IsDBI, Labuan FSA Partner to Explore Awqaf Free Zones

The Awqaf Free Zones concept has been developed by IsDBI as a new model that combines centuries-old Islamic philanthropic principles with contemporary financial, legal and regulatory frameworks.

The Islamic Development Bank Institute (IsDBI) and Malaysia's Labuan Financial Services Authority (Labuan FSA) have signed a Memorandum of Understanding (MoU) to explore the implementation of the innovative Awqaf Free Zones (AFZ) concept within the Labuan International Business and Financial Centre (Labuan IBFC).

The agreement was signed on June 16, 2026, on the sidelines of the Islamic Development Bank Group Annual Meetings in Baku, Azerbaijan. The partnership aims to examine how Islamic endowment assets, known as Awqaf or Waqf, can be integrated into modern financial ecosystems to support economic growth and social development across member countries.

Blending Traditional Waqf with Modern Finance

The Awqaf Free Zones concept has been developed by IsDBI as a new model that combines centuries-old Islamic philanthropic principles with contemporary financial, legal and regulatory frameworks.

The initiative seeks to establish dedicated jurisdictions where Awqaf assets can be managed through modern governance systems, innovative financing mechanisms and supportive regulations while preserving the charitable and perpetual nature of Waqf institutions.

Under the collaboration, IsDBI and Labuan FSA will assess how the concept can be adapted to the Labuan IBFC ecosystem. The process will include technical consultations, knowledge exchange, legal and regulatory assessments, and the identification of suitable implementation models.

Labuan Positioned as a Potential Pilot Hub

Labuan FSA believes the Labuan International Business and Financial Centre offers a unique environment for testing the concept due to its established Islamic finance ecosystem, international Waqf structures, digital asset infrastructure and cross-border financial services network.

Labuan FSA Director General Affendi Rashdi said the collaboration would explore how these strengths can be leveraged to develop sustainable Waqf-based financial models capable of unlocking productive assets and generating broader socioeconomic benefits.

The initiative is also expected to support development priorities in Islamic Development Bank member countries by creating innovative approaches to financing social and economic programmes.

Advancing Islamic Finance and Sustainable Development

According to IsDBI, the Awqaf Free Zones model has already been supported by extensive research and technical work. The institute has prepared legal reports, model laws and regulatory frameworks designed to facilitate implementation in interested jurisdictions.

Additional governance, operational and financial feasibility studies have also been completed to support the practical establishment of future Awqaf Free Zones.

IsDBI Acting Director General Dr. Sami Al-Suwailem described the initiative as a new approach to unlocking the developmental potential of Waqf through regulatory innovation and modern financial practices. He said the collaboration reflects a shared commitment to creating scalable solutions that strengthen Islamic finance while contributing to sustainable development.

The partnership with Labuan FSA marks the first institutional effort to examine the implementation of the Awqaf Free Zones concept within an established international financial centre. If future feasibility assessments prove successful, the model could demonstrate how traditional Islamic endowments can be integrated into modern financial systems while supporting the Sustainable Development Goals (SDGs) and promoting inclusive economic growth.