Cash Waqf is currently becoming popular as it can contribute to develop the microfinance society. This article discusses the development of cash waqf in Indonesia jurisdiction particularly. We begin to briefly introduce the definition of waqf, its types, and cash waqf. Then, we present the growth of cash waqf in Indonesia and the role of the Micro Bank of Waqf, respectively.
What is cash waqf?
Waqf is Awqaf (also written awkaf, singular waqf/wakf) is an Arabic term that refers to assets that are donated, inherited, or purchased to be maintained in perpetuity for general or specialized charity projects that benefit society. In many aspects, waqf resembles the Western concept of the endowment. Waqf can be a form of movable and immovable goods. The famous conditions of waqf throughout history are buildings or lands (immovable properties). However, waqf in movable properties was also popular such as books, harvesting tools, or even the collected money (cash waqf).
Cash waqf is the imposition of a sum of money by the founder(s) (individuals, companies, institutions, corporations, or organizations private or public). The perpetual dedication of its usufruct is for the benefit of society. Furthermore, its objective was to pool and mobilize public funds then administer them as waqf assets (financial capital/endowment). More importantly, it should be able to generate revenue streams and retain its initial worth to grow, or at the very least to ensure its perpetuity. The beneficiaries will deserve the earnings from the investment. Cash waqf can be crucial in providing critical public services to the community.
In history, since the end of the 16th century, the Ottoman Empire has regularly employed cash waqf. It played a significant role in the empire’s economy. Moreover, the utilization of cash waqf at the period was to support entrepreneurs’ businesses, with the proceeds going toward public services such as hospitalization, education, water channelling, building and maintenance, bridges, and roads.
Cash waqf in Indonesia
KNEKS (Indonesia National Committee of Sharia Economics and Finance) reported in 2021, Indonesia has an annual potential cash waqf of Rp180 trillion or equivalent to USD 12.5 billion. Ministry of Finance (MoF) supports and integrates cash waqf with the fiscal policy. Hence, the government issued Cash Waqf Linked to Sukuk (CWLS) SW0001 in March 2020 as an innovation and concrete support for the development of cash waqf.
The issuance of CWLS involved Bank Indonesia, Indonesia Waqf Board, MoF, and the Ministry of Religious Affairs. The results of the SW001 investment have been used to construct health facilities at a waqf-based hospital, namely the Achmad Wardi Eye Hospital in Serang, Banten. Currently, people in need have been enjoying the results of CWLS SW0001 investment.
Micro Bank of Waqf (Bank Wakaf Mikro: BWM)
BWM is the unique microfinance institution that collects funds from cash waqf and serves particularly to develop a microfinance society. Instead of giving financing to individuals, BWM only provides the fund for the approved small group within the microfinance society. Pondok Pesantren (Islamic Boarding School) is the key responsible for managing the BWM operation and risk management. In April 2021, the total financing value of BWM reached Rp 65 billion or equal to USD 4.5 million.
With the nature of benevolent funding, BWM mobilizes cash waqf as working capital that only charges a margin of 3% per annum without collateral. It is very cheap financing that exists to develop a microfinance society. The maximum financing available is Rp 3,000,000 or equal to USD 210. However, only the microfinance society surrounding the area of BWM are allowed to access its financing. To manage the related risks, BWM holds entrepreneurship development programs, education and religious encouragement, and personal household finance advisory for its members on a weekly basis.
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