A Dynamic Model for Cash Waqf Management as One of
The Alternative Instruments for The Poverty Alleviation
in Indonesia
Dian Masyita ([email protected])
The Faculty of Economics, Padjadjaran University, Bandung, Indonesia
Muhammad Tasrif ([email protected] )
Energy Research & Development Group, Bandung Institute of Technology, Indonesia
Abdi Suryadinata Telaga ([email protected])
Information System Department, Astra Manufacturing Polytechnic, Jakarta, Indonesia
Submitted to The 23rd International Conference of The System Dynamics Society
Massachussets Institute of Technology (MIT), Boston, July 17-21, 2005
Abstract
This research tries to offer a design of the cash waqf management system in a system
dynamics model. The Cash Waqf Management is expected to become one of the alternative
instruments for the poverty alleviation programs in Indonesia. These programs require
huge amount of fund that cannot be provided thoroughly by the government. Therefore,
initiation of new sources of fund for such a program is inevitable. In the Islamic sosioeconomic concept, there is a source of social fund that is economically and politically free
of charge, namely cash waqf. In this concept, Nadzir (cash waqf fund manager) collects the
fund from Waqif (cash waqf payer) and invest the money in the real sector and in any
syariah-based investment opportunities. Nadzir will then allocate profits and returns gained
from the investments to poverty alleviation programs. Nadzir is obliged to maintain the
amount of fund in such a way that it does not go below the initial amount. Therefore,
Nadzir not only should be highly capable, but also needs an experienced financial
institution in helping SMEs development efforts. Using the system dynamics methodology,
we try to design the structure of cash waqf system and simulate the behaviour of cash waqf
model.
Keywords: cash waqf, portfolio investment, poverty alleviation, system dynamics
1. Preface
In the early 2005, the Indonesian poverty rate has been still discouraging.
The poverty indices are still higher than those of the previous years. The economic
crisis beginning in 1997, does not end until now. In addition, the Tsunami
Disasters destroyed two provinces in Indonesia i.e Nanggroe Aceh Darussalam
and North Sumatra in the end of the year 2004. Based on the Statistics Central
Bureau (BPS)’s data, there are about 40 million Indonesian people who are under
the poverty line.
Indonesia has come into debt trap made by the Indonesian government and
the private sectors. Large amount of debt has weakened Indonesian economy for
the past seven years. Currently, Indonesian foreign debt is approximately USD 130
billions, which consists of government foreign debt of USD 70 billions and private
sector’s foreign debt of USD 60 billions. In addition, domestic government debt
has reached IDR 650 trillions level. Nevertheless, the amount of the debt has been
inceasing since Consultative Group on Indonesia (CGI) meeting in Bali (January
2003) decided to issue a USD 2,7 billion loan to Indonesia.
Meanwhile, the government has been confronted with the deficit budget
almost every year since 1997, which means that the government may find it
difficult to cover its routine expenditures. Those regular balance sheet items
require so large amount of fund that government cannot provide adequate fund
for other strategic needs, such as good education, appropriate health, poverty, and
SME’s development. Mismanagement of debts is the largest of all factors that
make Indonesian go into crisis. Consequently, all of citizens and their offsprings
have to carry the heavy burden of that debt.
2. Problem Identification
One of potential solutions to the necessity of sufficient fund for public
needs is waqf fund from people’s donation. People donate their money as cash
waqf by purchasing cash waqf certificate. The gathered fund will be then invested
in various investment portfolio and the profit of which can be spent for the above
mentioned public necessities. The gained profit will also be used for funding
poverty alleviation programs, while the principal of funds will be reinvested in
various highly profitable investment opportunities.
Waqif donates his/her money as waqf fund to Mauquf’alaih (a person who is
entitled to get benefit from waqf fund) through Nadzir (a person/an institution
being in charge for managing waqf fund and distributing returns of waqf
investment). Only gains of the invested waqf fund will be delivered to
Mauquf’alaih. The principal of funds keep being invested in potential investment
opportunities. In relation to its role as waqf fund investment manager, Nadzir on
behalf of Waqf Institution may allocate some waqf funds to financial portfolio and
finance SMEs’ businesses on the basis of profit-loss sharing system.
The larger the investment returns, the more fund can be allocated to
poverty alleviation program. In some countries, waqf fund management has
reduced poverty effectively and enhanced people’s welfare, by providing
2
additional fund for education & health development programs, cheap houses &
public facilities development programs, and so forth.
3. Objectives of Research
This research is expected to be able to find out the potency of an Islamic
innovation financial instrument, expecially cash waqf, to alleviate the poverty in
Indonesia. This research also tries to offer a design of the cash waqf management
system in a system dynamics model. Using the system dynamics methodology, we
tries to know the structure of cash waqf system and simulate the behaviour of cash
waqf model.
On the next part of this paper, we will discuss definition, law, and history
of cash waqf to recognize the concept and its potential benefit.
4. Problem Definition : Cash Waqf
Previously, waqf of building and land are the most popular forms of waqf.
Nowadays, cash waqf has become increasingly well-known, particularly because
of its flexibility, which allows distribution of the waqf’s potential benefit to be
benefited by the poor anywhere.
Cash waqf was firstly introduced in Ottoman era in Egypt. Professor
Mannan then sosialized cash waqf in Bangladesh through Social Investment Bank
Limited (SIBL). SIBL issues Cash Waqf Certificate to collect funds from the rich
and distributes gains of the managed funds to the poor.
Like those of Bangladesh, most of Indonesian people are poor.
Characteristic of communities in both countries are also similar. Therefore,
effectiveness of cash waqf certificate program to help reduce poverty in
Bangladesh gives hope that analogous program can be successfully implemented
in Indonesia.
