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Business

Indonesian scandal rocks booming Mecca pilgrimage industry

Jakarta, Kuala Lumpur, Islamabad detect scams in $22bn Umrah, Hajj business

Customers at a First Travel office in Jakarta in July before a major pilgrimage swindle was exposed. (Antara Photo)

JAKARTA -- Indonesian designer Anniesa Hasibuan has made headlines at New York Fashion Week with collections of Muslim attire that landed the 31-year-old on the Forbes Indonesia magazine list of inspiring women in 2017.

But her involvement in the twice-annual show, purchase of a luxury residence, and investment in a restaurant in London, are being investigated as part of a massive Ponzi scheme run by First Travel, a tour company specializing in low-cost pilgrimages that belongs to Hasibuan and her husband, Andika Surachman.

The couple were recently arrested on suspicion of swindling nearly 850 billion rupiah ($63 million) from nearly 60,000 people who have registered for the Umrah, an Islamic pilgrimage to Mecca in Saudi Arabia.

The scandal has thrown a spotlight on the booming religious tour business to Mecca. The Hajj, the preeminent pilgrimage, this year runs from Aug. 30 to Sept. 4. The number of Hajj pilgrims is capped each year by the Saudi authorities, so less expensive and the more flexible Umrah pilgrimages at any other time of the year have become a popular alternative.

The world's Muslim population is projected to increase from 1.7 billion in 2014 to 2.2 billion by 2030, and this is driving insatiable demand for pilgrimages. A series of serious fraud cases, however, are raising questions about oversight in the Muslim world.

Indonesia, the world's most populous Muslim nation, is reviewing control of tour operators in the wake of the First Travel scandal. Less obvious frauds have  long been perpetrated on would-be pilgrims.

Rags to riches

Ten years ago, Surachman worked in a convenience store to support his small family while Hasibuan studied at the University of Indonesia. After the death of her father, the couple sold their house to enable Surachman to open a small kiosk in Depok, West Java, selling everything from cell phone coupons to burgers. The business also helped travel agents find customers.

Everything changed in 2012. Surachman won a bid to send 170 employees of the central bank and of Pertamina, the state oil company, to Mecca.  "We managed to defeat experienced bidders," Surachman told Kompas daily in 2015. "Nobody knew we had never done the Umrah before."

The couple set up First Travel with a striking slogan: "Hawker prices for five-star products." It offered Umrah packages for 14.3 million rupiah -- about 40% below the industry average. The offer attracted 72,000 pilgrims, and the agency went on to open 11 branches across Indonesia and one in London. The couple also found new interests. Hasibuan shot to fame with her glamorous Muslim fashion lines, and last year the couple invested 14 billion rupiah in a Muslim restaurant in London.

This overnight success soon began to unravel. Customers complained in growing numbers about constantly postponed pilgrimages. On Oct. 10, Indonesian police arrested the couple, and later Hasibuan's sister, for scamming and money laundering.

Police investigators said they believe First Travel only sent 14,000 pilgrims to Mecca, and that another 58,000 who have paid for trips will never go with the company. The Center for Financial Transaction Reports and Analysis (PPATK), a government agency, have been trying to track down the missing money. Only 1.3 million rupiah ($97.5) in eight company accounts has so far been traced.

"Some of the money was used for investments," Kiagus Ahmad Badaruddin, the head of PPTAK told reporters. "Some was used for personal needs. There was money flow to New York related to the fashion business."

Police have so far seized five luxurious houses decorated with expensive curtains, sofas, and chandeliers, and a number of cars. The Ministry of Religious Affairs has revoked First Travel's license, and the Financial Services Authority has frozen its bank accounts. The three suspects face over 20 years in prison if convicted.

A burgeoning industry

Often referred to as the "lesser" Hajj, Umrah is more affordable. The Hajj is a requirement for Muslims who are physically and financially able to make the journey, but Umrah is optional. The Hajj season falls in the 12th month of the Islamic lunar calendar, but Umrah can be undertaken at any time of year outside the season.

Saudi Arabia imposes annual quotas for countries sending pilgrims. Indonesia gets the largest allocation for some 220,000 people this year. But queues have grown longer as demand increasingly outstrips available slots. In 2009, Indonesian pilgrims usually waited a few years for their turn after making a deposit. The average waiting time today is at least 15 years -- and over 30 years for some remote provinces -- according to Zakaria Anshori, a religious affairs official.

