A Dynamic Model for Cash Waqf Management as One of
The Alternative Instruments for The Poverty Alleviation
in Indonesia
Dian Masyita, et al
The Faculty of Economics, Padjadjaran University, Bandung, Indonesia
(dianmasyita@yahoo.com & (dianmasyita@fe.unpad.ac.id)
Submitted and Presented Paper in The 23rd International Conference of
The System Dynamics Society, Sloan School of Management, Massachussets Institute of Technology (MIT), Boston, July 17-21, 2005
Abstract
This research tries to offer a design of the cash waqf management system in a system dynamics model. The Cash Waqf Management is expected to become one of the alternative instruments for the poverty alleviation programs in Indonesia. These programs require huge amount of fund that cannot be provided thoroughly by the government. Therefore, initiation of new sources of fund for such a program is inevitable. In the Islamic sosio-economic concept, there is a source of social fund that is sosio-economically and politically free of charge, namely cash waqf. In this concept, Nadzir (cash waqf fund manager) collects the fund from Waqif (cash waqf payer) and invest the money in the real sector and in any syariah-based investment opportunities. Nadzir will then allocate profits and returns gained from the investments to poverty alleviation programs. Nadzir is obliged to maintain the amount of fund in such a way that it does not go below the initial amount. Therefore, Nadzir not only should be highly capable, but also needs an experienced financial institution in helping SMEs development efforts. Using the system dynamics methodology, we try to design the structure of cash waqf system and simulate the behaviour of cash waqf model.
1. Preface
In the early 2005, the Indonesian poverty rate has been still discouraging. The poverty indices are still higher than those of the previous years. The economic crisis beginning in 1997, does not end until now. In addition, the Tsunami Disasters destroyed two provinces in Indonesia i.e Nanggroe Aceh Darussalam and North Sumatra in the end of the year 2004. Based on the Statistics Central Bureau (BPS)’s data, there are about 40 million Indonesian people who are under the poverty line.
Indonesia has come into debt trap made by the Indonesian government and the private sectors. Large amount of debt has weakened Indonesian economy for the past seven years. Currently, Indonesian foreign debt is approximately USD 130 billions, which consists of government foreign debt of USD 70 billions and private sector’s foreign debt of USD 60 billions. In addition, domestic government debt has reached IDR 650 trillions level. Nevertheless, the amount of the debt has been inceasing since Consultative Group on Indonesia (CGI) meeting in Bali (January 2003) decided to issue a USD 2.7 billion loan to Indonesia.
Meanwhile, the government has been confronted with the deficit budget almost every year since 1997, which means that the government may find it difficult to cover its routine expenditures. Those regular balance sheet items require so large amount of fund that government cannot provide adequate fund for other strategic needs, such as good education, appropriate health, poverty, and SME’s development. Mismanagement of debts is the largest of all factors that make Indonesian go into crisis. Consequently, all of citizens and their offsprings have to carry the heavy burden of that debt.
2. Problem Identification
One of potential solutions to the necessity of sufficient fund for public needs is waqf fund from people’s donation. People donate their money as cash waqf by purchasing cash waqf certificate. The gathered fund will be then invested in various investment portfolio and the profit of which can be spent for the above mentioned public necessities. The gained profit will also be used for funding poverty alleviation programs, while the principal of funds will be reinvested in various highly profitable investment opportunities.
Waqif donates his/her money as waqf fund to Mauquf’alaih (a person who is entitled to get benefit from waqf fund) through Nadzir (a person/an institution being in charge for managing waqf fund and distributing returns of waqf investment). Only gains of the invested waqf fund will be delivered to
Mauquf’alaih. The principal of funds keep being invested in potential investment opportunities. In relation to its role as waqf fund investment manager, Nadzir on behalf of Waqf Institution may allocate some waqf funds to financial portfolio and finance SMEs’ businesses on the basis of profit-loss sharing system.
The larger the investment returns, the more fund can be allocated to poverty alleviation program. In some countries, waqf fund management has
reduced poverty effectively and enhanced people’s welfare, by providing additional fund for education & health development programs, cheap houses & public facilities development programs, and so forth.
3. Objectives of Research
This research is expected to be able to find out the potency of an Islamic innovation financial instrument, expecially cash waqf, to alleviate the poverty in Indonesia. This research also tries to offer a design of the cash waqf management system in a system dynamics model. Using the system dynamics methodology, we tries to know the structure of cash waqf system and simulate the behaviour of cash waqf model.
On the next part of this paper, we will discuss definition, law, and history of cash waqf to recognize the concept and its potential benefit.
