Indonesia must strive hard to push the boundaries of waqf (religious endowment) financing which is still partially remedied with the enactment of the Law No. 41/2004 and the establishment of the Indonesian Waqf Board (BWI) in 2007.
Currently, among the biggest challenges in developing and optimizing massive potential of waqf in Indonesia is the scarcity of financing since waqf institutions here are mostly unbankable and hardly have access to financial institutions.
Many successful waqf financing models in other countries such as Malaysia, Singapore and Saudi Arabia provide some lessons.
In Malaysia, Menara Bank Islam development is considered to be one of the most prominent waqf projects. According to waqf expert Siti Mashitoh Mahamood, the 34-storey building is a unique model of a waqf development project under the administration of the Federal Territory Islamic Religious Council (MAIWP).
The building was built on 1.21 acres of wqaf land endowed by an Indian Muslim, the late Ahmad Dawjee Dadabhoy. It was developed using a build, operate and transfer (BOT) scheme as well as the Islamic concepts of wakala, ijara and istisna`. Menara Bank Islam was the first large-scale commercial development project constructed on waqf land in Malaysia. It involved three leading Islamic organizations, namely the MAIWP, Pilgrims Savings Board (LTH) and Bank Islam Malaysia Berhad (BIMB).
The project was funded by the Tabung Haji at a cost of RM151 million (US$38.39 million), and has a 25-year leasing period. MAIWP as the land owner (i.e., the trustee) will receive RM56.6 million over that period. The MAIWP is expected to receive RM700 million worth of this commercial waqf building upon the completion of the BOT period.
A similar successful waqf development using BOT arrangement can also be found at Setee Aisah Waqf project in Penang. The project is a collaboration between the Penang State Islamic Religious Council (MAINPP) and Urban Development Authority (UDA) of Malaysia which managed to build 76 units of two-storey link houses and nine units of three-storey shop houses on a plot of waqf land there.
Other than BOT arrangement, waqf development in Malaysia is also supported by government financing. In the last 10 years, the federal government allocated RM256.4 million for the development of waqf lands nationwide, in the Ninth Malaysian Plan (2006-2010), which increased to RM1.9 billion in the Tenth Malaysian Plan (2011-2015) after realizing the vast areas of idle waqf assets in Malaysia as well as the financial constraints of waqf institutions at the state level. This allocation is given through the Department of Awqaf, Zakat and Hajj (JAWHAR) to finance various waqf development initiatives in field building, capacity building and institution building.
With regard to field building, the development of waqf land is in collaboration with State Islamic Religious Councils (SIRCs). Meanwhile, to encourage capacity building, the Malaysian Waqf Foundation (YWM) was established in 2008. The YWM is responsible for researching waqf and collaborating with SIRCs to unlock and generate value for idle waqf land.
For institution building, JAWHAR uses the funds for research and development of the institution of waqf in Malaysia. Among successful projects by YMF and SRICs are Hotel Pantai Puteri Melaka, Hotel Klana Beach Resort, Port Dickson, Negeri Sembilan, Hotel Grand Putri, Terengganu, Hotel The Regency Seri Warisan, Perak, and Dialysis Centre, Batu Pahat, Johor.
Another instrument to support waqf development is sukuk. It has a very strong track record as in the case of Singapore and Saudi Arabia. In Singapore, sukuk musharakah was introduced for developing commercial building on waqf land in Bencoolen Street. The old mosque was redeveloped into a multi-storey complex comprising a modern mosque, a commercial building and a 12-storey building with 84 serviced apartment units. The financing of the project was done through the issuance of S$35 million sukuk musharakah which were fully subscribed by investors.
In Saudi Arabia, the issuance of sukuk al-intifa’ (timeshare) was successfully implemented to develop the Zamzam Tower in Makkah, one of the apartment towers near the Grand Mosque. According to Securities Commission of Malaysia, a construction and real estate company, Munshaat Real Estate Projects Co. had been awarded with a 24-year lease to construct one of the six towers (Zam Zam Tower) on the waqf land adjacent to the Grand Mosque.
Munshaat was granted with a 24 year lease over the waqf land. In financing the construction they issued the sukuk which was achieved via the forward lease contract (‘ijarah mawsufah fi dhimmah). Under this contract, Munshaat leased the asset under the construction to the sukuk holders for 22 years, who paid the lease rental in advance in one lump sum. With restrictions on ownership of real property rights in Makkah for foreigners or non-Saudi citizens, the sukuk holders enjoy the intifa’ (usufruct) of the asset after its construction based on time-sharing slots. The developer, Munshaat, later on used the advance from lease rental (sukuk proceed) to pay for the 24-year lease rental on the waqf, and the construction costs of the Zam Zam Tower as well.
The interesting feature of sukuk intifa’ is the recognition of a new asset class upon which the sukuk are based. This new asset class is in the category of manfa’ah (usufruct). The sukuk holder holds the right to benefit or in the form of time-sharing a common property.
Sukuk financing is gaining more attention due to the successful and out-of-the box way of thinking by Emirates Airline. Daud Bakar, one of the leading global sharia advisors, highlighted that Emirates Airline in 2015 used the sukuk proceeds to pre-fund the purchase of new aircrafts. It is also the first sukuk financing for the A380 aircraft and the first sukuk to obtain a UK government-backed credit guarantee of up to US$913 million.
Emirates Airline sukuk is considered a game changer and a perfect role model for Islamic finance industry on many fronts including waqf. The stakeholders of waqf in Indonesia could embrace the mindset of Emirates Airline in being relevant, innovative and inspiring, to take up the challenge to develop massive potential of waqf assets especially to address the issue of lack of fund.
Fahmi M. Nasir is the founder of the Centre for Study and Consultancy of Waqf, Jeumpa D’Meusara. Hidayatul Ihsan is a lecturer at Padang State Polytechnic.
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