Disclaimer: This article was first published in IFN Volume 20 Issue 28 dated the 12th of July 2023.

The realization of cash Waqf funds in Indonesia still needs to reach its potential. The collection of cash Waqf until the 31st December 2022 was only IDR333.22 billion (US$21.92 million) and there was an additional IDR300 billion (US$19.73 million) in January 2023 from its potential of IDR180 trillion (US$11.9 billion). Among the challenges in developing Waqf in Indonesia are the low public literacy on cash Waqf and limited professional Nazhirs (Waqf fund managers) in developing the value (assets) of cash Waqf. Meanwhile, Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector (P2SK Law) has authorized the new role of Islamic banks as Nazhirs. This step further strengthens the role of Islamic banks as institutions that can address economic and social problems. The P2SK Law is an interesting regulatory development for Islamic banking and the Waqf sector. NAJIM NUR FAUZIAH and DR LISA LISTIANA explore.

Waqf in Indonesia is regulated by Law No 41 of 2004 concerning Waqf and Government Regulation No 42 of 2006 concerning its implementation, which has since been revised to Government Regulation No 25 of 2018. Based on the law, Waqf property can be movable and immovable assets, and not only in the form of mosques, graves and Islamic schools.

Meanwhile, movable property includes a cash fund. The collection of cash Waqf until the 31st December 2022 reached IDR333.22 billion and there was an additional IDR300 billion in January 2023 which was placed in Sukuk Waqf private placements.

Cash Waqf investments are dominated by cash Waqf-linked Sukuk (94.87%), retail Waqf Sukuk (3.07%), LKSPWU deposits (1.07%), real sector investment/ development of Achmad Wardi Hospital (0.87%) and current accounts in LKSPWU (0.01%). According to the Indonesian Waqf Board, the potential for cash Waqf collection can reach up to IDR180 trillion annually.

As Indonesia is currently the world’s most populous Muslim country, this opens the country to an unprecedented opportunity for cash Waqf collection. In other words, there are immense possibilities for optimizing cash Waqf funds to boost Indonesia’s economic growth.

One of the exciting innovations initiated by the Indonesian government related to Waqf is cash Waqf-linked Sukuk (CWLS). CWLS is a cash Waqf investment placed in sovereign Sukuk in which its revenue is distributed by Nazhirs to finance various social programs and economic empowerment. Due to CWLS, the Indonesian government recently received an award from the IsDB.

CWLS is considered an innovative instrument that successfully integrates the social and commercial sectors; such innovations increase the diversity of Islamic capital market financing forms and support the integration of Islamic finance commercially and socially. Of course, with the achievements that have been obtained, the government needs to continue to develop it to have a broader impact and benefit to the community.

The P2SK Law was inaugurated on the 12th January 2023, becoming a new milestone in Indonesia’s financial sector regulatory reforms. The P2SK Law was created to develop and strengthen the financial sector in Indonesia, including the Islamic financial sector such as Islamic banking and Waqf. The Islamic banking sector, as one of the financial services industries, can play a role as a Nazhir in Indonesia after the issuance of the P2SK Law.

In the P2SK Law, there is indeed an additional social function for Islamic banks to become Nazhirs, namely in Article 4 Paragraph 3. The P2SK Law provides a breath of fresh air for Islamic banking since it gives additional value to the sector to become Nazhirs. This can increase the optimism for Islamic banking because Islamic banks can participate in contributing to the development of Waqf in Indonesia, where previously Islamic banks were only recipients of cash Waqf funds (Lembaga Keuangan Syariah Penerima Wakaf Uang-LKS PWU).

Among the advantages of Islamic banks being Nazhirs are:

1. Islamic banks are prudent and highly regulated financial institutions.
2. Islamic banks have qualified experience and capacity in managing funds, including their potential to become Nazhirs.
3. Islamic banks can utilize cash Waqf; they can make it as an economic stimulus that is channeled to the productive sector.
4. Islamic banks are proven to be able to carry out financial intermediation functions which ultimately drive the real sector. Waqf funds managed by Islamic banks can contribute to address poverty issues.
5. The social role of Islamic banks will be more advanced because the greater utilization of Waqf funds will increase the social benefits distributed to the community.
6. Waqf management will increase bank profits, and Islamic banks will get a fee from Waqf management.

Therefore, with some of the aforementioned advantages, it will further strengthen the role of Islamic banks as institutions that can solve many socioeconomic problems because the greater use of Waqf funds will increase the social benefits distributed to the community. Despite the advantages possessed by Islamic banking, several important points must be considered by Islamic banks to ensure that the cash Waqf funds provide benefits to society, such as:

1. There should be provisions that require banks to report on activities related to the collection, management and distribution of Waqf.
2. Information related to Waqf activities needs to be considered to be included in Islamic banking statistical reports which could be part of the key performance indicators for Islamic banks set by the Financial Services Authority or Otoritas Jasa Keuangan.
3. Islamic banks must have dedicated resources, including systems and resources capable of managing cash Waqf to generate profits.
4. Islamic banks must not only focus on profits as the business objective, but must also comprehensively look at costs and benefits, capabilities and suitability in every Waqf management activity.

To conclude, the issuance of the P2SK Law which contains the permissibility for Islamic banks to be Nazhirs brings a new optimism for cash Waqf and Islamic banking development in Indonesia. Cash Waqf has great potential for the benefit of the Ummah, while Islamic banks, as intermediary institutions, have the required ability to manage third-party funds. Therefore, the government needs to prepare additional regulations related to these factors by examining the application of Islamic banks as Nazhirs in other countries.

Oleh:

Najim Nur Fauziah dan Lisa Listiana

For republishing purposes, kindly include the following disclaimer: This article was first published in IFN Volume 20 Issue 28 dated the 12th July 2023.

https://www.islamicfinancenews.com/new-law-unlocks-islamic-banks-potential-for-cash-waqf-in-indonesia.html?access-key=753dba7a1e2b2511de6aaefc613b7aeb

 

 

 

Categories: OpiniResearch Bulletin

Tags: #KebaikanWakaf#WaCIDS#wakafstrategisWaCIDSwakafwakaf indonesiawakaf produktifwakaf uang