Fatwa Commission, Board of Indonesian Moslem Scholars, responded the
necessity of cash waqf certificate program in Indonesia by issuing the following
fatwa (dated on 11 May 2002):
a. Cash Waqaf (Waqf al-Nuqud) is waqf donated by individual, group of
individuals, or legal entity, in cash.
b. Cash waqf includes securities.
c. Money donated as waqf is not forbidden (jawaz).
d. Cash waqf can only be distributed and allocated for anything not against
syariah (Islamic law).
e. Existence of waqf fund should be conserved. Waqf fund cannot be transferred
to anyone.
4.1.
Cash Waqf Certificate Framework
Waqif is a person who donate some money as waqf by purchasing cash
waqf certificate. The certificate can be bought in the name of family member, even
if he/she is already dead. Waqif expects return of the managed fund to be assigned
3
for certain purpose, e.g. public facility development, poor people rehabilitation,
etc.
Nadzir invests the collected fund in various investment portfolios. Nadzir
may (1) invest the fund in syariah (non interest) banking products of both domestic
and overseas banks, (2) finance selected businesses, (3) establish new prospective
businesses, or (4) finance small and medium scale enterprises (SMEs).(see Figure
1)
4.2.
Cash Waqf Certificate
According to Mannan (1998), the objectives of cash waqf certificate are;
(1) to equip banks and other waqf management institutions with cash waqf
certificate,
(2) to help collect social savings through cash waqf certificate (cash waqf
certification can be done in the name of other beloved family member to
strengthen familiy integration among rich families),
(3) to help transform the collected social savings to social capital, as well as to
help develop social capital market,
(4) to increase social investment,
(5) to encourage rich communities’ awareness on their responsibility for social
development in their environment.,
(6) to stimulate integration between social security and social welfare.
As cash waqf practice has not yet been popular in Indonesia, cash waqf
management institutions in Indonesia can replicate successful practices from other
countries, such as Bangladesh.
In addition to the above-mentioned objectives of cash waqf practice, profit
of the managed waqf fund can be allocated for: (see figure 2)
1. Poor Family Rehabilitation.
‰ Enhancing poor people’s welfare
2. Educational and Cultural Development.
‰ Supplying free books
‰ Funding relevant research and development
‰ Improving educational programs
‰ Scholarship
‰ Grant for schools
‰ Preserving and developing cultural values
3. Health and Sanitation
‰ Health and Sanitation for poor people
‰ Establishing health center
‰ Providing cheap medicines with appropriate quality
4. Social services
5. Building facilities for religious activity
6. Fixing social facilities.
4
Aspects involved when purchasing Cash Waqf Certificate include:
‰
One’s own welfare (in this life and life after death)
‰
Family’s welfare (in this life and life after death)
‰
Social welfare and social investment
‰
Developing social awareness: social security for poor people and social
harmony for rich people.
Contribution of cash waqf to sosio-economic development in developing
countries is significant. Fund collected through cash waqf certificate program can
be allocated to social-related development areas (e.g., agriculture, education,
health, and infrastructure), urban poverty alleviation program, and other public
service development. This opportunity in turn will reduce poverty level and will
allow people help themselves (Mannan,1998).
Cash waqf certificate will be issued in various denominations, e.g. IDR
(Rupiah)-100-million, IDR-50-million, IDR-10-million, IDR-5-million, and IDR-1million, in order that more prospective donors can afford them. Name of the
donor (it can be on behalf of dead individual) and specific purpose of the donation
(e.g. for educational services, health assistance, or other welfare enhancement
efforts) will be stated on the certificate.
4.3.
Requirements for Nadzir
Utomo (2001) states that cash waqf management institution is a legal entity,
and therefore should fulfil some requirements, which are called rukun waqf. The
rules can be explained as follows:
a. Al-waqif is a person who donates waqf fund. He/she should be health
physically and mentally. The decision to donate should not be made under
pressure.
b. Assets or fund donated as waqf are technically called al-mawquf in fiqh
(Islamic law). Existence of mawquf should be clear and durable. Therefore,
people can benefit from the waqf for long time.
c. Those who are entitled to benefit from return of waqf fund management are almawquf ‘alaih.
d. The way of a waqif stating his/her asset or fund as waqf is called sighah.
Dr.Muhammad Anwar Ibrahim in his paper titled “Wakaf Dalam Syariat
Islam (Waqf in Islamic Law)” 1 explains conditions that should be satisfied in
managing cash waqf. They are as follows:
1. Nadzir is a person/entity that is assigned to manage waqf fund.
2. As a matter of fact, waqif has the right to determine person or institution that
will manage his/her waqf fund. If a waqif does not appoint a nadzir, then Kadi
(Islamic Judge) will do it for him/her. [Asy-Syarbini op.cit p. 396].
This paper was presented in International Workshop on People’s Economy Empowerment
Through Productive Waqf Management, in Batam, 2002.
1
5
3. Fiqh experts determine flexible requirements for being a Nadzir. Fit and proper
nadzir should be capable of managing waqf fund to be productive source of
capital. If a nadzir cannot do his job properly, Kadi must replace him with
someone else after explaining reasons for the replacement.
4. Nadzir’s responsibilities include:
Maintaining waqf asset, preparing waqf asset for rent, managing waqf fund,
collecting waqf investment returns and distributing them to al-mawquf ‘alaih.
Fiqh expert can expand these authorities as needed.
5. Nadzir’s division of work. A waqif can appoint more than one nadzir to handle
his/her waqf fund. If a waqif does so, each nadzir will conduct a more specific
job. Asset maintenance, investment management, and investment return
distribution will be carried out by different nadzir. If there are more than one
nadzir for one job, a decision can only be made after necessary consultation
among them.[Asy-Syarbini op.cit. hal 410-411].
6. Salary for Nadzir. Waqif may determine certain amount of money or
percentage of waqf investment return as compensation for nadzir. A nadzir will
not receive any compensation if he quits the job or gets fired. [Ibid].
