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ndonesia'€™s sharia banks expect to raise a large amount of inexpensive funds from Islamic charity foundations following the signing of a memorandum of understanding (MoU) between Bank Indonesia, the Indonesian Ulema Council (MUI) and several alms and zakat collecting bodies.

Under the agreement signed in Jakarta on Monday, the central bank and the MUI'€™s National Sharia Council (DSN) agreed to work together to encourage the Islamic charity foundations to keep their funds in the country'€™s sharia banks.

Bank Indonesia (BI) Governor Agus Martowardojo said that with the MoU he hoped the National Alms Agency (Baznas) and the Indonesian Waqf Board (BWI) would deposit their funds in and channel them through the country'€™s sharia banks.

Baznas is the national foundation that receives zakat, an obligatory payment made annually under Islamic law, while BWI is a national agency that collects and manages endowments from Muslims. Many people channel their zakat or other charity funds through the two agencies, although others prefer to provide alms directly to the needy people they know.

 '€œThe MoU signing is an initial milestone of Bank Indonesia'€™s [BI] synergy with the national sharia institutions to develop the country'€™s Islamic economic and financial sector,'€ Agus said in his speech.

 Agus said the memorandum was also a follow-up for two initiatives launched by the central bank last year. BI established the International Working Group on Zakat Core Principles in August last year, followed by an MoU with the Islamic Development Bank'€™s (IDB) Islamic Research and Training Institute in November.

 Monday'€™s agreement was also part of the central bank'€™s commitment as BI has been appointed to host the annual International Financial Services Board (IFSB) conference from March 31 to April 2, Agus said.

DSN-MUI chairman Ma'€™ruf Amin said sharia banks were expected to take advantage of zakat funds and endowments so that they could provide less expensive financing for customers. Moreover, Ma'€™ruf said Law No. 23/2011 on alms funds management stipulated that zakat should be deposited in sharia banks, even though many zakat collecting bodies currently still chose to place the funds in conventional banks.

'€œCurrently, most third-party funds in sharia banks consist of high-cost time deposits, which prompt expensive financing rates. Zakat and wakaf, on the other hand, are basically low-cost charity funds that can also help alleviate poverty,'€ Ma'€™ruf said.

Data at Baznas and BWI show that, nationwide, zakat recipients received about Rp 3 trillion (US$230 million) and were disbursed to 3.4 million people last year, while realized wakaf funds only amounted to Rp 350 billion. Research conducted by both institutions reveal that Indonesia'€™s zakat potential could reach Rp 270 trillion, while wakaf funds Rp 20 trillion. Baznas chairman Didin Hafidhuddin said the zakat agency was expecting that the amount of realized wakaf funds could reach at least Rp 5 trillion by the end of this year. '€œThe Islamic Development Bank is financing our pilot project this year on IT database development in 50 regencies and cities to capture the potential of zakat donors and recipients,'€ Didin said.