This paper aims at analysing the relevance of the historical awqaf system for modern Islamic economies. The main argument focuses on the fact that the awqaf system has provided throughout Islamic history all the essential services at no cost to the state. Thus, a successful modernisation of the system implies a significant cut in government expenditure and all the associated benefits; including downsizing the state sector and a reduction and even an eventual elimination of riba. As far as the modernisation of the system is concerned, historical evidence indicates that the real exiting potential lies in the cash awqaf. It is envisaged here that two powerful Islamic financial institutions, the cash awqaf and mudarabah need to be combined. It is argued further that this combination should take place within the framework of Islamic banks and thus alter the portfolio of these banks in the desired direction, i.e. increasing the mudarabah/murabahah ratio.
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