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Thursday, May 30, 2024

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Case study: Indonesia’s inaugural cash Waqf-linked Sukuk

The Indonesian government issued its first cash Waqf-linked Sukuk (CWLS) through a private placement on the 10th March 2020 with a nominal issuance of IDR50.85 billion (US$3.42 million). The five-year non-tradable offering based on the Wakalah structure has a fixed rate of 5% per annum with monthly coupon payments.

“The first series of CWLS represents a seminal moment of national Waqf sector development, the success of which has created innovative opportunities through more progressive Waqf instruments,” Sugeng Sugeng, the deputy governor of Bank Indonesia, remarked.

Through the Sukuk, the government will facilitate both temporary and permanent cash Waqf projects in the form of productive investment instruments. Badan Wakaf Indonesia, the national Waqf agency, will channel the proceeds toward the renovation and purchase of medical equipment to support the development of a retina center at the Achmad Wardi Waqf Hospital in Serang, Banten. The hospital was built in 2017 on Waqf land contributed by the Achmad Wardi family.

The initial discount received at the beginning of the investment will be channeled toward the development of Waqf assets while the subsequent coupons are channeled to fund free cataract surgery services for the poor at the hospital. The five-year Sukuk facility is expected to benefit 2,513 patients throughout its tenor.

The development of the Sukuk facility dates back to 2018 and it was launched at the IMF– World Bank annual meeting. Subsequently, an MoU between the Ministry of Finance, the Ministry of Religious Affairs and Bank Indonesia was signed, which was instrumental to the development of the CWLS. The National Shariah Council of the Indonesian Ulama Council issued a Fatwa in 2019 regarding the Shariah compliance of the CWLS based on a Fatwa in 2002 regarding the general Shariah permissibility of cash Waqf.

Moreover, the development of the Sukuk saw the Ministry of Finance amend the regulation concerning the sale of government Islamic securities through private placement, relaxing the minimum threshold for social investment schemes to IDR50 billion (US$3.35 million) compared with the IDR250 billion (US$16.77 million) threshold for other schemes.

According to the Directorate-General of Financing and Risk Management, which handles the issuance of the country’s Sukuk papers under the Ministry of Finance, the government has yet to issue a follow-up cash Waqf-linked Sukuk facility via private placement.

Rather, the government has pursued retail cash Waqf-linked Sukuk issuances, the first of which was issued shortly after the issuance of the private placement Sukuk on the 9th October 2020. To date, the government has issued three retail cash Waqf-linked Sukuk. In addition to the mode of issuance deferring, the retail offerings all have notably shorter tenors of two years each.

Indonesian Government SW001 cash Waqf-linked Sukuk

IDR50.85 billion (US$3.42 million) 10th March 2020
Summary of terms and conditions
Indonesian government
Size of issue
IDR50.85 billion (US$3.42 million)
Mode of issue
Private placement
To support development of social investment and productive Waqf in Indonesia
Five years
Issuance price
IDR50.85 billion
Profit rate
5.% per annum
Indonesian rupiah
Maturity date
10th March 2025
Governing law
Indonesian law
Islamic structure
Investor breakdown
Hajj Fund Management Institution: IDR25 billion (1.68 million)
National Shariah banks: IDR24.5 billion (US$1.64 million)
Islamic Social Finance Managers Organization: IDR1.2 billion (US$80,504)
Individual investors: IDR50 million (US$3,354.33)
Others: IDR99 million (US$6,641.58)

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