7. A Nadzir cannot take any part of waqf fund.[Ibid hal 412].
As the appointed nadzir, fund manager may carry out the followings to
sustain investment return of cash waqf fund:
1. Invest cash waqf fund in various domestic or global syariah portfolios with
good prospect.
2. Invest cash waqf fund in real sectors or businesses whose sources, process, and
outputs are in line with syariah. Fund can be invested in existing business or in
newly initiated one. Nadzir may establish new businesses that provide public
services, such as convenience stores, hypermarkets, basic food stores,
universities, hospitals, etc. This will generate more job opportunities and
appropriately satisfy some people’s basic needs.
3. Allocate some of the collected fund as profit sharing-based loan to selected
small businesses. Technical and managerial assistance are required to
accompany this investment. If this investment runs well, nadzir will not only
generate returns, but also help accelerate poor people’s economic development.
Nadzir should also pay attention on some points described below:
a. Transparency. Nadzir has to manage cash waqf fund transparently and
regularly make financial and performance reports, which are accessible by
waqif.
b. Productivity. Nadzir has to be able to manage the fund productively, so that
disadvantaged people can benefit form cash waqf fund continuously.
c. Trustable. Integrity of a nadzir is crucial. It has to avoid any business
opportunity and process that can lead to moral hazard. All proposed business
activities should be assessed in terms of Islamic law.
6
4.4.
Cash Waqf Management Institution’s Duties and Responsibilities
Waqf Management Institution should manage waqf fund in such a way that
the collected fund become more and more productive. The more the waqf
investment return, the more mawquf ‘alaih benefit from waqf fund. According to
fiqh, nadzir, as a waqf fund manager, is obliged to handle the fund productively
(Utomo, 2001). Furthermore, Manshur bin Yunus al-Bahuty states in Syarh
Muntaha al-Adaab (p. 504-505) that nadzir is responsible for maintaining,
expanding, and developing waqf assets in order that they can provide some
income such as investment return, rent fee, agricultural products, etc.
4.5.
Waqif’s Requirements
Waqif has a right to settle on particular requirements related to his/her
waqf. Such a requirement is classified in two groups, i.e. (1) requirement that goes
in line with syariah, and (2) condition that does not align with syariah. Nadzir does
not have to obey the latter, even if waqif has agreed to donate his fund as waqf.
Any rule or requirement should not violate Islamic law. Fiqh experts affirm that
power of waqif’s requirement status should not contravene Allah the Almighty’s
rule.
5. Research Metodology
This research used system dynamics methodology to capture dynamic
phenomenon of a system, in which variables change simultaneously as time
moves. It also carried out a survey on possible implementation of cash waqf in
Jakarta and Jawa Barat. The survey concluded that most people did not trust any
existing government institution to manage cash waqf fund and control its
investment activities, especially because cash waqf management will involve large
amount of endowment funds. Most of them also recommend that if a special
purpose institution is established to manage cash waqf fund, it has to be highly
capable of detecting any potential dishonesty and assessing performance of cash
waqf fund manager, i.e. nadzir. Therefore, it’s necessary to design an instrument
which is able to control the cash waqf management.
Based on the survey’s result, using exclusively designed computer program
then simulated some scenarios of cash waqf implemention to formulate some
policy concepts applicable in Indonesia. The computer program was designed to
help the policy makers (1) estimate cash waqf potential in alleviating poverty in
Indonesia, (2) supervise performance of nadzir or waqf fund management
institution, and (3) identify appropriate policies conducive to poverty alleviation
programs.
Since there was no similar study preceding the research, some assumptions
were applied. The ability of three national TV corporations (RCTI, SCTV, and
Indosiar) to collect donation amounting IDR 2 billions in two nights in 2000 and
the other charity programs to collect donation in 2001-2005 were used as an
assumption basis of amount of fund could be gathered by cash waqf management
7
institution. This research also used data supplied by Biro Pusat Statistik Republik of
Indonesia (National Beaurau for Statistics), BKKBN Republic of Indonesia
(National Coordinating Agency for Family Planning) and Islamic Financial
Institution.
5.1 Limitation of Research
This research put more emphasived on financial management expecially
raising and investing of cash waqf funds. The duties of Nazir, as a cash waqf fund
manager, are to increase the cash waqf funds and invest those funds in profitable
portfolios. As we know, the poverty alleviation problems are complicated.
However, they need multidiscipline knowledge to formulate and figure out the
solutions. With this research we want to try to make an early design of poverty
alleviation in the financial viewpoint using system dynamics modeling.
8
National Waqf Institution
Figure 1.
WAQIF
Indonesia citizens
Foreign Citizens
Islamic Financial
Institutions
Islamic Financial
Portfolio (domestic)
Islamic Capital
Market
Islamic Financial
Institution
Islamic Mutual
Funds
INSURANCE
Cash Waqf Certificate
Islamic
Bonds
Global Fund
Management
Islamic
Banking
N A Z I R (Fund Manager)
Society
Organizations
Charity
Institutions
Microfinancing
Portfolio
Microfinance
Institutions
Direct Investment
Portfolio
Traditional Waqf Assets
BMT
To Maintain Waqf Assets
Company
To Create New Waqf
Mudharabah
Deposit
BUILDINGS
LAND
Waqf Land Rental
Real Estate
Agricultural
Non-Profit Projects
Free Education
Comercial Projects
Waqf Buildings
Rental
Free Health Service
THE PROFIT- LOSS SHARING from Cash Waqf Investment
___ (eliminate)
Management Fees
9
Ready to Distribute the Funds To Poverty Alleviation Programs in Indonesia
Figure 2.
