Indonesia planning waqf-based and diaspora sukuk

Photo: Jakarta, Indonesia - August 21 2015: Cars and buses rush through the Plaza Indonesia roundabout in Jakarta business district / AsiaTravel / Shutterstock.com

JAKARTA – Bank Indonesia, the country’s central bank, last week released plans for new sukuk based on waqf and remittances from Indonesian workers abroad in a bid to diversify and raise funding for the country’s infrastructure projects.

“We estimate 10 percent of the amount of remittances can be invested in sukuk. Currently we are still gathering feedback from stakeholders about this idea, and we are currently discussing the technical as well as the legal side,” Djoko Kurnijanto, director of International Affairs at the Financial Services Authority (OJK) told Salaam Gateway.

There were 6.5 million Indonesian migrant workers in 2014 with remittances amounting to 105 trillion Indonesian rupiah ($8.3 billion), according to data from Bank Indonesia and the National Agency for Placement and Protection of Indonesian Migrant Workers (BNP2TKI). This figure does not include Indonesian professionals working abroad, who fall outside of BNP2TKI’s remit, such as business owners, researchers and academics.

Money sent home is currently largely channeled into basic consumption needs and Indonesian authorities are keen to offer remittances investment options, especially for infrastructure projects whose financing exceed the government’s limited funding capacity. “We're trying to bring together these things and plan to issue sukuk,” added Kurnijanto.

WAQF-BASED SUKUK

The central bank said the potential for waqf-based sukuk is very large. The regulator estimates 5 billion square meters of awqaf land spread across 440,000 plots with a value of around 2,050 trillion Indonesian rupiah ($157.7 billion). These lands are largely used for mosques, schools, orphanages and cemeteries.

"The nazir, or waqf land manager, does not have the funds to build infrastructure on waqf land. We are promoting models to link sukuk with waqf land,” said Rifki Ismal, senior analyst and assistant director at Bank Indonesia's Shariah Finance and Economy Department.

Waqf-based sukuk will likely have longer-term maturities, Ismal added.  “There will be a long-term lease contract between the nazir and the sukuk issuer (we recommend state-owned enterprises), in which the land will be built into the infrastructure and then we divide the return from rent. At the end of the contract period, the assets will be returned to the nazir,” said Ismal.

“The waqf-based sukuk will be launched soon. We may involve state enterprises considering that waqf is usually used for social initiatives while the waqf sukuk is based on commercial considerations,” said Ismal.

“Land certificates should also be addressed because not all waqf land have certificates,” he added.

Sukuk issuance in Indonesia reached $2.86 billion for the first nine months of this year and total cumulative issuance since 2002 is $33 billion, according to Thomson Reuters data. 

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