Waqf as an Islamic economic instrument has an important role to play in socio-economic development. In Indonesia, land waqf assets span over 4,359 billion square meters (2016 data). In addition, cash waqf, which is recognized by the regulatory system in Indonesia, can potentially raise another of IDR187 trillion (over USD13 billion). People can easily contribute to cash waqf through a waqf management company (naazir), an organisation officially listed with the Indonesian Waqf Board (BWI). Unlike a traditional waqf, cash waqf involves a cash donation made through a retail outlet, bank transfer, or even hard cash contributed during a social event like a gala dinner. The proceeds can be utilized to build a variety of waqf projects.
The on-going developments in the technological domain in the 4.0 digital are expected to help accelerate cash deployment, making it easier to contribute to cash waqf and similar vehicles.. This brief paper focuses on how technology in general and FinTech in particular can help cash waqf to develop into a more effective and efficient vehicle with meaningfully huge size in terms of assets under management.
CASH WAQF IN INDONESIA: POLICY & CHALLENGES
Indonesia has progressed extra-ordinarily in developing an effective policy framework for waqf operations and regulation. The role of the government of Indonesia in this respect is praise-worthy. Indonesian Waqf Board (Badan Wakaf Indonesia – BWI) was established to regulate and supervise naazir waqf activities. It also requires all naazirs to be registered officially in the BWI. Furthermore, during the IMF-World Bank Group Annual Meeting 2018 in Bali, BWI collaborated with DEKS-BI (Sharia Division of Bank Indonesia) and IRTI-IsDB (Islamic Research and Training Institute, Islamic Development Bank) to launched Waqf Core Principles (WCP). WCP provides comprehensive guidelines for risk management practices to be employed by the naazirs managing waqf funds. BWI has also issued a special sukuk programme with the Ministry of Finance, called Waqf Linked Sukuk (WLS), whereby the investors are able to purchase retail sukuk, with a feature to donate their profit into cash waqf.
Although the waqf policy has contributed significantly in Indonesia, there still exist challenges and obstacle in terms of fundraising, progress reporting, administration of awqaf assets and their productivity, risk management for awqaf projects, and general literacy and public awareness of the concepts and prctices. FinTech could address these six main issues. Indonesia has once again taken a lead role in introducing regulation in this field. The relevant regulation is called Indonesia Fintech Regulation, which plays an important role in establishing FinTech services in Indonesia, especially Islamic Fintech.
INDONESIA FINTECH REGULATORY FRAMEWORK
Joko Widodo, the President of Indonesia, aptly remarked on January 19, 2018 that the financial industry must prepare for the Industrial Revolution 4.0. It is the time to become digital, computerized and make decision on the basis of Big Data Analytics. Next step is to use Artificial Intelligence (AI).
The Industrial Revolution 4.0 has already started transforming business processes by using information technology innovatively. Besides information technology, it is also using automation based on AI, internet of things and digital economy. This is entirely in line with the approach adopted by the Indonesia Financial Services Authority (OJK).
To prepare for Digital Age 4.0, the government of Indonesia has committed to devise appropriate policies to support financial services industry as well as the technology vendors. The financial services in Indonesia are regulated by Bank Indonesia (the central bank) and the Financial Services Authority (OJK). Each of these regulators has a different focus. Bank Indonesia focuses on regulating payment services and OJK regulates financial services. OJK has issued two regulations for FinTech:
(1) OJK Rule No. 77 (POJK 77) for FinTech P2P lending; and (2) POJK 13 for digital financial innovation. In the near future, it will also issue regulations on equity crowdfunding.
HOW DOES FINTECH BENEFIT WAQF
PT Ammana Fintek Syariah (Ammana) was founded in Indonesia in July 2017, and was officially registered with OJK as the first Islamic P2P lending platform in December 2017. Subsequently, it launched its crowdfunding services in March 2018. After a year or so, it is being seen as a promising alternative Islamic financial service. Ammana operates as an Islamic P2P lending Fintech, giving the users access into Islamic financing.
On May 18, 2018, Ammana broadened its services by providing crowdfunding services for production sector, using cash-waqf fundraising. Through Ammana mobile app, donors can choose a cash waqf project of their choice. It is an easy-to-use app, offering detailed information on the naazir and the use of the funds thus collected by it.
In future, Ammana plans to develop an online live-streaming application to oversee the progress of the waqf projects. Thus the hospitals and schools benefitting from the cash waqf proceeds will be required to use CCTV cameras, allowing donors to have access to the funded projects through live streaming shown on a mobile app. This sharing of information should allow the donors to have more trust in the appropriate and required use of their funds, making this kind of giving more impactful and socially responsible. In addition, Ammana is also allowed by OJK to become a selling agent for state securities, in this case retail Sukuk.
As mentioned earlier, the waqf regulatory framework in Indonesia is robust as to accommodate more products like Waqf Linked Sukuk (WLS). WLS is an official programme between the Ministry of Finance, National Waqf Board and Productive Waqf Forum to structure and offer sukuk products, issued on awqaf. An interesting feature of such products is that the sukuk holders do not claim profit but rather endorse it to a designated naazir. This is just a fraction of the FinTech’s potential benefits to waqf. With further technological advancement and ensuing innovations, the products like can not only benefit from the additional fundraising but can also become a new asset class available to investors.
CONCLUSION
Waqf is one of the powerful instruments in Islamic finance, with long-term social impact and benefits to the overlapping generations. With the advancements in the digital era, Muslim millennials are increasingly becoming more tech-savvy. Hence, Islamic finance must adapt and utilize more technology so it can be practised by more people, especially Muslims. In this respect, the role of Islamic FinTech should not be underestimated. Its applications in the waqf sector and related areas – zakat, infaq, sadaqah and even simple financing – have huge implications for future of Islamic finance.
