Waqf for financing the Sustainable Development Goals (SDGs)

Dec 11, 2017

Workshop on leveraging waqf, and untapped form of Islamic funding for the SDGs, comprising in Indonesia, land three times the size of Singapore

UNDP means business in financing the SDGs. Since the 17 Sustainable Development Goals (SDGs) came into force on 1 January 2016, all countries will mobilize efforts to end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind. Indonesia is one of the leading countries in the Asia Pacific region to take one step further in realizing these goals.

Through the signing of Presidential Decree No. 59, 2017, the Government of Indonesia has taken bold steps in addressing these so-called new challenges by translating the Goals and integrate them into national and local development agendas – to an extent which the Nawa Cita (Government’s nine priority agenda), the RPJMN (medium-term national development plan) and the SDGs converge and how the new global goals can support Indonesia’s national development including addressing financial challenges and eliminate poverty.

As noble as the vision can be, realizing these ambitions in achieving the SDGs and eliminating poverty will require mobilising the right scale and mix of financing, including incorporating all resources – public and private, domestic and international. As the biggest Muslim-populated country in the world, Indonesia has the upper hand in accessing and mobilising Islamic finance, which other countries in the Asia Pacific might lack. One of the tangible products of Islamic finance is waqf. The word ‘waqf’ in Arabic literally means ‘detaining’ which signifies the dedication or consecration of any property, either in express terms or implication, for any charitable or religious object, or to secure any benefit to refers to human beings.

The value of land and property waqf in Indonesia alone is estimated at around 4,4-billion-meter square with the economic value of Rp370 trillion (US$27 billion). However, to date, most of the waqf land is limited to use in schools, mosques or public graves. Although the property of Waqf has benefited the community particularly in the surrounding areas, imagine if we could maximise this potential in a wider space, so we can fight and eliminate poverty, we can combat inequalities and to finally achieve the SDGs.

To formulate the best approaches in utilizing waqf as a mean to finance the SDGs, UNDP together with Padjadjaran University’s SDGs Center organized a workshop and focus group discussion that will contribute to building both institutions’ capacity to effectively engage in this area. The workshop has brought together key partners in the innovative financing space, including Badan Wakaf Indonesia, Bank Indonesia, The Ministry of Finance, Otoritas Jasa Keuangan, Badan Perencanaan Pembangunan Nasional, new National Committee for Sharia Finance, established under the President, foundations and other religious organizations. 

Speaking at the workshop, Francine Pickup, Deputy Country Director UNDP Indonesia said “Waqf has a huge untapped productive potential in Indonesia, comprising land three times the size of Singapore and with a value of $27 million.” She also added a key outcome from a recent panel discussion at UNDP’s “Leveraging Innovative Financing” to consider using waqf as a social impact financing tool. It might be possible to create a revolving investment mechanism through which the assets pooled under Waqf structures would be invested to support SMEs to generate revenues. Meanwhile, Fahruroji (Badan Wakaf Indonesia – BWI) mentioned that “The presence of UU No.41/2004 can be made as a justification that waqf can also be utilised for non-religious matters, for example, national development with broader linkage to SDGs.”

The workshop was done in two different panel discussions highlighting “SDGs Financing and Islamic Finance: The Case of Waqf” and “Areas for SDG Waqf Financing and Potential Projects in Indonesia” which then followed with a focus group discussion and co-design on a pilot project for waqf SDGs financing. The workshop has highlighted several notable points from the benefits of waqf; challenges that hinder waqf utilisation in today’s economy; and recommendations to counter the challenges.

The workshop highlighted several SDGs that are targeted by waqf including: No poverty (goal 1), good health and well-being (goal 3), quality education (4), affordable and clean energy (goal 7), decent work and economic growth (goal 8) and industry, innovation and infrastructure (goal 9).

Waqf’s beneficiaries are not only Muslims. Despite its complex management system, waqf can be leverage more to finance microbusiness with no interest rate investment, so microentrepreneurs can grow their business, while zakat could support other issues they might have with education and health.

Waqf could be linked with sukuk (Islamic bond), and it can be used to support productivity such as agriculture and fisheries. This type of sukuk could be issued by using waqf land as the underlying asset where the land would be used productively to generate profits. For example, waqf land could be leased to SMEs at attractive rates and the revenues generated ploughed back into those SMEs to support their growth or used to support the Sustainable Development Goals more broadly.

The workshop highlighted several challenges in utilizing waqf more productively, including the lack of transparency and good governance in the religious social fund's sector; lack of accurate data; low rate of cash waqf collection, 34% of waqf land is not certified and Nazir’s (public officials) capacity building is needed.

The workshop recommended raising awareness about the productive use of waqf. It also emphasised the importance of involving government in the provision of accurate data, improvement of governance framework and the integration of waqf utilisation with government programs.

The workshop developed plans on how to manage waqf productively to help in overcoming development challenges reflected in the SDGs. 

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