crisis in Indonesia is currently getting worse. The threat of recession cannot be avoided due to the spread of the Covid-19 pandemic which shows no 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, in the latest release from the finance minister, economic growth is projected to be negative 2.9 percent in the third quarter.
Extraordinary steps taken by the government. Including the 2020 APBN priority in handling Covid-19 in the national economic recovery program (PEN) which is planned to spend IDR 695.2 trillion. Widened far from the initial 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 a decrease in state revenues due to social restrictions which resulted in reduced demand (demand shock) due to decreased 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 the potential for loss and slowdown in investment as a result of increasingly depressed economic growth prospects. In a situation like this, government spending plays an important role in turning the economy around. 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 collection. One of them is Islamic financial instruments.
Sharia Financial Innovation
Sukuk or state sharia securities (SBSN), a sharia-based financial instrument used as an alternative to fiscal instruments in the form of securities based on sharia principles. Sukuk is a financial instrument for financing investment projects considering joint ownership of assets or services. All investors will participate in the outcome of the project which means sharing the profits and losses.
The issuance of sukuk aims to issue sharia securities in the context of financing the APBN. 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 IDR 1,467.26 trillion and the outstanding amount was IDR 902.23 trillion.
The use of sukuk is a way to collect financial resources for large companies, including multinational companies, multinational development institutions, and government agencies that require very large resources that are difficult for individual investors to meet alone.
Sukuk have an equivalent position to bonds. However, in terms of process, both are different products. For example, sukuk investors receive a certificate of ownership/participation in certain assets. Meanwhile, bond investors are only considered to have debt certificates.
Sukuk and bonds also differ in investment benefits. Bondholders can receive regular interest payments according to the duration of the bond and the principal is guaranteed to be returned at maturity. However, sukuk holders will receive periodic payments that represent a percentage of actual profits usually generated from sales or partnership contracts.
The underlying assets of sukuk include state-owned assets (land and buildings, purchased or obtained with the state budget), government projects (infrastructure, procurement of goods and services), as well as 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 use an asset without requiring registration for such ownership.
Solutions for the Economy
In its development, sukuk provides innovative programs and solutions for the economy. One of the newest is the issuance of waqf sukuk or cash waqf linked sukuk (CWLS). The issuance of waqf sukuk is a form of the government's commitment to support the development of social investment and the development of productive waqf in Indonesia.
Through waqf sukuk, the government facilitates cash waqfs, both temporary and permanent, to be able to place their cash waqf in safe and productive investment instruments. The advantage of the cash waqf linked sukuk program, among others, is that it has competitive returns. The investment results 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 the 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. This means the delegation of power by someone to another person in matters that may be represented. In this case, it is the involvement of the Indonesian Waqf Board (BWI) which has the position of nazir or waqf manager to place cash waqf funds in SBSN through a private placement mechanism.
Waqf sukuk also have broad potential. For example, the results can be used to provide free health facilities for the poor, develop social infrastructure, empower MSMEs, and other social activities that support community welfare. Moreover, in sluggish economic conditions like today, people need economic incentives to maintain survival and increase declining public consumption.
In the author's view, Indonesia still has many resources to face the multidimensional crisis caused by Covid-19. Resources sourced from within the country, one of which is waqf sukuk, are a new alternative to boost the wheels of the economy by increasing ammunition for financing state spending.
Supported by the large potential of waqf and the success of each sukuk issuance, it is hoped that we can overcome the brunt of the recession soon, by optimizing this new shield as a strategic step to face the crisis.
*) Nisful Laila, Deputy Dean 2 FEB Unair; alumnus of The University of New South Wales, Australia
