The paper is devoted to a brief analysis of the important part of Islamic accounting development, which is relevant to the history of the great part of the world. In particular, the discussion concerns the Ottoman Empire that was a powerful state formation of the 13th through the early 20th centuries and included the sufficient territories of North Africa, South-East Europe and Middle-East Asia, which comprise 27 modern-day countries within these regions. The issue in question is linked to accounting of a waqf as a traditional “religious endowment” (Joseph, 2014, p. 425) and “continuous allocation of an asset (real estate or security) to serve the public for charitable purposes” launched by wealthy Ottoman residents (Demirhan, Susmus & G?nen, 2012, p. 103).
Reformation of Accounting and Accountability of Waqfs
Although it is generally believed that waqfs originate from the times of the Prophet Mohammad (Ihsan & Adnan, 2010; Demirhan, Susmus & G?nen, 2012; Yayla, 2011), the reformation of their traditional structure is dated back to the early 1820s. Initially, these legal formations were established on the religious grounds, as it was “entitled by Allah to benefit all Muslims” (Masruki & Shafii, 2013, p. 1) and the rich ones had to share their wealth with people in need. At further stages of the Ottoman Empire history, waqfs became the means of preserving the wealth within the family unit, but their initial social function was ensured as well. The funds allocated by waqfs assisted the poor and those in need with food provision, built social institutions (e.g. schools and hospitals) and socially significant objects, such as fountains and water supply systems, to list a few.
Regardless of that waqfs contributed to local community development sufficiently, they were mismanaged by the assigned mutawalli (mutevelli) (directors with functions similar to trustees) and substantial amounts of costs were shared between mutevellies (Yayla, 2011). This circumstance was controversial with regard to Islam not allowing interest rates and requiring sharing with poor. At the same time, the total revenues of the waqfs in the analysed period were equal to one-third to half of the general state revenues and they were not taxed (Siraj, 2012; Stibbard, Russel & Bromey, 2012). The accounting data highlighting waqf accountability was minimised to reporting of income and expenses in accordance with Merdiven or stairs method “developed by the ones who wished to shorten the procedure of bookkeeping” (Aydemir & Erkan, 2011) where information was layered on one another (see Figure 1). There were no reporting standards for waqfs and they used general accounting system. This approach was implemented through siyakat stenographic writing based on the Arabic language with no space between numbers (Aydemir & Erkan, 2011; Yayla, 2011) (see Figure 1). Moreover, siyakat data could be read only by an accounting master, one’s apprentice, or a well-educated person, making it impossible for ordinary Ottomans to find out about waqf’s operations, doubting its transparency.
Figure 1. An example of a Merdiven accounting record
The hierarchy of accountability was straightforward: the data on the waqf’s operations was reported by the mutevelli, obtaining information from katip (the clerk) and cabi (the collector) to the qadi (a local authority), who was accountable to the sultan (see Figure 2, the left part). In fact, the actual performance was veiled from all stakeholders besides the muttevelli oneself as he was elected by waqf founders or the qadi based on belief in his fairness.
Figure 2. The structure of waqf’s accounting and accountability in the pre-1826 period
In order to improve waqf’s accounting and accountability and centralise its subordination to the state, the Evkaf-i Humayun Nezareti (i.e. Ministry of Waqfs) was established in 1826 and the accountability structure and accounting records were diversified (see Figure 2, the rights part). Waqfs could be examined by inspectors of the EHN any time those wished to. Their records on the incomes and expenditures based on the nature of activities in counterfoiled special papers provided by the central body had to be neat, well-structured, and no malfunctions were possible (Yayla, 2011). Apart from that each type of accounting data was separated from one another in specific books, e.g. salary, income, fees, loans, etc., with slow transition from stairs to double-entry accounting. The trends in the data indices were highlighted as well: i.e. positive ones were red, while negative were black. Siyakat was abandoned, making waqf performance results more accessible and understandable to the general audience.
Moreover, accounting of human resources in waqf system was transformed into measurement of the staff contribution, which was not practiced earlier. Employees were given advances and rewards as incentives for encouragement that were recorded in special accounting book sections. At the same time, improper documenting or refuse to declare the results of waqf’s operations led into punishments for the mutevelli. Those included leaving them without compensation for their service, which was set as not a fixed payment as earlier but the percentage of the monthly and annual revenues of the institution, or a discharge from working for the waqf (Ihsan & Adnan, 2010; Siraj, 2012). Thus, the mutevelli became accounting observers, allowing elimination of corruption in the sphere.
