Sukuk, a new shield against the brunt of the recession by Dr. Nisful Laila (Java Pos Opinion)

CRISIS Indonesia's economy is currently getting worse. The threat of a recession cannot be avoided due to the spread of the Covid-19 pandemic which has not shown any signs of ending soon.

According to the 2020 Central Statistics Agency (BPS) report, Indonesia's economic growth in the second quarter of 2020 contracted by 5,32 percent (YoY). Then, the latest release from the finance minister, economic growth is projected to be negative 2,9 percent in the third quarter.

Extraordinary steps have been taken by the government. Including the 2020 State Budget priorities in handling Covid-19 in the national economic recovery program (PEN) which is planned to spend Rp 695,2 trillion. Widen away from the original budget plan. As a result, the deficit widened from 5,07 percent of GDP to 6,34 percent of GDP (Ministry of Finance, 2020).

The budget deficit was exacerbated by the decline in state revenues due to social restrictions which led to reduced demand (demand shock) due to declining income and reduced production (supply shock) due to disruption of production activities.

Shocks on both sides resulted in a slowdown in state revenues (tax and non-tax). Not to mention there is the potential for investment loss and slowdown as a result of the increasingly depressed economic growth prospects. In a situation like this, government spending plays an important role in boosting the economy. Among other things, by accelerating state spending and increasing state revenues. Therefore, the Indonesian government needs to optimize other alternatives, especially domestically, in terms of revenue receipts. One of them is Islamic financial instrument.

Sharia Finance Innovation

Sukuk or state sharia securities (SBSN), sharia-based financial instruments used as an alternative to fiscal instruments in the form of securities based on sharia principles. Sukuk are financial instruments to finance investment projects by considering joint ownership of assets or services. All investors will participate in the outcome of the project which means sharing the profits and losses.

Issuance of sukuk aims to issue sharia securities in the context of financing the state budget. The role of state sukuk as a fiscal instrument continues to increase rapidly. It was recorded that the total issuance of state sukuk from 2008 to July 2020 was Rp. 1.467,26 trillion and the outstanding was Rp. 902,23 trillion.

The use of sukuk is a way to collect financial resources for large companies, including multinational corporations, multinational development agencies, and government agencies that require enormous resources that are difficult to meet by a single individual investor.

Sukuk have an equivalent position with bonds. However, in terms of processes, the two are different products. For example, a sukuk investor gets a certificate of ownership/participation in certain assets. Meanwhile, bond investors are only considered to have debt certificates.

Sukuk and bonds also differ in their investment benefits. Bondholders can receive regular interest payments according to the duration of the bonds and the principal is guaranteed to be returned at maturity. However, sukuk holders will receive periodic payments that represent a percentage of the actual profits that are usually generated from sales or partnership contracts.

The underlying assets of the sukuk include state-owned assets (land and buildings, purchased or acquired with the state budget), government projects (infrastructure, procurement of goods and services), and the procurement of hajj services (land and air transportation, accommodation, and logistics). . Utilization of state-owned assets as underlying assets aims to obtain full rights to the use of an asset without requiring registration for such ownership.

Solutions for the Economy

In its development, sukuk provides innovative and solution programs for the economy. One of the latest is the issuance of waqf sukuk or cash waqf linked sukuk (CWLS). The issuance of waqf sukuk is a form of government commitment to support the development of social investment and the development of productive waqf in Indonesia.

Through waqf sukuk, the government facilitates cash waqf, both temporary and permanent, so that they can place their money waqf in safe and productive investment instruments. The advantage of the cash waqf linked sukuk program, among others, is that it has a competitive return. The investment proceeds will be used to build new waqf assets or social activities. In addition, cash waqf placements are carried out in safe and risk-free financial instruments.

Profit sharing from sukuk will also be used for social programs to be used as much as possible for the welfare and dignity of Indonesia. This type of sukuk uses a wakalah contract. That is, the delegation of power by one person to another in matters that may be represented. In this case, the involvement of the Indonesian Waqf Board (BWI) which has a position as a nazir or waqf manager to place cash waqf funds in SBSN through a private placement mechanism.

Waqf sukuk also have wide potential. For example, the proceeds can be used to provide free health facilities for the poor, social infrastructure development, empowerment of MSMEs, and other social activities that support community welfare. Moreover, in a sluggish economic condition like today, people need economic incentives to maintain survival and increase public consumption which is declining.

In the author's view, Indonesia still has many resources to deal with the multidimensional crisis due to Covid-19. Resources sourced from within the country, one of which is waqf sukuk, as a new alternative to boost the economy by increasing the ammunition for state expenditure financing.

Supported by the large potential of waqf and the success of each sukuk issuance, it is hoped that we can pass the recession soon, by optimizing this new shield as a strategic step in dealing with the crisis.

*) Nisful Laila, Deputy Dean of FEB Unair; alumnus of The University of New South Wales, Australia

source: https://www.jawapos.com/opini/04/01/2021/sukuk-perisai-baru-hadapi-terjangan-resesi/