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WAQF AND
INNOVATIONS
IN FINTECH
THE INDONESIAN
EXPERIENCE
HENDRI TANJUNG AND LUTFI ADHIYANSYAH
W
aqf 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,
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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
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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).
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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 crowd funding.
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 crowd funding
services in March 2018. After an year or
so, it is being seen as a promising alternative
Islamic financial service. Ammana operates as
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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
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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
practiced by more people, especially Muslims.
In this respect, the role of Islamic FinTech
should not be under-estimated. Its applications
in the waqf sector and related areas – zakat,
infaq, sadaqah and even simple financing – have
huge implications for future of Islamic finance.