4. Problem Definition : Cash Waqf
Previously, waqf of building and land are the most popular forms of waqf. Nowadays, cash waqf has become increasingly well-known, particularly because of its flexibility, which allows distribution of the waqf’s potential benefit to be benefited by the poor anywhere.
Cash waqf was firstly introduced in Ottoman era in Egypt. Professor Mannan then sosialized cash waqf in Bangladesh through Social Investment Bank Limited (SIBL). SIBL issues Cash Waqf Certificate to collect funds from the rich and distributes gains of the managed funds to the poor.
Like those of Bangladesh, most of Indonesian people are poor. Characteristic of communities in both countries are also similar. Therefore, effectiveness of cash waqf certificate program to help reduce poverty in Bangladesh gives hope that analogous program can be successfully implemented in Indonesia.
Fatwa Commission, Board of Indonesian Moslem Scholars, responded the necessity of cash waqf certificate program in Indonesia by issuing the following
fatwa (dated on 11 May 2002):
a. Cash Waqaf (Waqf al-Nuqud) is waqf donated by individual, group of individuals, or legal entity, in cash.
b. Cash waqf includes securities.
c. Money donated as waqf is not forbidden (jawaz).
d. Cash waqf can only be distributed and allocated for anything not against
syariah (Islamic law).
e. Existence of waqf fund should be conserved. Waqf fund cannot be transferred to anyone.
4.1. Cash Waqf Certificate Framework
Waqif is a person who donate some money as waqf by purchasing cash waqf certificate. The certificate can be bought in the name of family member, even
if he/she is already dead. Waqif expects return of the managed fund to be assigned for certain purpose, e.g. public facility development, poor people rehabilitation, etc.
Nadzir invests the collected fund in various investment portfolios. Nadzir
may (1) invest the fund in syariah (non interest) banking products of both domestic and overseas banks, (2) finance selected businesses, (3) establish new prospective businesses, or (4) finance small and medium scale enterprises (SMEs).(see Figure 1)
4.2. Cash Waqf Certificate
According to Mannan (1998), the objectives of cash waqf certificate are;
(1) to equip banks and other waqf management institutions with cash waqf certificate,
(2) to help collect social savings through cash waqf certificate (cash waqf certification can be done in the name of other beloved family member to strengthen familiy integration among rich families),
(3) to help transform the collected social savings to social capital, as well as to help develop social capital market,
(4) to increase social investment,
(5) to encourage rich communities’ awareness on their responsibility for social development in their environment.,
(6) to stimulate integration between social security and social welfare.
As cash waqf practice has not yet been popular in Indonesia, cash waqf management institutions in Indonesia can replicate successful practices from other countries, such as Bangladesh.
In addition to the above-mentioned objectives of cash waqf practice, profit of the managed waqf fund can be allocated for: (see figure 2)
1. Poor Family Rehabilitation.
Enhancing poor people’s welfare 2. Educational and Cultural Development.
Supplying free books
Funding relevant research and development Improving educational programs
Scholarship Grant for schools
Preserving and developing cultural values 3. Health and Sanitation
Health and Sanitation for poor people Establishing health center
Providing cheap medicines with appropriate quality 4. Social services
5. Building facilities for religious activity 6. Fixing social facilities.
Aspects involved when purchasing Cash Waqf Certificate include: One’s own welfare (in this life and life after death)
Family’s welfare (in this life and life after death) Social welfare and social investment
Developing social awareness: social security for poor people and social harmony for rich people.
Contribution of cash waqf to sosio-economic development in developing countries is significant. Fund collected through cash waqf certificate program can be allocated to social-related development areas (e.g., agriculture, education, health, and infrastructure), urban poverty alleviation program, and other public service development. This opportunity in turn will reduce poverty level and will allow people help themselves (Mannan,1998).
Cash waqf certificate will be issued in various denominations, e.g. IDR (Rupiah)-100-million, IDR-50-million, IDR-10-million, IDR-5-million, and IDR-1-million, in order that more prospective donors can afford them. Name of the donor (it can be on behalf of dead individual) and specific purpose of the donation (e.g. for educational services, health assistance, or other welfare enhancement efforts) will be stated on the certificate.
4.3. Requirements for Nadzir
Utomo (2001) states that cash waqf management institution is a legal entity, and therefore should fulfil some requirements, which are called rukun waqf. The rules can be explained as follows:
a. Al-waqif is a person who donates waqf fund. He/she should be health physically and mentally. The decision to donate should not be made under pressure.
b. Assets or fund donated as waqf are technically called al-mawquf in fiqh
(Islamic law). Existence of mawquf should be clear and durable. Therefore, people can benefit from the waqf for long time.
c. Those who are entitled to benefit from return of waqf fund management are al-mawquf ‘alaih.
d. The way of a waqif stating his/her asset or fund as waqf is called sighah.
