The government is considering placing haj funds in US dollar-denominated government sukuk ( sharia bonds ) to safeguard pilgrims' money against the risk of currency mismatch, as well as to boost the development of the country's Islamic financing.
'Ninety percent of haj funds that we manage is in foreign currency, but [pilgrims] pay the funds at the beginning in rupiah,' Anggito Abimanyu, director general for the haj and umrah ( minor haj ) at the Religious Affairs Ministry, said on Friday.
'The placement of haj funds in dollar-denominated sukuk is intended to cushion against risks from currency mismatch,' said Anggito, himself a former chief of the Finance Ministry's fiscal agency.
The plan may be executed as early as next year, with the government still considering whether to put the money in the form of private placements or other broader schemes, he explained.
The Religious Affairs Ministry currently manages around Rp 60 trillion ( US$5.1 billion ) in haj funds collected from potential pilgrims across Indonesia, which has the world's highest Muslim population.
Of the total, Rp 31 trillion is placed in sharia-compliant debt papers, with the remaining funds invested as deposits in local sharia banks, such as Bank Syariah Mandiri and Bank Muamalat.
Religious Affairs Minister Suryadharma Ali admitted he was reluctant to place haj funds in local sharia banks because sometimes they 'are no different from capitalists', channeling money to non-Islamic activities.
'When I was still the minister of cooperatives and small and medium enterprises, I accompanied the President in supervising the [sharia] banks in their activities of channeling KUR [micro loans] and conducting corporate social responsibility programs,' he recalled.
'At that time, I found that the banks gave funds to non-Islamic educational institutions. I then reprimanded the president directors of those banks,' he said, adding that placing haj funds in sukuk was less risky compared to depositing them in banks.
Total outstanding sukuk in the local market currently stand at Rp 150 trillion, or around 10 percent of total government bonds traded in the secondary market, according to data from the Finance Ministry's debt management office.
Of the total Rp 150 trillion in sukuk, Rp 30 trillion came from haj funds, indicating the crucial role of haj funds in government financing to support shortfalls in the state budget, Finance Minister Chatib Basri said.
'The haj funds have made it easier for us to plug our deficit from a domestic source of financing, which is more secure,' Chatib added.
Indonesia's dollar-denominated sukuk have been well-received by foreign investors and have performed well in the secondary
market. The country's sharia-compliant notes, which were sold in November last year and are due to mature in 2022, led the global rally at 6.7 percent in October, according to Bloomberg.
The offered return is almost four times higher than Malaysia's notes, due in 2021, with a 1.7 percent yield, and twice higher than the second-best performer, Bahrain's notes, due to mature in 2017, which advanced 2 percent during the month.
In September, the government sold $1.5 billion worth of dollar-denominated sukuk maturing in five-and-a-half years, promising returns of 6.1 percent. The offering was more than three times oversubscribed, with incoming bids topping $5.6 billion, as global investors queued to collect Indonesia's high-return sukuk.