A New Chapter of the Indonesian Sharia Economy and Finance

In August 2014, the global food industry and global capital markets turned their attention to Brazil following the announcement of the acquisition of one of the largest halal food distributors in Kuwait by BRF for US$160 million.

BRF is a Brazilian company, one of the largest food producers in the world. The acquisition was part of the Brazilian company’s strategy to further strengthen its position as the leading halal food producer in the Middle East. A few days later, BRF also inaugurated its largest halal food factory in the United Arab Emirates. The business maneuvers paved the way for BRF and Brazil to maintain their position as superpowers in the world halal food market. According to the Global Islamic Economy Report, in 2019 the value of Brazilian halal food and beverage exports reached a total of $5.5 billion, the largest in the world, followed by Australia with $2.4 billion.

How is it possible for a country with a minority Muslim population to control the world halal food market? The Muslim population in Brazil in 2010 was only 0.0002 percent of the total population. On the other hand, as the country with the largest Muslim population in the world, Indonesia is only the world\'s consumer of halal products. Let alone being a global player, Indonesia has to import its domestic halal food needs. In 2018, Indonesia spent $173 billion on halal food and beverages or 12.6 percent of the world halal food products. Indonesia is also the largest consumer of halal food and beverage products among Muslim majority countries.

Therefore, it is time for Indonesia to develop and strengthen the halal food industry, with a short-term target to meet the domestic needs of halal products and in the long run, to become a global player.

On the other hand, the global halal market has enormous potential. In 2018, the global halal food and beverage market reached $2.2 trillion and it is expected to continue to grow to reach $3.2 trillion in 2024. With the Muslim population predicted to grow to 2.2 billion people by 2030, the global halal industry will also continue to increase rapidly. Therefore, it is time for Indonesia to develop and strengthen the halal food industry, with a short-term target to meet the domestic needs of halal products and in the long run, to become a global player.

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Currently, the development of the halal industry is one of the priorities in the development of Islamic economy and finance in Indonesia. The development of the halal food and beverage industry is not solely for the halal product itself, but is also intended to drive the domestic industry in order to create jobs and boost the national economy. The development of the halal product industry also aims to involve small and medium enterprises in the global halal industry supply chain.

Various efforts have been made to develop the halal product industry. The establishment of halal industrial areas and halal zones within existing industrial estates is one of the strategies that has been taken. So far, the Industry Ministry has designated two halal industrial areas, namely Modern Cikande Industrial Estate in Serang, Banten, and Safe n Lock Halal Industrial Park in Sidoarjo regency, East Java.

Developing the halal industry requires good planning and good statistical data. The biggest challenge is that the production data and the trade value of Indonesian halal products have not been recorded through an integrated information management system. Codification is needed in order to integrate halal product certification with trade and economic data. With integration, the trade data on Indonesian halal products can be recorded properly.

We must start this by promoting the traceability of Indonesian halal products starting from raw materials in the form of agricultural and plantation products, animal products, fishery products and marine resources, then proceed to semi-finished products, to ready-to-use finished products.

Exporters should interpret the certification of halal product exports as an effort to increase the added value and competitiveness of their products so that exports of the country’s halal products can be increased and at the same time it can help improve the country’s trade balance.

Islamic economic transformation

The best and most sustainable way to improve people\'s welfare is to involve all levels of society in economic activities. The economic activities must be inclusive. Sharia economic and financial development is intended to provide the widest possible opportunity for the community to participate in economic and development activities. Islamic economic and financial tools are an option for those who want to apply sharia principles in their business activities. The sharia economic and financial tool must be a rational choice for the people so that it will not become exclusive, but should be universal in accordance with the principles of rahmatan lil alamin (a blessing for all humans).

KOMPAS/TOTOK WIJAYANTO

A worker carries trays of freshly made tofu to the packaging section of a small tofu producer on Thursday (23/7/2020) in Pancoran, South Jakarta. As of July 21, the government has disbursed Rp 11.84 trillion in working capital for cooperatives and micro, small and medium enterprises (MSMEs) through national economic recovery program. The figure is 9.59 percent of the Rp 123.46 trillion fund for cooperatives and MSMEs.

This vision has pushed for the development of sharia economy and finance in Indonesia into a new era with the signing of Presidential Regulation No. 28/2020 concerning the National Committee for Sharia Economics and Finance (KNEKS) by President Joko “Jokowi” Widodo. In this regulation, efforts to develop Islamic economy and finance are focused on four areas: development of the halal product industry, development of the Islamic finance industry, development of Islamic social funds, and development and expansion of sharia business activities.

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In the next development focus, a strong and modern financial system should be established to support industrial and trade activities. One of the major steps taken by the government to strengthen domestic Islamic financial institutions and increase Indonesia\'s participation in the global sharia economy is to merge three state-owned banks, namely Bank Syariah Mandiri, BRI Syariah and BNI Syariah into a new bank named Bank Syariah Indonesia (BSI).

After the merger (officially inaugurated by the President on Feb. 1), BSI has total assets of around Rp 240 trillion (US$17.14 billion) with 1,300 branch offices throughout the country. It is estimated that in 2023, its assets will reach Rp 330 trillion, which will enable it to compete at the global level and make it one of the top 10 global Islamic banks in terms of market capitalization. BSI is expected not only to serve medium and large customers and carry out global innovation, but also to provide financial access to small, micro and ultramicro customers with efficient operations. As part of efforts to further help ultramicro financial institutions, the government will multiply and expand the establishment of micro waqf banks. For micro and small financial institutions, such as sharia cooperatives or BMTs and Islamic microfinance institutions (LKMS), the government will also provide greater support for their development.