Dr.Muhammad Anwar Ibrahim in his paper titled “Wakaf Dalam Syariat Islam (Waqf in Islamic Law)”1 explains conditions that should be satisfied in managing cash waqf. They are as follows:
1. Nadzir is a person/entity that is assigned to manage waqf fund.
1This paper was presented in International Workshop on People’s Economy Empowerment
Through Productive Waqf Management, in Batam, 2002.
2. As a matter of fact, waqif has the right to determine person or institution that will manage his/her waqf fund. If a waqif does not appoint a nadzir, then Kadi
(Islamic Judge) will do it for him/her. [Asy-Syarbini op.cit p. 396].
3. Fiqh experts determine flexible requirements for being a Nadzir. Fit and proper
nadzir should be capable of managing waqf fund to be productive source of capital. If a nadzir cannot do his job properly, Kadi must replace him with someone else after explaining reasons for the replacement.
4. Nadzir’s responsibilities include:
Maintaining waqf asset, preparing waqf asset for rent, managing waqf fund, collecting waqf investment returns and distributing them to al-mawquf ‘alaih.
Fiqh expert can expand these authorities as needed.
5. Nadzir’s division of work. A waqif can appoint more than one nadzir to handle his/her waqf fund. If a waqif does so, each nadzir will conduct a more specific job. Asset maintenance, investment management, and investment return distribution will be carried out by different nadzir. If there are more than one
nadzir for one job, a decision can only be made after necessary consultation among them.[Asy-Syarbini op.cit. hal 410-411].
6. Salary for Nadzir. Waqif may determine certain amount of money or percentage of waqf investment return as compensation for nadzir. A nadzir will not receive any compensation if he quits the job or gets fired. [Ibid].
7. A Nadzir cannot take any part of waqf fund.[Ibid hal 412].
As the appointed nadzir, fund manager may carry out the followings to sustain investment return of cash waqf fund:
1. Invest cash waqf fund in various domestic or global syariah portfolios with good prospect.
2. Invest cash waqf fund in real sectors or businesses whose sources, process, and outputs are in line with syariah. Fund can be invested in existing business or in newly initiated one. Nadzir may establish new businesses that provide public services, such as convenience stores, hypermarkets, basic food stores, universities, hospitals, etc. This will generate more job opportunities and appropriately satisfy some people’s basic needs.
3. Allocate some of the collected fund as profit sharing-based loan to selected small businesses. Technical and managerial assistance are required to accompany this investment. If this investment runs well, nadzir will not only generate returns, but also help accelerate poor people’s economic development.
Nadzir should also pay attention on some points described below:
a. Transparency. Nadzir has to manage cash waqf fund transparently and regularly make financial and performance reports, which are accessible by waqif.
b. Productivity. Nadzir has to be able to manage the fund productively, so that disadvantaged people can benefit form cash waqf fund continuously.
c. Trustable. Integrity of a nadzir is crucial. It has to avoid any business opportunity and process that can lead to moral hazard. All proposed business activities should be assessed in terms of Islamic law.
4.4. Cash Waqf Management Institution’s Duties and Responsibilities
Waqf Management Institution should manage waqf fund in such a way that the collected fund become more and more productive. The more the waqf investment return, the more mawquf ‘alaih benefit from waqf fund. According to
fiqh, nadzir, as a waqf fund manager, is obliged to handle the fund productively (Utomo, 2001). Furthermore, Manshur bin Yunus al-Bahuty states in Syarh Muntaha al-Adaab (p. 504-505) that nadzir is responsible for maintaining, expanding, and developing waqf assets in order that they can provide some income such as investment return, rent fee, agricultural products, etc.
4.5. Waqif’s Requirements
Waqif has a right to settle on particular requirements related to his/her waqf. Such a requirement is classified in two groups, i.e. (1) requirement that goes in line with syariah, and (2) condition that does not align with syariah. Nadzir does not have to obey the latter, even if waqif has agreed to donate his fund as waqf. Any rule or requirement should not violate Islamic law. Fiqh experts affirm that power of waqif’s requirement status should not contravene Allah the Almighty’s rule.
5. Research Metodology
This research used system dynamics methodology to capture dynamic phenomenon of a system, in which variables change simultaneously as time moves. It also carried out a survey on possible implementation of cash waqf in Jakarta and Jawa Barat. The survey concluded that most people did not trust any existing government institution to manage cash waqf fund and control its investment activities, especially because cash waqf management will involve large amount of endowment funds. Most of them also recommend that if a special purpose institution is established to manage cash waqf fund, it has to be highly capable of detecting any potential dishonesty and assessing performance of cash waqf fund manager, i.e. nadzir. Therefore, it’s necessary to design an instrument which is able to control the cash waqf management.
