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Integrating Zakah and Waqf for Developing Islamic Economic Boarding School (Iebs) Project in Indonesia

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Integrating Zakah and Waqf for Developing Islamic Economic Boarding School (Iebs) Project in Indonesia View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by UNIDA Gontor Journals (Universitas Darussalam) Journal of Islamic Economics and Philanthropy (JIEP). E-ISSN : 2655-335X, VOL. 03, No. 02, Mei 2020 INTEGRATING ZAKAH AND WAQF FOR DEVELOPING ISLAMIC ECONOMIC BOARDING SCHOOL (IEBS) PROJECT IN INDONESIA Ahmad Rizal,1 Neneng Ela Fauziyah,2 Aminuddin Ma’ruf,3 Adib Susilo4 ([email protected], [email protected], [email protected], [email protected]) Abstract As the most populous Muslim nation, Indonesia has a big potential to unlock its Islamic financial market. However, there is a call on human development in the field to ensure the sustainability of the system. This study attempts to investigate the untapped potential of youth generation in Indonesia. The paper employs a qualitative research in developing the waqf and zakah funds based on the practice of Forum Silaturrahim Studi Ekonomi Islam (FoSSEI). The study found that waqf and zakah funds in Indonesia might solve the Islamic financial literacy problem of the country. In addition, the paper suggested the framework on developing waqf and zakah funds in spreading the Islamic financial literacy through youth empowerment by designing Islamic Economic Boarding School (IEBS) project. The study recommended the policy makers to design robust zakah and waqf framework leading the industry and nation’s economy for the long- run prosperity. Keywords; Zakah, Waqf, Youth Empowerment, Islamic Finance, Indonesia. INTRODUCTION The rapid growth of the global Islamic financial industry has proven that Islamic financial system is able to compete and provide a new paradigm of the global financial system. In 2017, the industry has grown to US$ 2.4 trillion in assets and projected to reach US$ 3.8 trillion in 2023. The industry has been adopted in more than 50 countries worldwide, it covers both Muslim and Non- Muslim countries.5 As the most populous Muslim nation, Indonesia started its Islamic financial industry in 1991. The establishment of Bank of Muamalat was marked as the first step on the development of the industry.6 With the adoption of dual 1 Department of Finance, International Islamic University Malaysia 2 Department of Economics, International Islamic University Malaysia 3 International Centre for Education in Islamic Finance (INCEIF) 4 Department of Islamic Economic, University of Darussalam 5 Shereen Mohamed, Abdulaziz Goni, and Shaima Hasan, Islamic Finance Development Report 2018 (2018). 6 Rifki Ismal, Islamic Banking in Indonesia: New Perspectives on Monetary and Financial Issues, First edition (United States: John Wiley & Sons, 2013). 697 | J ournal of Islamic Economics and Philanthropy Journal of Islamic Economics and Philanthropy (JIEP). E-ISSN : 2655-335X, VOL. 03, No. 02, Mei 2020 banking system, the industry is supported by the regulatory bodies by the issuance of the Central Bank Act number 23 of 1999 which later amended by the Act number 3 of 2004.7 The regulatory support allows the industry to grow and compete with its counterpart. Currently, the industry is consist of 164 Sharī’ah Rural Banks, 20 Sharī’ah Business Units and 14 Sharī’ah Commercial Banks.8 However, the market share of Indonesian Islamic banks is lagging behind its conventional counterpart. It remains at 6% of the country’s total banking sector. On the contrary, Malaysia as its neigh board country has gained 30% of the total market share for its Islamic banks.9 Looking at both nations’ Muslim population, more than 85% of Indonesian population are Muslims whereas the Muslim population in Malaysia is about 61% . Hence, Indonesia has a big potential on its Islamic financial industry which remains untapped. It is suspected that among the reasons of slow development of the Islamic financial industry in Indonesia is the low Islamic financial literacy rate.10 Quantity does not mean quality, it is realized that financial literacy as a key factor to a sustainable industry is rarely explored. It is argued that financial behavior of a society is driven by its literacy. Consequently, the government of Indonesia must take some initiatives enhancing the development of Islamic financial literacy to boost the performance and growth of the industry. Religiously, acquiring knowledge and literacy on Islamic finance is encouraged for Muslims to fulfil one of the objectives of sharī’ah.11 Apart from its banking, capital market and takaful industry, Islamic finance has a big potential on its Islamic social finance. Mainly, there are two types of Islamic social finance, mandatory and voluntary. The former is known as zakah, while the other has many forms; Waqf, sadaqah, hibah and qard hasan. In 2018, the total amount of zakah collection in Indonesia has reached 153 billion 7 Rifki Ismail, The Indonesian Islamic banking theory and practices : theory and practices, First edition (Depok: Gramata Publishing, 2011). 