Bank Indonesia (BI) announced recently its plan to issue waqf based bonds as a social welfare mechanism. The Indonesian Muslim Intellectual Association (ICMI) will also launch the very first waqf venture bank this June. Waqf may become the new trend in Islamic banking for several reasons. Waqf funds can be utilized for equity-based financing, a financial structure considered ideal for Islamic values, but undervalued in the current Islamic banking and finance architecture. The nature of longterm waqf funds for investment will make a good source of funding for venture capital and private equity. The amount of money potentially generated under a waqf system is indeed huge. The value of waqf land is estimated to reach Rp 300 trillion. This highlights the need for a professional and well-governed management to create a waqf bank that functions well and is successfully implemented.
Bank Indonesia (BI) unveiled a waqf-based sukuk, aimed at developing social property assets to be commercially self-sustaining. BI Deputy Governor Hendar said the sukuk could further finance the development of commercial buildings such as office towers or shopping centers over waqf land. The coupon will be paid from the recurring income of the assets. According to Muhammad Anwar Basori, BI head of the sharia economic and finance department, waqf land was traditionally used for social and public purposes such as cemeteries, mosques, or schools. Waqf-based sukuk could be a solution and could provide cash to cover maintenance costs. Basori added there are 400,000 hectares of waqf land in Indonesia, 90% of which are cost centers. In Kuwait and Singapore, they have built many productive assets on waqf land.
Underprivileged citizens today live in an economy that exposes them to certain risks, like unpredictable incomes and high daily expenses. With around 70% of the population still excluded, Indonesia has taken major leaps to improve the situation. Since the preceding high-level talks in 2010, Bank Indonesia (BI) and the Financial Services Authority (OJK) have focused on how to provide better access to financial services. The disproportional knowledge between the banking industry and the population in general is quite severe, and a product to address the specific needs of the economically active poor and micro entrepreneurs is essential. Moreover, the challenges of financial inclusion do not stop when formal financial services are provided. It goes beyond service provision to educating and empowering the community to understand finance. Financial inclusion cannot be achieved through isolated efforts. Collaboration between private companies, the government and civil society is necessary.
Sharia banks in the country will soon be subject to Bank Indonesia’s new policy regulating minimum down payments for housing and automotive loans. However, a deputy governor for the central bank says that they may have different limits than those for commercial banks. This month, BI said that sharia banks would soon be included in its policy to restrict loans to value in automotive and housing lending. These had entered into effect for Indonesian commercial banks in June.
It seems that Bank Indonesia (BI) plans to launch a regulation to limit the pawning of gold at sharia banks, as most of bank customers are inclined to use the service for speculation.
Three sharia banks—Bank Syariah Mandiri, Bank Rakyat Indonesia Syariah and Bank Negara Indonesia Syariah—want to end their gold-pawning services following the central bank’s move, being aware of the risks pawning gold carries.
The central bank’s new regulations will influence 137,272 customers who hold sharia pawning accounts.
Nowadays, most of the giant international banks provide either an Islamic Commercial Bank (ICB) or an Islamic Business Unit (IBU).
A report named “Islamic Banking Statistics April 2011”, which was launched by Bank Indonesia (BI) on June 15, 2011, found that ICB increased from only three banks with 304 offices in 2005 — when Islamic banking was born — to 11 banks with 1,215 offices by December 2010.
The number of IBU became larger, from 19 units with 154 offices in December 2009 to 23 units with 262 offices in December 2010. The current total of IBU remains unchanged at 23 units.
Bank Indonesia (BI) has received an approval from the House of Representatives to contribute US$5 million in equity to the newly established International Islamic Liquidity Management (IILM) to support the country’s growing Islamic banking sector.
The IILM would also widen investors’ basis for global debt papers, including global sukuk issuances, and increase Indonesia’s participation in growing the Sharia industry both globally and regionally.