Monday, July 30, 2012

Should the Indonesian hajj funds invest in project-based sukuk or deposit the funds with Islamic banks?

The Indonesian hajj fund, which currently places its funds in bank deposits, is planning to invest at least some of the IDR44 trillion ($4.7 billion) into government project-based sukuk.  There are some merits to this decision: it will generate Shari'ah-compliant returns for the hajj fund (as Mohammed Obaidullah held up as a model for handling waqf funds in India), and so long as the funds are guaranteed by the government no different from the funds being held currently, it should not be to the detriment of the depositors to the hajj fund. 

However, it is not clear whether it would be the best use of these funds to encourage development (specifically of Islamic finance in the country).  An alternative which could benefit the industry would be to deposit the funds in Islamic banks, rather than conventional banks to allow those banks to expand the asset side of their business.  This would help the Islamic banking industry with an added boost to their growth.

This idea is not without pitfalls.  For one, the funds would have to be protected for the depositors into the hajj fund, which could be lost if the bank failed, although Indonesia does have a deposit insurance fund.  The fund covers Islamic banks as well as conventional banks but does so without distinction for the bank type, which could raise some Shari'ah issues (pdf).  There are also risks that the funds would be allocated by political preference, rather than to the Islamic banks that perform the best. 

Despite the challenges to implementing the deposits of hajj funds into Islamic banks to spur their growth (which is already growing rapidly), there are costs and benefits to investing them in project based sukuk and it would be worth taking a look at the relative costs and benefits of each. 

1 comment:

angrybirdonline said...

Can i go for umrah in rent a car from abu dhabi?
i want to go for umrah by road on rent a car, what are the possibilities and whats the requirements?i heard there is a permit required from traffic department if you want to go by your own or rent a car. anyone have some details about it?


Umrah package