Based on the survey’s result, using exclusively designed computer program then simulated some scenarios of cash waqf implemention to formulate some policy concepts applicable in Indonesia. The computer program was designed to help the policy makers (1) estimate cash waqf potential in alleviating poverty in Indonesia, (2) supervise performance of nadzir or waqf fund management institution, and (3) identify appropriate policies conducive to poverty alleviation programs.
Since there was no similar study preceding the research, some assumptions were applied. The ability of three national TV corporations (RCTI, SCTV, and
Indosiar) to collect donation amounting IDR 2 billions in two nights in 2000 and the other charity programs to collect donation in 2001-2005 were used as an assumption basis of amount of fund could be gathered by cash waqf management institution. This research also used data supplied by Biro Pusat Statistik Republik of Indonesia (National Beaurau for Statistics), BKKBN Republic of Indonesia (National Coordinating Agency for Family Planning) and Islamic Financial Institution.
5.1Limitation of Research
This research put more emphasived on financial management expecially raising and investing of cash waqf funds. The duties of Nazir, as a cash waqf fund manager, are to increase the cash waqf funds and invest those funds in profitable portfolios. As we know, the poverty alleviation problems are complicated. However, they need multidiscipline knowledge to formulate and figure out the solutions. With this research we want to try to make an early design of poverty alleviation in the financial viewpoint using system dynamics modeling.
9
National Waqf Institution
Figure 1.
N A Z I R (Fund Manager)
Islamic Financial Institutions
Society Organizations
Charity Institutions
Cash Waqf Certificate
WAQIF
INSURANCEMicrofinancing Portfolio
Islamic Mutual Funds
Microfinance Institutions
Direct Investment Portfolio Islamic Financial
Portfolio (domestic)
Company B M T
Islamic Capital Market
Islamic Financial Institution
Islamic Banking
Islamic Bonds
To Create New Waqf To Maintain Waqf Assets
Traditional Waqf Assets
BUILDINGS
Non-Profit Projects Comercial Projects
Free Education
Management Fees
Ready to Distribute the Funds To Poverty Alleviation Programs in Indonesia
LAND
Agricultural
Free Health Service
Waqf Buildings Rental
___ (eliminate)
THE PROFIT- LOSS SHARING from Cash Waqf Investment
Indonesia citizens Foreign Citizens
Global Fund Management
Mudharabah Deposit
Figure 2. Figure 2.
Ready to Distribute the Funds To Poverty Alleviation Programs in Indonesia
Microfinancing Portfolio
Poor Family
Rehabilitation Health & Sanitation
Establishing health care programs for the
poor
Supplying pure drinking water
Natural Disaster (Tsunami, Flood,Volcanics)
Social Fasilities & Services Educational &
Culture
Improving the condition of poor living below the poverty line
Public Utilities Services
To Alleviate the Poverty in Indonesia
Supporting local culture, art & heritages
Social Infrastructure
Religion Fasilities
To promote self-sufficient & dignity for the poor
Rehabilitating physically handicapped
Free Education (i.e. free tuitition fee, books free of cost, scholarships etc)
Supporting any projects in the
area of education,
research, religious, etc)
Increasing The Standard of Life of Indonesian Citizens
6. General Description of System Conceptualization
The system conceptualization involves establishing model boundary, identifying causal relationships and policy framework2. In this research the model boundary includes all relevant factors that are considered important in the problem context. The model comprises six interrelated components in the cash waqf management as shown as Figure 3.
THE POOR THE RICH
CASH WAQF FUNDS
INVESTMENT PORTFOLIOS
+ INVESTMENT
PROFITS
AVAILABLE FUNDS FOR THE POVERTY
PROGRAMS
+
+
-+
+
(-) loop 1
(+) loop 2
+ (+) loop 3 (-) loop 4
-
-Figure 3. A Macro-view of Model
As depicted in the above causal loop, the model links among the rich, cash waqf fund, investment portfolios, investment profits, available funds for the poverty programs and the poor.
A general system of cash waqf model, derived from a macro-view of model above, consists of six sectors i.e:
1). The cash waqf fund raising sectors (the rich links to the collected-cash waqf funds),
2) The Islamic financial portfolios sectors, 3) The global fund management sectors,
4) The direct investment in large and medium scale enterprises, 5) The microfinance sectors.
