The current Waqf regulations in Indonesia are the main culprit behind the government’s cash Waqf-linked Sukuk (CWLS) not meeting its expectations, Dwi Irianti, the director of Islamic financing at the Indonesian Ministry of Finance, told ISFI.
While Indonesia is known for its multiple hard-currency sustainable Sukuk issuances, its CWLS series has struggled to appeal to international investors.
“One of the reasons why CWLS is not meeting our expectations is because our regulation dictates that people can do Waqf, but only in Indonesian rupiah,” Dwi explained.
The regulatory limitation has effectively capped the growth of the product and limited its ability to attract foreign investors.
While the regulations do not directly inhibit foreign investors from subscribing to CWLS offerings, investors may find that the currency risk outweighs the potential upside of the investment.
Efforts are currently underway to amend the Waqf regulations to allow for foreign currency CWLS issuances. In August this year, a judicial review of the proposed amendments took place in the Constitutional Court.
In a bid to address the regulatory challenges for Waqf beyond Indonesia, Dwi shared that she has had preliminary discussions with stakeholders to establish an ASEAN Waqf framework.
According to Dwi, the Indonesian government is keen on issuing a hard currency CWLS when the regulatory environment allows for it, whenever that will be.
In addition to the ability to issue CWLS in hard currencies, Dwi opines that the government can try to curate Waqf projects to appeal to the appetite of international investors.
Notwithstanding the forex concerns, Dwi shared that preliminary talks are currently underway with the IsDB to subscribe to CWLS through private placement in the Indonesian rupiah. For this, permanent Waqf is being considered.
“I believe in the future, even for retail CWLS, we can do better and make the product more financially competitive,” Dwi explained.
Dwi noted that while the process to amend the regulations is ongoing, it is not at the top of the parliament’s list of priorities. We should not be holding our breath.
Like many jurisdictions, Indonesia has struggled with developing its Waqf assets. Notably, forex risk has been an ongoing concern in the country’s Waqf development journey.
In a previous correspondence, Dr Hurriyah El Islamy, a previous member of the IsDB’s Awqaf Properties Investment Fund (APIF)’s supervisory committee, told ISFI that forex risk is largely responsible for no Indonesian Waqf projects being funded under the APIF, despite a US$65 million allocation to the nation.
Despite the challenges, Indonesia’s sustainable Sukuk offering has garnered international recognition. In April this year, the CWLS product won the IsDB Prize for Impactful Achievement in Islamic Economics. In addition to Bangladesh looking to learn from Indonesia for its debut green sovereign Sukuk, Dwi shared that Saudi Arabian authorities are also looking to replicate the CWLS product.