1 Islamic Finance in ending poverty & fighting inequalities: Indonesia experiences IDB Global Forum on Islamic Finance Jakarta, 16 th May 2016
Foreword 2 This presentation will focus on the segment of Islamic finance that has been left behind because of - but not limited to, that the particular sector has been mispercieved to be less powerful in sustaining economic development. As a result of that misperception no one has put sufficient attention on this sector particularly in the area of institutional governance.
Framework Utilization framework of Islamic Finance in ending poverty, fighting inequality and achieving other UN Sustainable Development Goals (SDGs). 3 zakat empowerment productive Empowerment steps: 1. Assessment 2. Capacity buliding 3. Zakat allocation 4. Mentoring elevated Zakat payers Zakat consumptive Awqaf (land, cash, etc) Social: school, hospital etc Bussines & investment awqaf utilization Profit Zakat recipients Notes on UN SDGs: #1 No poverty #2 No hunger #3 Good health #4 Quality education #10 Reduced inequality Awqaf-linked sukuk
Productive Zakat: Micro-business Empowerment Micro-business empowerment approaches: 1. Individual approach Offering qardul hasan financing or other Islamic financing contracts to individual mustahiq. 1. Collective approach Zakat Community Development (ZCD) programme, offering Islamic financing based on: a. Community group of mustahiq with common activities. b. Demographic group of mustahiq that segmented by ethnicity, gender, etc. c. Geographic group of mustahiq that segmented by area, such as cities, rurals, etc. 4 ZCD Realization in 2014: 49 villages in 9 provinces Source: BAZNAS Hence: Considering the size of potentials, a solid governance framework is necessary!
Awqaf Utilization 5 Corporate management Managing awqaf-asset productively Legal base Social and philanthropic spirit Providing broader social benefits Maintaining validity & solid accountability Effort to boost productive waqf optimality: 1. Waqf Act 2004 and various government regulations regarding menagement on waqf-land and waqf-cash. 2. Waqf-cash collection through authorized agencies and Islamic banks to broaden collecting points. 3. Regulating awqaf-organizer colaboration with corporate sector in order to manage awqaf-asset productively. 4. Proposing alternative project-based funding: awqaf-linked sukuk. 5. Designing accountibility framework: Waqf Core Principle (WCP)
Ensuring accountability: ZCP and WCP 6 To ensure zakat and awqaf management accountability, a robust governance framework is a necessity: Zakat Core Principle (ZCP) and Waqf Core Principle (WCP). The development of the Islamic financial system can be optimized when it is integrated into the national policy and get synchronized with the surrounding regulatory framework. It has to stand at the same par to other financial sub-sectors. ZCP has been constructed, next step is WCP Areas of Regulations Principles Legal foundation Zakat supervision Governance Disbursement process Risk management Sharia Governance ZCP-1, ZCP-2, ZCP-3 ZCP-4, ZCP-5, ZCP-6 ZCP-7, ZCP-8 ZCP-9, ZCP-10 ZCP-11, ZCP-12, ZCP-13, ZCP-14 ZCP-15, ZCP-16, ZCP-17, ZCP-18
Challenges 7 1. Lack of knowledge about zakat and awqaf: some still manage zakat and mostly waqf in traditional way: neglecting government regulations appointing awqaf-organizer with unwritten contract 2. Low quality of awqaf-organizer in managerial aspects and spirit of entrepreneurships. 3. Education and socialization of productive zakat and awqaf is limited. 4. Shortage of quality human capital for mentoring the empowerment process. To summarize the 4 above points, we need to have strategic development plan to make the development effort getting more effective. Some solutions 1. Enhancing knowledge in a modern context on zakat and awqaf by inclusion of zakat and awqaf moduls in formal education. 2. Implementing ZCP and WCP and formal auditing mechanism. 3. To have an international standards for zakat and awqaf and an international body that provide standardised regulatory-framework (Indonesia will be the host). 4. Having good governance in place the next step is to put this sector in the national policy which enable the government to measure the impact and to formalise the strategy to make it more significant to the national economic development.
Thank You 8