( number 2,3,4,5 are investment portfolios which link to investment profits)
6) The distribution sectors of the profits of cash waqf investment. (Investment profits link to the poor through the poverty programs).
The Interrelationship among variables can be seen in Figure 4.
2
Sushil (1993), System Dynamics “A Practical Approach for Managerial Problems”,Wiley Eastern Limited.
Figure 4. The Interrelationship Among Variables in the General System
Islamic Financial Portfolio
Microfinance Portfolio
The Profits of Microfinance The risk of microfinance
Microfinance Policy Scheme
Bad debts of microfinance Unemployment
rate
Technical Assistances for the poor
+ cash waqf growth
cash inflow of cash waqf
Cash Waqf Funds are collected by Nazir Average Period to
Collect Funds
The Profits of cash waqf investment Management Fees
for the Nazir The funds for the
poverty alleviation
Dividens capital gains Mudharabah
rate of return +
Profits of Islamic Financial Investment
+ +
+ +
+
Risk of Islamic Financial Investment
Invest to company To maintain the existing waqf assets
To make a new waqf assets
+ +
+
Dividen or Capital Gains
+
Waqf land productivity
To maintain new assets
The Profits of Direct Investment
Multiplier Effects of Microfinance towards
The interrelationship among the six sectors is described as following:
1) The cash waqf fund raising sectors
The responsibilities of this sector are collecting the cash waqf fund from the waqif and then distributing them to the investment portfolios. The profits of the investment will be distributed to the poor through the poverty alleviation programs. At which the profits will be distributed depend on the waqif requests such as the education, infrastructure, family rehabilitation, public health & sanitation.
In the cash waqf raising sectors, there are several causal relationship among the rich, who have the potency as a waqif, the gathered cash waqf fund, the invested funds to various portfolios, and the gained profits from investment which will be distributed to the poor. (see figure 5a and 5b).
population Birth rate
Cash Waqf Growth
Microfinance Portfolio
+
The rich The poor
Death Rate
Cash Inflow of Cash Waqf
Collected Cash Waqf Funds
Average Period to Collect Funds
Investment Funds
-+
+
+
+ +
+ +
-The Poverty Alleviation Programs
-+
Global Fund Mgt
+ Foreign Waqif
+
Islamic Financial Portfolio
Direct Investment Portfolio
+
+
The Profits of Cash Waqf Investment
+ + + +
es Management Fe+
+
+
+ +
+
The funds for the poverty alleviation
programs
-+
Figure 5a. Causal loop of The Cash Waqf Fund Raising
Cash Waqf Funds Raising Sector
Principal_32
Total_Return
growth_rate
Cash_Waqf
Min_Req_Return
Cash_Inflow Return_of_Global_Fund
Investment_periode
CW_normal
Principal_4
Current_price_of_gold Collecting_period
Principal_3 Principal_1
Principal_11 Principal_12
Principal_14 Principal_13
Principal_33 Principal_31
Ratio
Global_Fund_Inv
Invest_to_Islamic_Fin
Convert_to_Gold_standard
Cash_Waqf_Mgt Mikrofinance
Global_Fund_Mgt
Return_of_Global_Fund Total_Return
Invest_to_Direct_Investment
Invest_to_microfinance
Ratio Return_of_Microfinancin
rate_of_cash_inflow
Profit_of_Glb_Fund_Mgt
Return_of_Global_Fund
Microfinace_Period
Min_Rtrn_MK Principal_2
Total_Return
Stop_Microfinance
Average_Return_of_Islamic_Finance
Microfinance_Policy
Average_Return_Direct_Inv
Average_Return_of_Islamic_Finance
Figure 5b. Flow Diagram of The Cash Waqf Fund Raising
2) The Islamic financial portfolios sectors
The responsibilities of this sector are investing the cash waqf efficiency and effectively. The gathered cash waqf will be then invested by Nazir, a fund manager, in Islamic financial portfolios. The structure of Islamic banking and finance is firmly rooted in the Qur’an and the teachings of Muhammad which is called a Islamic Law3. Islamic Law has derived from revealed text a web of interrelated norms prohibiting interest-taking and undue speculative practices.
Generally, these portfolios are divided into four kinds i.e a). Islamic mutual funds, b). Islamic Capital Market Indices, c). Islamic Banking Products (Mudharaba Deposits), d) Islamic Bond. All of them are issued by Indonesian financial institutions.
The gained profits will be distributed to meet the poor’s basic needs and increase the quality of the poor’s life. Meanwhile, the principal keep being invested in potential investment opportunities. (see Figure 6a and 6b).
