capital from the cash waqfs has been proven also by an original Ottoman document. Moreover, the trustees themselves could also become sarrafs. In this case, the profit of the trustee/sarraf would increase up to 8% or more. In short, the trustee/sarraf would borrow capital cheaply from the cash waqf managed by himself and lend it at a higher rate to a third party. This process naturally closely resembles the essential character of conventional deposit banking and the sarrafs may be considered the original deposit bankers in the Ottoman Empire. Evolution from charitable foundations to banks has also been observed in Europe. All the seven banks of the 17th century Naples were engaged in charity and functioned much like the Ottoman cash waqfs granting loans upon pledge. The details of how these Italian charitable foundations evolved into the powerful public banks and the comparison of this process with the emergence of powerful Ottoman sarrafs need to be searched separately (Avallone, 1999: 111-115 and Kazgan, 1991).

But the primary reason for the disproportionate financial powers of the two institutions must be sought in their organisational structure: whereas the capital of cash waqfs is constituted by the savings of a single person, that of the deposit banks is constituted by the savings of the masses. It is true, some cash waqfs did apply what we have called above “supply side capital accumulation” with one cash waqf donating part of its profits to another, but this was basically of a voluntary nature and quite unsystematic. Consequently, the huge discrepancy presented above concerning the relative financial powers of the two institutions should not surprise us. This discrepancy would become even more striking if we take into consideration the fact that the Ziraat Bank was only 20 years old when it had so obviously superseded the cash waqfs, an institution that has been in existence since at least the fifteenth century, as a source of credit.

Turning our attention to administrative reasons for the decline of the cash waqfs, we must note a major development that affected the entire waqf system, not only cash endowments but also real estate waqfs. This was the centralization drive initiated by Abdulhamid I and continued rigorously by the following sultans, particularly Mahmud II.

Although this process will be analysed in detail later, it should suffice here to note that cash waqfs also could not escape Mahmud’s iron grip. A directive promulgated on the nineteenth Cemaziyellevvel 1280/1863 made it clear that cash waqfs fell within the jurisdiction of the

Evkaf-ı Humayun Nezareti, Ministry of the Imperial Endowments. Article 14 of the directive instructed the trustees that the annual return of endowments not assigned for a specific social service must be sent directly to the treasury and recorded in the registers rather than kept by the trustees. This Article is of interest not only because it indicates clearly that the cash endowments did not escape the centralization drive of Mahmud II, but also because it confirms the arguments made above pertaining to the tendency of the trustees to exploit the resources of the cash waqfs to their own advantage. It is self evident that the trustees did not just keep the money in their possession but lent it at a higher rate to the sarrafs or to the public.

The demise of the cash waqfs under the Republic can be summarised as follows. As the Ottoman Empire was dying in Istanbul, cash waqfs contributed substantially to the newly established nationalist government in Ankara. The Law of Endowments dated 1935 had articles pertaining to the profitable administration of the cash waqfs. The death warrant was issued in 1954 when all the capital of these endowments was transferred to Vakıflar Bankasi, the Turkish Bank of Endowments. The group A shares issued by the bank were purchased by endowed cash. These shares constituted 55% of the bank’s capital and remained the property of the General Directorate of Endowment. Consequently, they could not be sold to third persons (Hatemi, 1979: 635). The shares in group B, constituted 20% of the capital of the bank and were owned by the endowments managed by their own trustees. In 1967 another law introduced a rule of conversion, istibdal, and made it obligatory to convert all endowed cash into bank shares thus destroying whatever was left of the judicial personality of the cash waqfs. Ironically, however, 1967 can also be considered as the year of the re-birth of modern Turkish cash waqfs. Put differently, while the judicial personality of the Ottoman cash waqfs was being destroyed, new and exciting possibilities were being opened up for the Turkish cash waqfs. These developments will be presented below.


Source: Murat Cizakca, A History of Philanthropic Foundations: The Islamic World From the Seventh Century to the Present. Republished with permission.
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