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Cash Waqf in Indonesia

“Thanks to the prodigious development of the waqf institution, a person could be born in a house belonging to a waqf, sleep in a cradle of that waqf and fill up on its food, receive instruction through waqf-owned books, become a teacher in a waqf school, draw a waqf-financed salary and at his death, be placed in a waqf provided coffin for burial in a waqf cemetery”

Shamsiah Abdul Karim (Yediyildiz).


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Under Law 41/2004, waqf is defined as a legal action by the waqif to donate its asset to be used without certain time frame (depending on the asset type) for religious purpose and/or to the benefit of general public in accordance with Shariah. [1] Waqif and nazir (the party who administer and manage waqf asset) can be individual, organization, and other legal entities. [2] It is up to the nazir to fully maximize the potential and economic benefit of waqf assets for the good of the general public.

Figure 1. Categories of waqf in Islamic Jurisprudence (with Object being further delineated based on Government Regulation 42/2006)

Cash Waqf in Indonesia

Source: (Chowdhury et al., 2016), Government Regulation 42/2006

Government Regulation 42/2006 classifies waqf assets into: 1) immovable objects (such as land), 2) movable objects other than cash (such as vehicle, gold, and capital market instruments), and 3) cash. [3] BWI Regulation 1/2009 further defines cash waqf (the third category of waqf asset under Government Regulation 42/2006) to be waqf done in the form of cash which can be productively managed by the nazir for the benefit of mauquf alaih (the beneficiary as set in the waqf deed by the waqif). [4] There is a difference between cash waqf and waqf through cash, according to BWI. [5]

Cash waqf is waqf given directly in cash, with the intention that the cash can be managed (and invested) in productive manner. The return from the management/investment shall then be used for the benefit of mauquf alaih. Waqf through cash, on the other hand, is asset waqf given indirectly through cash, hence the intention is to use the cash to purchase or build the intended waqf asset. The waqf asset would then be used for the benefit of mauquf alaih. For the sake of simplicity, cash waqf meant in this paper is cash waqf given directly in cash and waqf through cash with the intention to be invested in Islamic REIT.

Furthermore, BWI Regulation 1/2009 stipulates that cash waqf must be done through LKSPWU (generally, Shariah banks), while waqf through cash can be done through any registered nazir.

Figure 2. Cash waqf management and investment scheme

Cash Waqf in Indonesia

Since cash waqf now has a legal basis under Waqf Law and coupled with increasing adoption rate of cash waqf by the general public, the need shall emerge for safekeeping and investment of cash waqf. Magda Ismail Mohsin defines cash waqf as “the confinement of an amount of money by a founder(s) and the dedication of its usufruct in perpetuity to the welfare of society” (Mohsin, 2014). The need for investment in one hand is simply due to impossibility for direct use of cash for the benefit (consumption) of mauquf alaih on the ground of perpetuity enforcement, while on the other hand leaving the cash idle shall expose it to inflation which subsequently may decrease its purchasing power. As such, safekeeping and investment are among the skill set required for cash waqf management, which may differ to hard asset management (i.e., building, vehicle, cattle, etc.)

Source: Islamic Real Estate Investment Trust as an Investment Asset for Waqf Management in Indonesia: Regulatory Framework and Shariah-Compliancy, Yoga Prakasa. Republished with permission.

References:

[1] Hasanah, U. (2006), “Satu Tahun UU Wakaf” [One Year post-Waqf Law], Sharia Business, No. 34, p. 37.

[2] Ibid.

[3] Government Regulation 42/2006 on Enforcement of Law 41/2004 (Peraturan Pemerintah Nomor 42 Tahun 2006 tentang Pelaksanaan Undang-Undang Nomor 41 Tahun 2004 tentang Wakaf) This is an implementing regulation on the administration and enforcement of Law 41/2004, and acts as its executive order.

[4] Hasanah, U. (2006), “Satu Tahun UU Wakaf” [One Year post-Waqf Law], Sharia Business, No. 34, p. 37.

[5] Forum Lembaga Keuangan Syariah Penerima Wakaf Uang (2011), Handbook Tanya Jawab Wakaf Uang [Cash Waqf Question and Answer Handbook]. Badan Wakaf Indonesia, Jakarta, Indonesia.