The rich The poor
Cash Waqf growth
Cash Waqf Inflows
Collected Cash Waqf Fund
average period to collect the funds Investment funds
The profits of cash waqf investments Management Fees
The funds for the poverty alleviation
Islamic Banking Islamic Mutual Funds
Dividen Capital gain
Mudharabah
Deposits NAV of Mutual Funds
rate of return +
The Profits of Islamic Financial Investments +
+ + +
+
Risk of Islamic Finance Investment
Figure 6a. Causal loop of The Islamic Financial Portfolios
3
Frank E.Vogel and Samuel L.Hayes III (1998), Islamic Law and Finance “religion, risk and return.” Published by Kluwer Law International.
Islamic Financial Portfolio Sector
Investment_periode Return_Islamic_Finance
Invest_to_Islamic_Fin
Principal_14
Invest_to_Islamic_Fin
Principal_12 Islamic_Mutual_Funds
Invest_to_Mutual_Funds
Min_Req_Return Return_Islamic_Mutual_Fund
Profit_of_Islamic_Bonds
Return_of_Islamic_Bonds
Invest_to_Islamic_Bond Islamic_Bonds
Principal_13
rn_Islamic_Finance Min_Req_Return
Invest_to_JII
Islamic_Capital_Market
Profit_of_Islamic_Cap_Mrkt
Invest_to_Mudharabah_Deposits
Principal_11 Return_Islamic_Finance
Profit_of_Islamic_Mutual_Funds
Investment_periode Invest_to_Islamic_Fin
Return_of_Deposit
Profit_of_Islamic_Deposits Profit_of_Islamic_Bonds
Mudarabah_Deposits
Profit_of_Islamic_Finance
Investment_periode Average_Return_of_Islamic_Finance
Profit_of_Islamic_Deposits Return_of_Islamic_Stocks
Return_Islamic_Finance Return_of_Islamic_Bonds Return_of_Islamic_Bonds Profit_of_Islamic_Mutual_Funds
Return_Islamic_Mutual_Fund
Return_of_Deposit
Return_of_Islamic_Stocks
Min_Req_Return
Figure 6b. Flow Diagram of of The Islamic Financial Portfolios
3) The global fund management sectors
The responsibilities of this sector are to invest the cash waqf fund in the global financial portfolios as known a global funds management such as Amanah Fund, Lariba Fund, Islamic Indices, etc. A fund manager should choose the portfolios not only high return but also safety. The better Nazir choose the investment portfolios, the higher profits will be gained and the more funds will be acquaired by the poor.
The principal then will be reinvested in various highly profitably investment opportunities. (see Figure 7a and 7b)
The rich
The poor The growth of cashwaqf fund
Cash inflow of Cash Waqf
Collected Cash Waqf Funds
Average period to collect cash waqf
Investment Funds
-+ +
+
+
The Profits of cash waqf investment Management Fee
The funds for the poverty alleviation
programs
- +
+
+
-The poverty alleviation programs
-+ +
Global Fund Mgt + Foreign Citizens +
+
Figure 7a. Causal loop of the global fund management portfolios
Global Fund Management Sector
Total_Return
Principal_4
Investment_periode
CW_normal
Convert_to_Gold_standard growth_rate
Cash_Waqf
Min_Req_Return
Cash_Inflow Return_of_Global_Fund
Current_price_of_gold Collecting_period
Global_Fund_Mgt Ratio
rate_of_cash_inflow
Profit_of_Glb_Fund_Mgt
Return_of_Global_Fund
Return_of_Microfinanc
Figure 7b. Flow Diagram of The global fund management portfolios
4) The direct investment in large and medium scale enterprises
A cash waqf fund manager, Nazir, allocates the gathered funds to the big companies in the forms of stocks which the gained profit are dividends or capital gains. The nature of this sector is the long term. The other forms of direct investment are building the new waqf buildings and maintaining the existings waqf assets either for social projects or the commercial projects. (See Figure 8a and 8b.)
The rich The poor
Cash Waqf growth
Cash Waqf Inflow
Collected Cash Waqf Fund Average Period to
Collect Funds Investment Funds
-+ +
+ +
Direct Investment Portfolio
The Profits of Cash Waqf Investment Management fees The funds for poverty
alleviation programs
company To maintain the existings waqf assets
To make the new waqf assets
+ + +
dividen or capital gains
+
Waqf Land Productifity
To maintain waqf buldings
The Profits of Direct Investment The poverty alleviation
programs
Figure 8a. Causal loop of the direct investment to real sectors
Direct Investment to Real Sectors
Return_Real_Estate
Principal_331a Age_of_Waqf_Prodctvty Principal_331b
Profit_of_Waqf_Land
5) The Microfinance Sectors
The microfinancing programs, which used the loss-profit sharing, are one of the most important sectors for poverty alleviation. Most of funds collected through cash waqf certificate issues will be allocated as loan for microenterprises. This microcredit program should particularly be aimed at helping poor people initiate their business and enhance their quality of life, accordingly. Nevertheless, merely supplying them with capital is not sufficient, since most of them do not have adequate knowledge and skill to choose and to run a business that is suitable to their condition. Consequently, relevant business technical assistance is needed to help them survive.