"This has prompted more people to do Umrah," Anshori told the Nikkei Asian Review. "Improving income and better religious awareness have also contributed to Umrah growth." The number of travel agents in Indonesia catering to these pilgrims went up from around 450 in 2013 to 800 earlier this year. Many more are believed to operate illegally.

An estimated 400,000 Indonesian Muslims performed the Umrah in 2013, a figure that more than doubled to 850,000 in the past year. Indonesia sends the second largest number of Umrah pilgrims after Pakistan. In 2010, Umrah pilgrims represented 68% of all 5.6 million pilgrims to Saudi Arabia. That grew to 83% of the 8.4 million total in 2015, and is projected to reach 88% of the 14.2 million expected in 2021, according to a report by DinarStandard and Thomson Reuters in January. Pilgrims spent a total of $22.7 billion in 2016. According to the report, this will see compound annual growth of 11.1% and reach $44.3 billion in 2021.

Saudi Arabia benefits directly from the pilgrimage industry, and has been paying it greater attention since low oil prices dented the kingdom's economy. Pilgrims are also an important source of income to airlines, including the Gulf carriers, Garuda Indonesia, and Malaysia Airlines.

Problem for the Muslim world

Religious tours include aspects and rituals that are new to most Muslims. Indeed, for many low-income Indonesians, a pilgrimage may be the only foreign journey they ever make.

The government largely takes care of the Hajj, leaving the private sector to handle the Umrah. Under Indonesian law, the Umrah should be facilitated by a licensed agent, making pilgrims highly dependent on specialist tour operators. Anshori said the ministry imposed moratoriums on license issuances twice between late 2013 and 2015 because "a lot of problems" had been caused by surging numbers of both pilgrims and agents.

The Indonesian Consumer Protection Foundation, a non-governmental group, said that by June this year it had received nearly 7,000 Umrah-related complaints against First Travel and several other agencies. The Ministry of Religious Affairs has revoked 17 agency licenses in recent years because of violations. The most common were denying pilgrims their return flights -- thereby stranding them in Saudi Arabia -- and failing to provide other promised services.

The problems are far from unique to Indonesia. In Malaysia, over 3,600 cases of fraud and claims totaling 22.6 million ringgit ($5.3 million) have been reported to the country's consumer claims tribunal in the past five years, according to local media reports. These have occurred so frequently that a state-supervisory body was set up to educate the faithful. The Council for Umrah Supervision draws on several government agencies, including the police, and also monitors the progress of cases under investigation.

Kuala Lumpur has set 4,900 ringgit ($1,150) as the minimum fee for an Umrah package to be handled by one of over 6,000 registered domestic travel agencies.

In February this year, the Supreme Court in Pakistan took note of the regular fleecing of pilgrims and ordered a crackdown on culprits.

"Unauthorized [operators] have swindled millions [of rupees]," the court was reported as saying by the Daily Times. "All the watchdogs to prevent such corruption, corrupt practices and fraud remained in deep slumber till the time the crimes were fully consummated."

In neighboring Hindu-majority India, which is home to 180 million Muslims, cheating is also commonplace. The Hajj quota for India is 170,000, so most opt for the Umrah, notes Zishan Haider, a New Delhi-based journalist who himself visited Mecca in 2009. "There have been many cases in the recent past, including in the national capital city New Delhi, wherein fly-by-night travel agents duped gullible pilgrims of millions of rupees. Such agents first ask for some advance payment, and vanish after collecting a huge sum from scores of people," he said.

The First Travel scandal is a warning not just for the Indonesian but all governments, particularly in Muslim-majority countries. Several clauses in Indonesia's 2008 Law on Hajj address Umrah; a ministerial regulation issued in 2015 also called for stricter regulations to run Umrah-related businesses. Some believe this is all inadequate.

Anshori said First Travel had been on his unit's watch list for some time but there were "no legal grounds" for suspending their operations. "Our recommendation to introduce price floors to prevent scams was rejected last year by the Business Competition Supervisory Council," he said. "They deemed it unhealthy for business competition."

Industry players are renewing calls for price floors and lawmakers are considering a law to specifically regulate the Umrah. Authorities must face the challenge of balancing consumer protection and ensuring affordable pilgrimages remain available.

"Pilgrimages were easy in my day," says Masinah, 73, a woman in south Jakarta who performed the Hajj nearly 20 years ago. "The queue is so long now, I hope my children will be able to go."

Nikkei staff writers CK Tan in Kuala Lumpur and Kiran Sharma in New Delhi contributed to the story.

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