Microfinancing
Portfolio
To promote selfsufficient & dignity
for the poor
Rehabilitating
physically handicapped
Free Education (i.e. free
tuitition fee, books free
of cost, scholarships etc)
Ready to Distribute the Funds To Poverty Alleviation Programs in Indonesia
Poor Family
Rehabilitation
Educational &
Culture
Improving the condition
of poor living below the
poverty line
Supporting any
projects in the
area of
education,
research,
religious, etc)
Social Fasilities &
Services
Health & Sanitation
Natural Disaster
(Tsunami,
Flood,Volcanics)
Establishing
health care
programs for the
poor
Supplying
pure drinking
water
Supporting local culture,
art & heritages
Social
Infrastructure
Public Utilities
Services
Religion
Fasilities
Increasing The Standard of Life of Indonesian Citizens
10
To Alleviate the Poverty in Indonesia
6. General Description of System Conceptualization
The system conceptualization involves establishing model boundary,
identifying causal relationships and policy framework 2 . In this research the model
boundary includes all relevant factors that are considered important in the
problem context. The model comprises six interrelated components in the cash
waqf management as shown as Figure 3.
THE RICH -
(-) loop 4
- THE POOR
-
+
CASH WAQF
FUNDS
(-) loop 1
+
(+) loop 2
+
+ INVESTMENT
PORTFOLIOS
AVAILABLE FUNDS
FOR THE POVERTY
PROGRAMS
+
(+) loop 3
INVESTMENT
+ PROFITS
Figure 3. A Macro-view of Model
As depicted in the above causal loop, the model links among the rich, cash waqf
fund, investment portfolios, investment profits, available funds for the poverty
programs and the poor.
A general system of cash waqf model, derived from a macro-view of model
above, consists of six sectors i.e:
1). The cash waqf fund raising sectors (the rich links to the collected-cash waqf
funds),
2) The Islamic financial portfolios sectors,
3) The global fund management sectors,
4) The direct investment in large and medium scale enterprises,
5) The microfinance sectors.
( number 2,3,4,5 are investment portfolios which link to investment profits)
6) The distribution sectors of the profits of cash waqf investment. (Investment
profits link to the poor through the poverty programs).
The Interrelationship among variables can be seen in Figure 4.
2
Sushil (1993), System Dynamics “A Practical Approach for Managerial Problems”,Wiley Eastern Limited.
11
Figure 4. The Interrelationship Among Variables in the General System
Foreign
Waqif
the poor
Quality of
Life
- Living Cost
Healthy Cost
Education Cost
The Family
Rehabilitation Cost
Natural Disaster
Victims Costs
-
Indonesian
++ Population
the rich
cash waqf growth
Average Period to
+
Collect Funds
+
The poverty
Microfinance
allevation
+
Portfolio
programs
+
+
To meet the
poor needs
The funds for the
poverty alleviation
programs
+-
Infrastructure
Recovery Cost
+
Multiplier Effects of
Microfinance towards
Family's Welfare
+
+
+
-
+
+
The Profits of
Microfinance
Management Fees
for the Nazir
+
+
+
+
+
+
Profits of Islamic
Financial Investment
-+
+
NAV's Mutual
Funds
+
+Risk of Islamic
Financial Investment
+ To make a new
waqf assets
+
+
To maintain the
existing waqf assets
Waqf land +
productivity
+
Dividen or Capital
Gains
+
Direct
Investment
Portfolios
+
Invest to company
+
+
Real Estate
+
+
Agriculture
Waqf Land
Rental
To maintain new
assets
Commercial
Projects
+
+
+
+
The Profits of cash
waqf investment+
+
capital gains
Global Fund
Mgt
+
+
Investment
Funds
+
Unemployment
rate
Microfinance Policy
+
Scheme
Technical Assistances
for the poor
Bad debts of
microfinance
- +
+
Islamic Mutual
Funds
+
Mudharabah
Deposits
Dividens
rate of return
+
The risk of
microfinance
Islamic Capital
Market
Islamic Bond
death rate
+
Islamic Banking
+
+
+
Cash Waqf Funds are
collected by Nazir
Islamic Financial
Portfolio
+
birth rate
-
cash inflow of
+ cash waqf
+
+ +
+
+
+
+
+
Business
Risk
+
+
Social
Projects
+
Free-charge Health
Services
Free Education
+
+
The Profits of Direct Investment + +
12
The interrelationship among the six sectors is described as follows :
1) The cash waqf fund raising sectors
The responsibilities of this sector are collecting the cash waqf fund from the
waqif and then distributing them to the investment portfolios. The profits of the
investment will be distributed to the poor through the poverty alleviation
programs. At which the profits will be distributed depend on the waqif requests
such as the education, infrastructure, family rehabilitation, public health &
sanitation.
In the cash waqf raising sectors, there are several causal relationship
among the rich, who have the potency as a waqif, the gathered cash waqf fund,
the invested funds to various portfolios, and the gained profits from investment
which will be distributed to the poor. (see figure 5a and 5b).
Foreign Waqif
Birth rate
+ population + +
The poor
-
-
-
The rich
Average Period to
Collect Funds
+
+
Cash Waqf
+ Growth
+
The Poverty
Alleviation Programs Cash Inflow of
+
Cash Waqf
The funds for the
poverty alleviation
programs
+
-
+
Collected Cash
Waqf Funds
+
Islamic
Investment
+ +
Financial
Funds
Portfolio
+
+
+
+
Direct Investment Global Fund Mgt
Portfolio
Microfinance +
Portfolio
Management Fees
+
Death Rate
+
+
+
+
+
The Profits of Cash
Waqf Investment
Figure 5a. Causal loop of The Cash Waqf Fund Raising
13
Cash Waqf Funds Raising Sector
growth_rate
Cash_Waqf
Min_Req_Return
Cash_Inflow
Return_of_Global_Fund
Investment_periode
CW_normal
Principal_4
Current_price_of_gold
Collecting_period
Ratio
Global_Fund_Mgt
Return_of_Microfinancin
rate_of_cash_inflow
Profit_of_Glb_Fund_Mgt
Convert_to_Gold_standard
Total_Return
Return_of_Global_Fund
Global_Fund_Inv
Principal_13
Principal_1
Principal_11
Principal_12
Principal_14
Microfinace_Period
Min_Rtrn_MK
Principal_2
Mikrofinance
Cash_Waqf_Mgt
Invest_to_Islamic_Fin
Invest_to_microfinance
Total_Return
Ratio
Total_Return
Stop_Microfinance
Average_Return_of_Islamic_Finance
Principal_31
Invest_to_Direct_Investment
Microfinance_Policy
Principal_3
Return_of_Global_Fund
Principal_33
Principal_32
Average_Return_Direct_Inv
Average_Return_of_Islamic_Finance
Figure 3b. Flow Diagram of The Cash Waqf Fund Raising
14
2) The Islamic financial portfolios sectors
The responsibilities of this sector are investing the cash waqf efficiency and
effectively. The gathered cash waqf will be then invested by Nazir, a fund
manager, in Islamic financial portfolios. The structure of Islamic banking and
finance is firmly rooted in the Qur’an and the teachings of Muhammad which is
called a Islamic Law 3 . Islamic Law has derived from revealed text a web of
interrelated norms prohibiting interest-taking and undue speculative practices.