Family’s business activities have significantly influenced economy of a community, particularly in developing countries. Big manufacturing companies indeed dominate mass production processes, both for goods and services, but most of enterprises are initiated by family. In addition, family’s consumption behaviour also affects production and marketing activities, as well as other business activities.
Government’s programs for family business empowerment has to do with informal sector development efforts, as most of family businesses are operated in non formal format and business system. Family businesses, which absorb the largest number of employee, are also found mostly in small and medium scale. In most developing economies, these small and medium enterprises (SMEs) have limited access to formal financing practices, as well as to adequate government’s technical assistance. (see figure 9a and 9b)
Microfinancing Portfolio
The profit of microfinance Risk of
Microfinance
Microfinance Policy Scheme
Bad debt of microfinance
The profits of cash waqf investment Management Fees
The funds for poverty alleviation programs
-+
+
+ Multiplier Effects of Microfinance towards
Figure 9a. Causal loop of The Microfinancing Sectors
Microfinance Portofolio Sectors
Mikrofinance microcredit Profit_of_Microfinance
Indonesian_population Stop_Microfinance Microfinace_Period
Return_of_Microfinancing
Pra_welfare_people
Microfinance_Policy
Policy_ratios
Figure 9b. Flow Diagram of The Microfinancing Sectors
6) The profits of cash waqf investment distribution sectors
The gained profits from the various portfolios will be distributed to the poor through the poverty alleviation programs such as basic needs, health services, sanitations, education, natural disasters victims, etc. The principal of cash waqf will be reinvented to various portfolio opportunities. (see figure 10a and 10b).
The rich
The poor Cash WaqfGrowth
Cash Waqf Inflow
Collected Cash Waqf Funds
Average period to collect the cash waqf
Investment funds
-+
+ +
+
The Profit of cash waqf investment Management fee
The funds for the poverty alleviation
programs
- +
+
+
-The Poverty Alleviation Programs
-+ +
Foreign Waqif +
+ To meet the poor
needs + Living Cost Healthy Cost
Education cost
The family rehabilitation cost
Natural Disaster
Victims Cost Infrastucture Recovery cost Quality of Life
+ + + + + +
-+
Figure 10a. Causal Loop of the cash waqf profits distribution sectors
Profits of Cash Waqf Investment Distribution
Figure 10b. Flow Diagram of the cash waqf profits distribution sectors
7. The Cash Waqf Management Control
The survey concluded that most people did not trust any existing government institutions to manage cash waqf fund and control cash waqf investment activities, especially because cash waqf management will involve large amount of endowment funds. Most of them also recommend that if a special purpose institution is established to manage cash waqf fund, it has to be highly capable of detecting any potential dishonesty and assessing performance of cash waqf fund manager, i.e. nadzir. Therefore, it’s necessary to design an instrument which is able to control the cash waqf management. This model tries to design a control tools which is able to detect the human error in decision making either mismanagement or dishonesty quickly. (see figure 11.)
The Control Function for Fund Management
rate_of_cash_inflow
Profits_Mobilization Current_price_of_gold
Convert_to_gold
Control_Function
Global_Fund_Mgt
Commercial_Projects Mudarabah_Deposits
Company
Mikrofinance
Real_Estate
To_Increase_Waqf_Building_Productifity Social_Projects
Islamic_Capital_Market
Agriculture
Islamic_Mutual_Funds Islamic_Bonds
Cummulative_Cash_Waqf_Fun
available_fund_for_living
available_fund_for_healthy
available_fund_for_education available_fund_for_disaster
available_fund_for_rehbltation Total_cash_waqf_in_gold
available_fund_for_infrastrctr
Figure. 11 Flow Diagram of The Control Function for Fund Management
The collected cash waqf fund from the waqif will be distributed to the various portfolios and then the usage will be controlled periodically. The early warning system will be prepaired by the system in order to the amount of cash waqf fund will not go below the initial amount. It is the difference of the cash waqf from the other sources of funds. Gold standard can be used as the currency standard because of its stability. (see figure 11a-d).