8 Otoritas Jasa Keuangan, Statistik Perbankan Syariah (Jakarta: Departemen Perizinan dan Informasi Perbankan Republik Indonesia, 2019),. 9 Islamic Financial Services Board, Islamic Financial Services Industry Stability Report 2018 (Kuala Lumpur, 2018). 10 Arum Setyowati, Harmadi Harmadi, and Sunarjanto Sunarjanto, ‘Islamic Financial Literacy and Personal Financial Planning: A Socio-Demographic Study’, Jurnal Keuangan dan Perbankan, vol. 22, no. 1 (2018). 11 Pooja Bhagwan, ‘Empirical Study on Relationship between Financial Inclusion and Financial Literacy and Its Impact on Consumer Financial Behaviour: A Theortical Framework of Unbanked People’, Journal of Commerce & Accounting Research, vol. 8, no. 1 (2019); Hossain Biplob and Md Faruk Abdullah, ‘The Importance of Islamic Financial Literacy for Muslims: A General Review’, Islam and Civilisational Renewal ICR Journal, vol. 10, no. 1 (2019), pp. 106–17; Mohamad Fazli Sabri and Eugene Cheng-Xi Aw, ‘Financial Literacy and Related Outcomes: The Role of Financial Information Sources’, International Journal of Business and Society, vol. 20, no. 1 (2019), pp. 286–98. 698 | J ournal of Islamic Economics and Philanthropy Journal of Islamic Economics and Philanthropy (JIEP). E-ISSN : 2655-335X, VOL. 03, No. 02, Mei 2020 rupiah whilst the waqf assets (such as land) has reached 3,99 billion square metres which spread out 429.911 locations in Indonesia.12 Therefore, this study will focus on exploring the potential of zakah and waqf funds in order to foster the development of Islamic financial literacy in the country. In addition, the paper also attempts to fill the gap of the literature on the subject which mostly focus on the measurement of Islamic financial literacy. Albeit there is a number of studies in measuring the rate and factors influencing the Islamic financial literacy, this study is among the earliest attempts in exploring the zakah and waqf funds for the enhancement of the Islamic financial literacy in Indonesia. For this reason, the study is peculiar to other studies in the Islamic finance literature. Finally, the rest of the paper is organized as follows. Section 2 explaining the theory of financial literacy and Islamic social finance which are zakah and waqf as well as the previous studies related with. Section 3 describes the methodology used. Section 4 present the discussion of proposed model and the last will be about conclusion and policy recommendations. The current study conducts the qualitative method of exploring the probability of waqf and zakah fund integration management among academician collaborating with the existing institutions. By employing descriptive analysis, this research will portray the proposed concept without performing a hypothesis or statistical calculation. Some foregoing literatures was collected to become a consideration. DISCUSSION As mentioned above, the available literature on Islamic financial literacy is mainly in the assessment of factors affecting the Islamic financial literacy and development of the methodology. To understand better on the status of Islamic financial literacy in Indonesia and the management of zakah and waqf funds in the country, we will first present the current status of Islamic financial literacy in Indonesia followed by the management of zakah and waqf funds. The Concept of Islamic Financial Literacy To begin with, financial literacy as defined by Huston (2010) is a component of human capital that can be used in financial activities to increase expected lifetime utility from consumption.13 Therefore, Islamic financial literacy can be defined as the ability to understand finance based on sharī’ah principles. Based on the definition above, Islamic financial knowledge should be a concern for Muslims since it is believed that using the conventional financial system is 12 Fahadil Amin Al Hasan, ‘Waqf Management in Indonesia Through Asset Based Community Development (ABCD) Approach.’, International Journal of Social Science and Economic Research, vol. 2, no. 8 (2017), pp. 4070–87; BAZNAS, Financial Statement Badan Amil Zakat Nasional (Jakarta, 2019). 13 Sandra J. Huston, ‘Measuring Financial Literacy’, The Journal of Consumer Affairs, vol. 44, no. 2 (2010), pp. 296–316. 699 | J ournal of Islamic Economics and Philanthropy Journal of Islamic Economics and Philanthropy (JIEP). E-ISSN : 2655-335X, VOL. 03, No. 02, Mei 2020 certainly sinful from the Islamic perspectives because of the presence of riba (usury), gharar (uncertainty), maysir (gambling).14 It is believed that financial behavior of society is shaped by its financial literacy. A
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