Generally, these portfolios are divided into four kinds i.e a). Islamic
mutual funds, b). Islamic Capital Market Indices, c). Islamic Banking Products
(Mudharaba Deposits), d) Islamic Bond. All of them are issued by Indonesian
financial institutions.
The gained profits will be distributed to meet the poor’s basic needs and
increase the quality of the poor’s life. Meanwhile, the principal keep being
invested in potential investment opportunities. (see Figure 6a and 6b).
Cash Waqf
Inflows
+
Cash Waqf growth
+
Collected Cash
Waqf Fund
+
+
The poor
-
+
Investment funds
The rich
-+
-
The poverty
alleviation programs
+
The funds for the
poverty alleviation
programs
+
average period to
collect the funds
+
Islamic Financial
Portfolio
+
Islamic
Bonds
+
+
rate of return
Islamic Capital
Market
+
Islamic Banking
+
Mudharabah
Deposits
+
Islamic Mutual
Funds
+
NAV of Mutual
Funds
+
Dividen
+
Capital gain
Management Fees
+
The profits of cash
waqf investments +
+
+
+ +
+
+
Risk of Islamic
Finance
Investment
+
-
The Profits of Islamic +
Financial Investments
Figure 6a. Causal loop of The Islamic Financial Portfolios
3
Frank E.Vogel and Samuel L.Hayes III (1998), Islamic Law and Finance “religion, risk and return.”
Published by Kluwer Law International.
15
Islamic Financial Portfolio Sector
Return_Islamic_Finance
Invest_to_Islamic_Fin
Min_Req_Return
Investment_periode
Islamic_Mutual_Funds
Return_Islamic_Mutual_Fund
Profit_of_Islamic_Bonds
Invest_to_Mutual_Funds
Principal_12
Return_of_Islamic_Bonds
Return_of_Islamic_Bonds Profit_of_Islamic_Mutual_Funds
Return_Islamic_Mutual_Fund
Islamic_Bonds
Invest_to_Islamic_Bond
Return_of_Islamic_Bonds
Return_of_Islamic_Stocks
Principal_13
Return_Islamic_Finance
rn_Islamic_Finance
Min_Req_ReturnInvestment_periode
Invest_to_Islamic_Fin
Return_of_Deposit
Invest_to_Islamic_Fin
Islamic_Capital_Market
Invest_to_JII
Average_Return_of_Islamic_Finance
Invest_to_Mudharabah_Deposits
Profit_of_Islamic_Deposits
Principal_14
Return_of_Islamic_Stocks
Mudarabah_Deposits
Profit_of_Islamic_Cap_Mrkt
Return_Islamic_Finance
Return_of_Deposit
Profit_of_Islamic_Bonds
Principal_11
Investment_periode
Min_Req_Return
Profit_of_Islamic_Mutual_Funds
Profit_of_Islamic_Deposits
Profit_of_Islamic_Finance
Figure 6b. Flow Diagram of of The Islamic Financial Portfolios
3) The global fund management sectors
The responsibilities of this sector are to invest the cash waqf fund in the global
financial portfolios as known a global funds management such as Amanah Fund,
Lariba Fund, Islamic Indices, etc. A fund manager should choose the portfolios
not only high return but also safety. The better Nazir choose the investment
portfolios, the higher profits will be gained and the more funds will be acquaired
by the poor.
16
The principal then will be reinvested in various highly profitably investment
opportunities. (see Figure 7a and 7b)
The poor
-
The growth of cash
+
waqf fund
+
Foreign Citizens
The rich
-
-
+
Cash inflow of
Cash Waqf
+
The poverty alleviation
programs
+
+
Average period to
collect cash waqf
Collected Cash
Waqf Funds
+
+
Investment Funds
+
The funds for the
poverty alleviation
+
programs
-
+
Global Fund Mgt
Management Fee +
The Profits of cash
waqf investment
Figure 7a. Causal loop of the global fund management portfolios
Global Fund Management Sector
growth_rate
Cash_Waqf
Min_Req_Return
Cash_Inflow
Return_of_Global_Fund
Investment_periode
Principal_4
CW_normal
Current_price_of_gold
Collecting_period
Global_Fund_Mgt
Profit_of_Glb_Fund_Mgt
Return_of_Global_Fund
Ratio
Return_of_Microfinanc
rate_of_cash_inflow
Convert_to_Gold_standard
Total_Return
Figure 7b. Flow Diagram of The global fund management portfolios
17
4) The direct investment in large and medium scale enterprises
A cash waqf fund manager, Nazir, allocates the gathered funds to the big
companies in the forms of stocks which the gained profit are dividends or capital
gains. The nature of this sector is the long term. The other forms of direct
investment are building the new waqf buildings and maintaining the existings
waqf assets either for social projects or the commercial projects. (See Figure 8a
and 8b.)