day
rupiah
Control_Function 1
Cummulative_Cash_Waqf_Fund 2
20 40 60 80 100 0
500.000.000 1e9 1,5e9 2e9
1 2
1 2
1 2 1
2 1 2
Figure 11a. The simulation result (short term)
day
Gold Standard (kg)
Total_cash_waqf_in_gold 1
Convert_to_gold 2
20 40 60 80 100 0
5 10 15 20
1
2 1
2 1
2 1
2 1 2
Figure 11b. The Simulation result (short term)
day
rupiah
Cummulative_Cash_Waqf_Fund 1
Control_Function 2
5.000 10.000 15.000 0
5e14 1e15
1 2 1 2
Figure 11c The Simulation Result (long term)
day
gold standard (kg)
Convert_to_gold
Figure 11d The Simulation Result (long term)
The waqif and public can control or monitor the cash flow of cash waqf investment. If mismanagement and dishonesty occurred, the simulation result could demonstrate the deviation. (see figure 11e-f)
day
andard (kg) 1 Total_cash_waqf_in_gold
Convert_to_gold
Figure 11e. The Simulation Result (short term)
day
2.000 6.000 10.000 0
gold standard (kg)
Total_cash_waqf_in_gold
Figure 11f. The Simulation Result (long term)
8. The Potency of Cash Waqf for the Poverty Alleviation Programs
It can be concluded from the system that the larger the amount of cash waqf collected, the larger the amount of fund can be invested in highly cost-effective profit sharing-based portfolios, and the larger the amount of return can be distributed to poor people. The more fund allocated to finance microbusiness, the sooner poverty in Indonesia can be alleviated. (see Figure 12).
The Potency of Cash Waqf for The Poverty Alleviation
Pra_welfare_people
aleviation
welfare
the_rich
birth_rate2
birth_rate
death_rate2 Birth_rate3 death_rate3
Indonesian_population
death_rate
Profit_of_Cash_Waqf_Investment
Daily_needs Multiplier_Effects
the_poor
Multiplier_effect
Invest_to_microfinance
Average_of_Microfinacing Profits_of_CW_Investment_
the_poor alleviation_1
Average_Period_to_become_prawelfare
The_poor_decrease
The_poor_reducing
Microcredit_for_a_poo lifetime_expectancy
Population_growth
the_welfare_increase
Pra_welfare_reducing
Average_period_to_become_welfare
Average_of_Microfinacing
Figure 12. Flow Diagram of The Potency of Cash Waqf for The Poverty Alleviation
9. The Simulation Result
Since there has been no similar study preceding the research, some assumption were applied. The ability of five national TV corporations (RCTI, SCTV, Indosiar, MetroTV and Lativi) to collect donation amounting IDR 3 billions in two night in 2003 was used as an assumption basis of amount of fund could be gathered by cash waqf management institution.
It was then assumed that the cash waqf institution could obtain IDR 20 millions a day in form of cash waqf from various components of Indonesian people. The study also assumed that the gathered fund would grow 25%
annually and it would be invested in Islamic financial products with profit sharing- based various rate of return.( see figure 13).
day
5.000 10.000 15.000 20.000 25.000 0,0000
Figure 13. Rate of return of Cash Waqf Investment Portfolio
Using the above assumption and data supplied by Biro Pusat Statistik (National Beaurau for Statistics) , BKKBN (National Coordinating Agency for Family Planning) and syariah financial institution in Indonesia, the computer-based data process resulted in approximation of cash waqf investment return 25% annum. Such an amount of fund is expected to be available for the poverty alleviation efforts in Indonesia, especially through microfinance distribution program. If this plan can be implemented smoothly and if those assisted micro enterprises can get well run maximum of 8 years after being financed, it will take approximately 12500 days (35 years) to eliminate poverty and 22400 days (63 years) to increase quality of live for Indonesian population. (see figure 14a-b) Poor people, in this study, are those with very low quality of life. In other words, poor people are not only those who cannot feed once a day, but also those who cannot afford proper health and education services.
day
5,000 10,000 15,000 20,000 25,000 30,000
0
Figure 14a. The Simulation Result (based on IDR 20 million a day)
day
5.000 15.000 25.000
0
Figure 14b. The Simulation Result (based on IDR 20 million a day)
Based on the study result above and various scenari gather
Figure 15a. Simulation Result (based on I R 50 million in a day compare with IDR os proposed, if the ed fund through cash waqf certificate increase i.e. IDR 50 million in a day ,
it will take approximately 11000 days (30 years) to eliminate poverty and 21000 days (57 years) to increase quality of live for Indonesian population with the assumption the others constant. (see figure 15a)
D
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