Indonesia launches cash endowments-linked sovereign Islamic bonds

NUSA DUA, Indonesia: The Indonesian government launched on Sunday an Islamic bond linked to endowments, aiming to tap into a pool of assets for its fiscal needs.

The Waqf Core Principles, a joint work of the Indonesian government with the research arm of the Islamic Development Bank, comprise ways to ensure endowments, or waqf, are used appropriately for public needs and encourage a modern management of assets, such as the cash waqf-linked sukuk, according to a central banker.

Mobilising funds from waqf is important because they are believed to hold large amounts of idle or low yielding assets across the Muslim world.

Dody Budi Waluyo, a Bank Indonesia (BI) deputy governor, said up to 25 billion rupiah ($1.64 million) cash waqf has been collected by several waqf managers for the new sukuk.

The proceeds from the sukuk will be used for social assistance, such as disaster relief efforts in areas hit by earthquakes this year, or public infrastructure projects, Waluyo said.

"This in part will also help fiscal funding in the context of social programmes," he told reporters after the launch on the sidelines of the IMF and World Bank meetings in the resort island of Bali.

Under the new scheme, when the sukuk matures, the funds will be returned to the donators in full, but not including the yield. The yield will be reinvested to manage waqf assets.

Even though the figure that has been collected is still small, Waluyo thinks early signs showed the Indonesian Muslim population, the biggest in the world, has had "huge interest" in this scheme.

There has been a number of efforts around the world to modernise waqf, which according to a Dubai government estimate, hold around $1 trillion in assets globally, some in the form of real estate and commercial businesses.

The assets in many waqf are underutilised and earn low returns, with some waqf requiring further donations to keep running. - Reuters