Cash Waqf Inflow
Foreign Waqif
The poor
-
-
-
Collected Cash
Waqf Fund
+
+
+
+
+
Cash
+ Waqf growth
Average Period to
Collect Funds
The rich
Investment Funds
+
+
The poverty alleviation
programs
+
The funds for poverty
alleviation programs
+
Direct Investment
Portfolio
Invest to
company
Management fees
+
+
dividen or capital
gains
+
To maintain the
existings waqf assets
+
Waqf Land
Productifity
+
Waqf Land
rental
+
The Profits of Cash
Waqf Investment
+
+
+ Real Estate
Agriculture
++
+
To maintain waqf
+ buldings
+
+
Business Risks
+
+To make the new
waqf assets
+
+
Commercial
Projects
+
Social
Projects
+
Free-Charge
Free Education Healthy Services
+
+
The Profits of Direct Investment + +
Figure 8a. Causal loop of the direct investment to real sectors
18
Direct Investment to Real Sectors
Return_Real_Estate
Profit_of_Waqf_Land
Principal_331a
Principal_331b
Profit_of_agriculture
Age_of_Waqf_Prodctvty
Return_of_Waqf_Land
Profit_of_Real_Estate
Principal_331
minimum_ROI
Age_of_Waqf_Prodctvty
To_Increase_Waqf_Land_Productivity
Real_Estate
Agriculture
Principal_331b
Invest_to_Real_Estate
Invest_to_Agriculture
Principal_331a
Invest_to_Waqf_Land
minimum_ROI
Average_Rtrn_Waqf_Land
Return_of_Agricltr
Profit_of_agriculture
Return_Real_Estate
Return_of_Agricltr
To_Increase_Waqf_Productivity
Principal_33
Invest_to_Waqf_Assets
Total_Rtrn_Waqf_Prodctvty
Principal_331
Principal_332
Total_Rtrn_Waqf_Prodctvty
Invest_to_Direct_Investment
Average_Return_of_Waqf_Prodctvty
Average_Rtrn_Waqf_Land
Invest_to_Waqf_Building
Company_rate_of_return
Total_Return_Direct_Inv
Profit_of_Waqf_Building
Return_of_Waqf_Building
Average_Rtrn_New_Waqf_Assets
Average_Return_Direct_Inv
Profit_of_Waqf_Productivity
To_Increase_Waqf_Building_Productifity
Age_of_Waqf_Prodctvty
Profit_of_Waqf_Land
Principal_332
minimum_ROI
Adjust_to_Social_Projects
Commercial_Projects_investment_Periode
Social_Projects_Policy
Return_Social_Projects
Social_Projects
Rtrn_Commercial_Projects
Total_Rtrn_New_Waqf_Assets
Principal_322
Principal_321
Invest_to_Social_Projects
Average_Rtrn_New_Waqf_Assets
Build_New_Waqf_Assets
Principal_32
Principal_322
Invest_to_new_waqf
Invest_to_Direct_Investment
Total_Return_Direct_Inv
Total_Rtrn_New_Waqf_Assets
Invest_to_build_Comrcl_Projects
Average_Rtrn_New_Waqf_Assets
minimum_ROI
Principal_321
Profit_of_Commercial_Projects
Rtrn_Commercial_Projects
Commercial_Projects
Commercial_Projects_investment_Periode
Rtrn_Commercial_Projects
Invest_to_Direct_Investment
minimum_ROI
Principal_31
Total_Return_Direct_Inv
Time_to_Direct_inv
Company_rate_of_return
Company
Invest_to_Company
Company_Profits_
Company_rate_of_return
Profit_of_Waqf_Land_Rental
The_number_of_Waqif
Age_of_Waqf_Prodctvty
Rental_Price
Fraction_of_year
Waqf_Land_Availability
Waqf_Land_Growth
Profit_of_Waqf_Land_Rental
Decrease_of_Waqf_Land
Waqf_Land_Devaluation
Profit_of_Direct_Investment
Profit_of_Waqf_Productivity
Profit_of_Commercial_Projects
Company_Profits_
Time_to_invest_in_Direct_Investment
Figure 8b. Flow Diagram of the direct investment to real sectors
19
5) The Microfinance Sectors
The microfinancing programs, which used the loss-profit sharing, are one of the
most important sectors for poverty alleviation. Most of funds collected through cash
waqf certificate issues will be allocated as loan for microenterprises. This microcredit
program should particularly be aimed at helping poor people initiate their business and
enhance their quality of life, accordingly. Nevertheless, merely supplying them with
capital is not sufficient, since most of them do not have adequate knowledge and skill to
choose and to run a business that is suitable to their condition. Consequently, relevant
business technical assistance is needed to help them survive.
Family’s business activities have significantly influenced economy of a
community, particularly in developing countries. Big manufacturing companies indeed
dominate mass production processes, both for goods and services, but most of enterprises
are initiated by family. In addition, family’s consumption behaviour also affects
production and marketing activities, as well as other business activities.
Government’s programs for family business empowerment has to do with
informal sector development efforts, as most of family businesses are operated in non
formal format and business system. Family businesses, which absorb the largest number
of employee, are also found mostly in small and medium scale. In most developing
economies, these small and medium enterprises (SMEs) have limited access to formal
financing practices, as well as to adequate government’s technical assistance. (see figure
9a and 9b)
The rich
-
The poor
-
+
Collected
Cash
Waqf Fund
--
Investment funds
+
+
Multiplier Effects of
Microfinance towards
+
family's welfare
+
Microfinancing
Portfolio
+
The poverty
alleviation programs
+
+
The funds for poverty
alleviation programs
+
-
Unemployment
rate
-
Technical +
Assistances
Microfinance Policy
Scheme
Risk of
Microfinance
Management Fees
+
+
Bad debt of
microfinance
The profits of cash
waqf investment +
+
-
+
- The profit of
microfinance
Figure 9a. Causal loop of The Microfinancing Sectors
20
Microfinance Portofolio Sectors
Microfinace_Period
Return_of_Microfinancing
Mikrofinance
Profit_of_Microfinance
microcredit
Policy_ratios
Microfinance_Policy
Pra_welfare_people
Indonesian_population
Stop_Microfinance
Figure 9b. Flow Diagram of The Microfinancing Sectors
6) The profits of cash waqf investment distribution sectors
The gained profits from the various portfolios will be distributed to the poor
through the poverty alleviation programs such as basic needs, health services,
sanitations, education, natural disasters victims, etc. The principal of cash waqf
will be reinvented to various portfolio opportunities. (see figure 10a and 10b).
