Islamic Finance

Indonesia to issue waqf-linked sukuk to finance home construction for earthquake victims

| 08 October, 2018
 Yosi Winosa
Indonesia to issue waqf-linked sukuk to finance home construction for earthquake victims
Photo: An excavator removes a damaged car next to the debris of a mosque damaged by an earthquake in the Balaroa neighbourhood in Palu, Central Sulawesi, Indonesia. REUTERS/Athit Perawongmetha

JAKARTA - Indonesia’s government will issue a waqf-linked sukuk on October 14 to build affordable homes for victims of the recent earthquakes in Lombok and Palu, Nanda Putra Setiawan, executive director at waqf institution Wakaf Al-Azhar, told Salaam Gateway.

Wakaf Al-Azhar and eleven other institutions that make up industry body the Forum Wakaf Produktif, will act as partners to Badan Wakaf Indonesia, the country’s waqf board, to distribute the sukuk’s proceeds to beneficiaries. 

The indicative amount of the sukuk is 100 billion Indonesian rupiah ($6.57 million) and it will have a five-year tenure and 7.75 percent to 8 percent profit rate, said Setiawan.

“If we compare this to the usual sukuk issuances by the government that amount to around 10 trillion to 14 trillion rupiah, this sukuk is of a relatively small amount. This is because it is our very first project with waqf, whose investors are less educated and financially literate,” said Setiawan.

“However, if the sukuk is over-subscribed, we will issue another series with a bigger amount,” he added. 

According to Setiawan, cash waqf contributors can buy the sukuk starting from 2 million rupiah to a maximum of 5 billion rupiah.

Cash waqf is a form of trust fund set up with money to primarily support charity services. Cash waqf will be used to buy the sukuk issued by the ministry of finance.

The yield of around 8 percent per year, or around 8 billion rupiah, can build 1,000 houses annually, based on the estimated construction cost per home of 8 million rupiah. 

The sukuk will be non-taxable. Regular sukuk carry a tax rate of around 15 percent.

Rumah Instan Sederhana Sehat (RISHA), which stands for Simple Healthy Instant House, was introduced by the ministry of public works and public housing. The earthquake-resistant homes combine concrete panels with bolts, and does not require cement and bricks, which makes them faster to build.

Imam Teguh Saptono, vice chairman of Badan Wakaf Indonesia said the launch of the waqf-linked sukuk is part of efforts to increase cash waqf in Indonesia.

At the end of March, cash waqf reached only 199 billion rupiah since it was introduced in 2010 by former president Susilo Bambang Yudhoyono.

($1 = 15,218 Indonesian rupiah)

(Reporting by Yosi Winosa; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

Our Standards: The Thomson Reuters Trust Principles

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