Sharia economic and financial development is also carried out through strengthening and expansion of Islamic social funds, which include zakat, infaq, alms and waqf (ZISWAF). In general, many people are familiar with waqf, but few practice it. They are more familiar with alms, donations or general donations that are easier to implement. The results of the 2020 Waqf Literacy Index Survey by the Religious Affairs Ministry and the Indonesian Waqf Board (BWI) indicate that waqf literacy in Indonesia is still in the low category. This low literacy has the potential to reduce aspects of the quality of waqf governance. For example, in practice, waqf is often considered the same as regular donations.

In the past, waqf was implemented through fixed assets such as land, so that it was easy to maintain and did not decrease in value and disappear. With digitalization and the advancement in economic transactions and the ever-evolving Islamic financial system, waqf assets can now be in the form of movable assets such as stocks, securities, Islamic deposits and even cash that can be kept in a waqf account. The concept remains the same, that is, the value cannot be reduced and the gains (from investment) should be distributed (for social needs).

Waqf assets in the form of cash or Islamic securities will be managed in the Islamic financial ecosystem such as Islamic banking and other Islamic financial institutions, which will act as institutions that receive cash waqf and then keep them in a waqf account. Investments of waqf assets must be carried out by professional and competent nazirs (waqf administrators) specialized only in the capital market ecosystem or the Islamic money market. The gains from the investments are then channeled to mauquf \'alaih (institutions named to receive waqf), for social purposes, of course according to the waqf pledge required by the waqf.

Their principal amount should be maintained and funds to be distributed for social assistance should be taken only from the gains from their investment.

The task of the government together with the BWI and the KNEKS is to encourage and ensure improvements in the governance of waqf assets so that waqf funds meet the principles of waqf. Recently, the President launched the National Movement for Cash Waqf (GNWU) by introducing a more reliable and modern management of cash waqf. The funds collected through cash waqf are in the form of endowments for the people. Their principal amount should be maintained and funds to be distributed for social assistance should be taken only from the gains from their investment.

The government’s support is needed to realize waqf as a part of the nation\'s resilience, which is not only an instrument of worship, but also a social instrument which, besides being useful in alleviating people from poverty, is also able to encourage and maintain people\'s economic resilience.

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The waqf mechanism gives the right to waqf providers or donors (waqif) to use the waqf funds. Waqif may use gains from waqf investment, for example for scholarship, construction of worship facilities, public facilities, clinics, hospitals, roads, public transportation, medical equipment assistance and so on. Meanwhile, the value of the waqf assets themselves must be maintained so that they will remain productive. So, it is not true that the government is solely promoting cash waqf in order to raise money from the public to cover the widening state budget deficit.

KOMPAS/ISMAIL ZAKARIA

A woman arranges a display of locally produced coffee on Thursday (23/7/2020) at a business meeting on micro, small and medium enterprises (MSMEs) in Mataram, West Nusa Tenggara (NTB). Local MSMEs have developed superior products from the NTB administration’s economic assistance for earthquake-affected communities. Today, MSMEs in Lombok have said they have been encouraged by the transition to the “new normal” phase of the Covid-19 mitigation measures.

The use or distribution of waqf funds is the prerogative of the waqif. The government cannot determine where the waqf funds will be used.

Bright future

Indonesia has great potential and a bright future in the development of the Islamic economy and finance. Despite the Covid-19 pandemic, the development of Islamic finance in Indonesia has received awards from various world institutions. The 8th edition of the Islamic Finance Development Indicator in 2020, placed Indonesia in second position in the development of the global Islamic finance industry.

Indonesia also ranked fourth in the State of the Global Islamic Economy Indicator 2020/2021 report published by Dinar Standard. In particular, the KNEKS in 2020 also received a GIFA Advocacy Award at the 10th GIFA Ceremony held in Islamabad, Pakistan. All these internationally recognized achievements have motivated Indonesia to do more to promote and realize the role of sharia economy and finance, both at the national and global levels.

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To support community economic development, various such sharia economic and financial development efforts must be able to promote business development, including micro and small businesses. The development of the halal industry should also be used as a pull factor for the development of micro and small scale sharia businesses, including financial businesses, to become part of the global halal industry value chain to spur business growth and increase the economic resilience of the people.

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Therefore, it must also be ensured that the development of the halal industry must be carried out to support the government’s existing policies in promoting micro, small and medium-scale companies (MSMEs) such as the simplification of licensing procedures and the provision of training to help MSMEs obtain halal certification with the standards set by the Halal Certification Agency (BPJPH) based on the fatwa of the Indonesian Ulema Council (MUI).

KOMPAS/ABDULLAH FIKRI ASHRI

Signs still hang in front of a closed salted egg shop on Wednesday (13/6/2018) along the northern coastal road (Pantura) in Brebes regency, Central Java. The shops started closing last year when part of the Trans-Java toll road opened. Micro, small and medium enterprises (MSMEs) along Pantura, such as the salted egg businesses, went bankrupt when motorists switched to the toll road.

The development of this sharia business must be supported through various partnership programs, such as the cooperation between small businesses and large businesses. With this partnership, it is expected that the large businesses can provide assistance and guidance to small businesses with the principles of mutual benefits. It is necessary to build incubation centers in order to promote the growth and development of entrepreneurs at various levels in a number of regions. We also need to build sharia business centers that are supported by digital infrastructure to enable sharia business actors to interact with each other. Cooperation among stakeholders such as the KNEKS, local government and business associations needs to be further encouraged in order to be able to create reliable and capable entrepreneurs in trading.

SEKRETARIAT WAPRES

Ma\'ruf Amin

Ma\'ruf Amin, Vice President of the Republic of Indonesia

(This article was translated by Hendarsyah Tarmizi)