The poor
-
-
-
Cash Waqf Inflow
+
+
Living Cost
Collected Cash
Waqf Funds
Healthy Cost
Foreign Waqif
+
+
The Poverty
Alleviation Programs
Quality of Life
+ +
+
+ ++
+
Average period to
collect the cash waqf
+
Education cost
The family
rehabilitation cost
+ Cash Waqf
Growth +
The rich
-
To meet the poor
needs
The funds for the
poverty alleviation
programs
+
-
+
Investment funds
+
Natural Disaster
Victims Cost
+
Infrastucture
Recovery cost
Management fee +
The Profit of cash
waqf investment
Figure 10a. Causal Loop of the cash waqf profits distribution sectors
21
Profits of Cash Waqf Investment Distribution
Profit_of_Microfinance
Profit_of_Glb_Fund_Mgt
Living_cost
Profit_of_Direct_Investment Natural_Disaster_Cost
Profit_of_Islamic_Finance
Healthy_cost
Daily_needs
Total_available_fund_for_poor
Profit_of_Cash_Waqf_Investment
Infstructure_Cost
Family_Rehbiittion_Cost
ent
Education_cost
Pra_welfare_people
the_poor
Inflation
Enter_to_pra_welfare
Needs_ratio_1
Cost_1
poor
Living_cost
Needs__ratio_2
needs_rate_1
Healthy_cost
Needs_ratio_3
Cost_2
Needs_ratio_4
needs_rate_2
needs_rate_3
available_fund_for_education
Education_needs
available_rate_3
allocation_ratio_4
available_fund_for_rehbltation
Rehabilitation_needs
Family_Rehbiittion_Cost
Cost_4
Needs__ratio_5
available_fund_for_living
Living_needs
available_rate_1
allocation_ratio_2
available_fund_for_healthy
Healthy_needs
available_rate_2
allocation_ratio_3
Education_cost
Cost_3
allocation_ratio_1Profit_of_Cash_Waqf_Investment
available_rate_4
allocation_ratio_5
needs_rate_4
Enter_to_pra_welfare
Natural_Disaster_Cost
available_fund_for_disaster
Disaster_needs
available_rate_5
needs_rate_5
Cost_5
Infstructure_Cost
Cost_6
available_fund_for_infrastrctr
Infrastructure_needs
available_rate_6
needs_rate_6
Needs_ratio_6
allocation_rate_6
Enter_to_pra_welfare
Inflation
Profit_of_Cash_Waqf_Investment
Figure 10b. Flow Diagram of the cash waqf profits distribution sectors
22
7. The Cash Waqf Management Control
The survey concluded that most people did not trust any existing
government institutions to manage cash waqf fund and control cash waqf
investment activities, especially because cash waqf management will involve
large amount of endowment funds. Most of them also recommend that if a
special purpose institution is established to manage cash waqf fund, it has to be
highly capable of detecting any potential dishonesty and assessing performance
of cash waqf fund manager, i.e. nadzir. Therefore, it’s necessary to design an
instrument which is able to control the cash waqf management. This model tries
to design a control tools which is able to detect the human error in decision
making either mismanagement or dishonesty quickly. (see figure 11.)
The Control Function for Fund Management
rate_of_cash_inflow
Cummulative_Cash_Waqf_Fun
Convert_to_goldCurrent_price_of_gold
Total_cash_waqf_in_gold
Mudarabah_Deposits
Islamic_Bonds
Company
Mikrofinance
available_fund_for_living
available_fund_for_rehbltation
Commercial_Projects
Islamic_Mutual_Funds
Control_Function
available_fund_for_healthy
Profits_Mobilization
Islamic_Capital_Market
Real_Estate
available_fund_for_disaster
Agriculture
Global_Fund_Mgt
available_fund_for_infrastrctr
Social_Projects
available_fund_for_education
To_Increase_Waqf_Building_Productifity
Figure. 11 Flow Diagram of The Control Function for Fund Management
The collected cash waqf fund from the waqif will be distributed to the
various portfolios and then the usage will be controlled periodically. The early
warning system will be prepaired by the system in order to the amount of cash
waqf fund will not go below the initial amount. It is the difference of the cash
waqf from the other sources of funds. Gold standard can be used as the currency
standard because of its stability. (see figure 11a-d).
