Venture waqf in a circular economy

Year: 2019

This publication is part of the journal (2011-2)

Purpose – This paper aims to enhance the impact of incorporated waqf institutions by blending their

resources to promote responsible small businesses that are inclusive of human development, service to society

and preservation of ecological environment and other species. This is expected to shift the paradigm of

businesses from the current waste-oriented linear economy to ideally a zero-waste circular economy.

Design/methodology/approach – This is an analytical study building on the experience of European

Venture Philanthropy Organizations (VPOs) that work with the primary objective of making impactful

businesses successful, with capital protection and return on investment being of secondary concern. This

paper suggests an incorporated institutional design that blends resources for promoting responsible

businesses using a new hybrid financial mechanism, namely, equity-at-default (EaD) to replace collateral and

foreclosure requirements with responsibility and compassion.

Findings – The research calls for changing the business paradigm from linear to circular, an incorporated

institutional framework for venture waqf, purpose of the waqf to make impactful small businesses successful

and designing a financial contract to loan in favor of responsible businesses that convert to equity stake for

the waqf in case of default (EaD) replacing collateral and foreclosure requirements.

Research limitations/implications – This is a theoretical study motivated by the success of VPOs but

assigns a new role to waqf institutions. Furthermore, the incorporated nature of waqf is a new idea and EaD is

a new mechanism. Being new, these ideas have the risk of not being implemented. However, the broader

message that waqf shall promote businesses that are inclusive of ecological concerns is generally applicable.

Practical implications – The paper has a significant practical implication to transform the

responsibility and consciousness of businesses.Waqf is fundamentally a compassionate institution, and it

must enhance the responsibility of businesses to become more inclusive of the environment and other

species. It should also become more compassionate toward businesses that are in distress and default. In

this sense, the paper tries to internalize compassion in financial contracting that can potentially change

the architecture of lending.

Social implications – Altering businesses’ mindset from a waste-driven extractive linear economy to

inclusive circular economy has a tremendous transformative role. This will have implications for enhancing

business consciousness and responsibility. As poverty is a phenomenon of state of mind, changing the

society’s state of thought in Muslim communities is expected to have basic positive implications.

Entrepreneurs with a new mindset can have far-reaching positive impacts on the society.

Originality/value – The paper offers potentially innovative perspectives in four key areas and blends

the different resources in an incorporated waqf that makes responsible entrepreneurs assume a

partnership role in times of distress through EaD. Furthermore, the integration of compassion in financial

contracting could have better implications for return on investment as well. The ideal state of an economy

is where waste is turned into wealth and well-being is something that all policymakers must keep on the

top of their agendas.

Keywords Waqf, Circular economy, Venture philanthropy, Zero-waste economy, Equity-at-default


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