Overall, the planned reformation in terms of centralised accounting “control at a distance” was successfully implemented by the government since the revenues of waqfs in the post-ministry period grew in times: from 180 Kuru? in 1843 to 684 Kuru? in 1862 (Yayla, 2011, p. 17). The reformation allowed reshaping the earlier positioning of waqfs as “evils of waste resources, lack of accountability,” “motivation to improve performance and efficiency, slow and irresponsible decision-making,” and “moral, financial and economic corruption” (Joseph, 2014, p. 427). Nevertheless, overwhelming state control has led to waqf’s decline as an entity and complete nationalisation after the breakup of the Ottoman Empire.
Revitalisation of Waqfs in Contemporary Time
Nowadays, the topicality of waqf accounting is more than relevant due to the increased interest in and promotion of reviving these institutions by numerous Muslim and non-Muslim governments for enhancement and benefiting their communities in multiple ways.
First and foremost, the significance of these institutions lies in their social predisposition. The great part of Muslim states, such as Malaysia, Lebanon, Egypt, Singapore, and Iran among others, and non-Muslim ones, e.g. India, which had waqfs on the grounds of their Ottoman-related history and religious beliefs, have vast poor population (Ihsan & Adnan, 2010; Siraj, 2012). Therefore, based on previous historical experience, the governments attempt to revitalise waqfs within their economies, especially in relation to religious (and not only Islamic) pursue to redistribution of wealth among society members. This process is promoted as launching of philanthropic or rich-family-centred institution offering “key social services to local communities, including education, public utilities, social/ charity work and healthcare” (Joseph, 2014, p. 427).
Second, the authorities refer to long-life functioning of waqfs. In particular, their structure determines that operations of these institutions may continue even after the death of their founder, or at least fifty years (Stibbard, Russel & Bromley, 2012; Ihsan & Adnan, 2010). It follows that social welfare of local communities can be notably enhanced during this timeframe. Whereas there are sufficient differences in terms of nationwide distribution of income between the wealthy and poor people in such countries as India, Pakistan, Turkey, to list a few, these states aim at legalisation of waqfs. For example, secular waqfs with Islamic principles legally function in Turkey; India struggles to gain better financial returns from the local waqfs; Malaysian waqfs are thoroughly controlled by the Council of Islamic Religion, while Singapore does not provide tax deductions for these institutions (Stibbard, Russel & Bromley, 2012, pp. 800-801).
Third, the issue concerning revival of waqfs as religious endowment is linked to Muslims throughout the Western nations as a uniting factor for assistance of Allah followers in foreign states with respect to sustaining their social and economic development. To illustrate, the UK Islamic Education Waqf that functions since 1991 “has raised and distributed ?1.8 million to weekend schools, madrassas, and full-time schools around the country” (Stibbard, Russel & Bromley, 2012, p. 802).
Fourth, waqfs have been of different origin, i.e. the ones established by sultans as the central rulers of the state and those founded by the ulema class (the upper stratum of society), and areas of operation. For instance, cash waqfs were especially profitable social institutions that served as banks, with the interest rate set as not higher than ten percent, accounted for about 500 in the 1820s (Demirhan, Susmus, & G?nen, 2012).
Whereas at the current stage waqfs can contribute to global community development, both theorists and practitioners agree that, to ensure maximal returns from this venture, a well-organised accounting should be applied as “the most appropriate means to enhance greater transparency and accountability” (Masruki & Shafii, 2013, p. 5). The procedure has to be arranged in accordance with well thought out accountability frameworks based on particular roles of stakeholders as shown in Figure 3 below. In this regard, the parties involved are (a) dormant stakeholders (i.e. waqf boards); (b) discretionary (e.g. waqf founders or donators); (c) demanding stakeholders (e.g. the press) (Ihsan & Adnan, 2010, p. 16). In line with addressing accounting reports to a certain stakeholder group, the task of waqf accounting is to ensure discipline of the trustees and intertwine accomplishments of contemporary accounting and technological advancement into this strategy in a sophisticated manner.
Figure 3. Stakeholders’ hierarchy
Following the up-to-date approach to accounting of the historically justified successful social institutions, application of waqf technology within modern world economies can become a good way to contribute to community enhancement and maintenance of income equality and social welfare.