23
2e9
2
1
2
rupiah
1,5e9
2
1
1e9
1
2
1
500.000.000
2
1
Control_Function
Cummulative_Cash_Waqf_Fund
2
0
1
20
40
60
80
100
day
Figure 11a. The simulation result (short term)
2
1
15
1
2
10
1
1
2
5
2
2
Total_cash_waqf_in_gold
Convert_to_gold
1
0
2
20
40
60
80
100
day
Figure 11b. The Simulation result (short term)
1e15
rupiah
Gold Standard (kg)
1
20
5e14
1
2
0
12
5.000
12
10.000
Cummulative_Cash_Waqf_Fund
Control_Function
15.000
day
Figure 11c The Simulation Result (long term)
24
gold standard (kg)
10.000.000
1
5.000.000
2
0
12
5.000
1
Convert_to_gold
Total_cash_waqf_in_gold
2
15.000
day
Figure 11d The Simulation Result (long term)
The waqif and public can control or monitor the cash flow of cash waqf
investment. If mismanagement and dishonesty occurred, the simulation result
could demonstrate the deviation. (see figure 11e-f)
2
5e9
1
4e9
1
40
2
1
2
1
30
Total_cash_waqf_in_gol
d
Convert_to_gold
1
2
1
20
2
10
1
0
2
20
2
2
40
60
rupiah
gold standard (kg)
50
3e9
2
2
1e9
1
0
80 100
1
1
2e9
2
1
20
day
2
Control_Function
Cummulative_Cash_Waqf_Fund
1
40
60
80
100
day
6e13
600.000
1
2
300.000
2
1
0
12
12 12
2.000
10.000
day
Total_cash_waqf_in_gold
rupiah
gold standard (kg)
Figure 11e. The Simulation Result (short term)
4e13
1
Convert_to_gold
2
2e13
0
Control_Function
Cummulative_Cash_Waqf_
Fund
2
2 1
12 12 1
2.000
6.000 10.000
day
Figure 11f. The Simulation Result (long term)
25
8. The Potency of Cash Waqf for the Poverty Alleviation Programs
It can be concluded from the system that the larger the amount of cash
waqf collected, the larger the amount of fund can be invested in highly costeffective profit sharing-based portfolios, and the larger the amount of return can
be distributed to poor people. The more fund allocated to finance microbusiness,
the sooner poverty in Indonesia can be alleviated. (see Figure 12).
The Potency of Cash Waqf for
The Poverty Alleviation
Profit_of_Cash_Waqf_Investment
Multiplier_Effects
Profits_of_CW_Investment_
Average_Period_to_become_prawelfare
Daily_needs
the_poor
death_rate3
Birth_rate3
alleviation_1 the_poor
The_poor_decrease
aleviation
Pra_welfare_people The_poor_reducing
death_rate2
birth_rate2
lifetime_expectancy
Microcredit_for_a_poo
Population_growth
Pra_welfare_reducing the_welfare_increase
Indonesian_populationwelfare
Multiplier_effect
Average_period_to_become_welfare
Average_of_Microfinacing
the_rich
birth_rate
death_rate
Average_of_Microfinacing
Invest_to_microfinance
Figure 12. Flow Diagram of The Potency of Cash Waqf for The Poverty
Alleviation
9. The Simulation Result
Since there has been no similar study preceding the research, some
assumption were applied. The ability of five national TV corporations (RCTI,
SCTV, Indosiar, MetroTV and Lativi) to collect donation amounting IDR 3
billions in two night in 2003 was used as an assumption basis of amount of fund
could be gathered by cash waqf management institution.
It was then assumed that the cash waqf institution could obtain IDR 20
millions a day in form of cash waqf from various components of Indonesian
people. The study also assumed that the gathered fund would grow 25%
26
annually and it would be invested in Islamic financial products with profit
sharing- based various rate of return.( see figure 13).
6
6
0,0010
6
9
1
ratio
2
10
8
8
4
0,0005
3
2
2
2
9
10
4
5
1
6
9
8
10
5
4
3
7
2
3
10
4
1
7
5
4
5
4
1
3
7
9
8
6
1
5
1
3
2
5
6
7
7
3
7
0,0000
8
9
10
5.000
10.000
15.000
20.000
Return_Islamic_Mutual_Fund
Return_of_Agricltr
Return_of_Deposit
Return_of_Global_Fund
Return_of_Islamic_Bonds
Return_of_Islamic_Stocks
Return_of_Microfinancing
Return_of_Waqf_Building
Return_Real_Estate
Rtrn_Commercial_Projects
25.000
day
Figure 13. Rate of return of Cash Waqf Investment Portfolio
Using the above assumption and data supplied by Biro Pusat Statistik (National
Beaurau for Statistics) , BKKBN (National Coordinating Agency for Family Planning)
and syariah financial institution in Indonesia, the computer-based data process resulted in
approximation of cash waqf investment return 25% annum. Such an amount of fund is
expected to be available for the poverty alleviation efforts in Indonesia, especially
through microfinance distribution program. If this plan can be implemented smoothly and
if those assisted micro enterprises can get well run maximum of 8 years after being
financed, it will take approximately 12500 days (35 years) to eliminate poverty and
22400 days (63 years) to increase quality of live for Indonesian population. (see figure
14a-b) Poor people, in this study, are those with very low quality of life. In other words,
poor people are not only those who cannot feed once a day, but also those who cannot
afford proper health and education services.
population
200,000,000
4
4
4
4
4
1
3
150,000,000
3
3
3
1
100,000,000
2
3
50,000,000
1
1
2
1
4
2
0
5,000
1
10,000
the_rich
the_poor
Pra_welfare_people
Indonesian_population
3
2
15,000
2
20,000
2
25,000
30,000
day
Figure 14a. The Simulation Result (based on IDR 20 million a day)
27
population
500.000.000
400.000.000
300.000.000
200.000.000
2
100.000.000
0
12
5.000
12
1
12 12
15.000
25.000
1
2
The_poor_decrease
the_welfare_increase
day
Figure 14b. The Simulation Result (based on IDR 20 million a day)
Based on the study result above and various scenarios proposed, if the
gathered fund through cash waqf certificate increase i.e. IDR 50 million in a day ,
it will take approximately 11000 days (30 years) to eliminate poverty and 21000 days (57
years) to increase quality of live for Indonesian population with the assumption the others
constant. (see figure 15a)
200,000,000
78
78
78
78
578
6
1
34
150,000,000
34
3
34
2
4
3
100,000,000
4
5
50,000,000
56
56
5
6
56
6
12
4
12
0
5,000
10,000
12
15,000
12
20,000
123
25,000
7
30,000
8
the_poor
the_poor
Pra_welfare_people
Pra_welfare_people
the_rich
the_rich
Indonesian_population
Indonesian_population
Time
Figure 15a. Simulation Result (based on IDR 50 million in a day compare with IDR
20 million in a day)
28
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29