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Plan to tap Indonesia hajj fund for infrastructure challenged

Government initiative to earmark pilgrims' savings faces Islamist opposition

Many Indonesian financial institutions, like savings and loan cooperative Kospin Jasa in Bandung, promote financial services for Muslims preparing for the hajj pilgrimage. (Photo by Ardi Wirdana)

BANDUNG, Indonesia -- When former World Bank chief operating officer Sri Mulyani Indrawati was appointed Indonesia's finance minister in July 2016 she wasted little time making clear that the government did not have enough money to execute its ambitious infrastructure plans. Other sources of funding were urgently needed, she stressed.

Following a disappointing tax amnesty program, and amid slow progress on forging public private partnerships, the government is now eyeing the country's hajj (Muslim pilgrimage) fund as a potential source of infrastructure finance -- a move supported by many, but strongly opposed by Islamist lawmakers.

The hajj fund comprises deposits made by millions of Muslims wanting to go on religious pilgrimage to Mecca, Saudi Arabia. They are usually put on a five to 20-year waiting list after making a down payment of 25 million rupiah ($1,900).

The hajj fund, which government estimates put at more than 70 trillion rupiah, is managed by the Religious Affairs Ministry, which uses the money to purchase government sukuk (Islamic bonds) and other government bonds. It also places some of the cash in time deposits.

The National Development Planning Agency, known as Bappenas, proposed in January that the Finance Ministry should use the proceeds of sukuk sales to the hajj fund to finance infrastructure projects, or channel the funds toward infrastructure spending in some other way.

"Now we have what is called sukuk-based projects. The sukuk can be raised from hajj funds, so it is indirect [financing]. It can also be [directly financed] from the hajj funds, but there must be an institution for it first. It can be used to finance infrastructure projects," Bappenas head Bambang Brodjonegoro told local media.

The idea of using the hajj fund to finance infrastructure projects dates back several years. It was almost implemented in 2014, but the plan was stopped in its tracks when then Religious Affairs Minister Suryadharma Ali was accused of corruption and mishandling the hajj fund. He was found guilty of enabling people such as relatives and staff members to go on hajj for free.

Perfect match

Eko Listianto, an economist at the Institute for Development of Economics and Finance, a private think tank, said that controversy is now over, opening the way for the use of the hajj fund as an alternative source of funding for infrastructure projects.

"It's better than just putting the money away somewhere, which would not benefit the growth of the economy. It's a good thing as long as it is managed professionally and the projects are carefully selected," he said. Eko argued that the long-term nature of the hajj fund deposits makes them a perfect match for infrastructure funding, which requires a long timescale.

Investing the hajj fund would also benefit pilgrims, he said. "It's not like the pilgrims don't get anything back in return, as there will be a return on investment. If the project is good, the return is big. It offers more than just saving the money in the bank and getting the regular profit-sharing," he said.

Projects in strategic public service sectors such as power and clean water supply were particularly promising, he said, adding that he was confident the government would conduct meticulous studies before deciding which projects should be financed by the hajj fund.

The gains would be returned to the hajj fund management agency and used to further facilitate the pilgrimage. The move would also give the country's Islamic economy, which is struggling to live up to its promise, a much-needed boost, Eko added.

The plan has received the backing of Islamic scholars and authorities in Indonesia, who say that using the hajj fund to finance infrastructure is commendable, and not in breach of Islamic laws as long as the investment is for the benefit of the public.

Bappenas and the Indonesian Ulema Council, the country's top Islamic authority, have already signed a memorandum of understanding on the use of social religious funds to finance government projects, specifically related to clean water and sanitation for the public. It is understood that Bappenas is looking to expand the agreement to cover other kinds of infrastructure projects.

The government has recently revised the list of national strategic projects, which now consists of 117 priority schemes, including toll roads, railways and seaports. Almost 100 projects have been removed from the initial list because of lack of progress.

Parliamentary protest

Despite the green light from Islamic authorities, opposition party lawmakers in parliament, which must approve any proposal to repurpose funds for infrastructure, have attacked the plan.

At a time when religious issues in the country have become increasingly charged following controversy over an allegedly blasphemous remark made by Jakarta Governor Basuki Tjahaja Purnama, some Islamist lawmakers have denounced the funding plan. The government, they say, is trying to "snatch" the "funds of the Muslim people" to finance something that should be the responsibility of the state.

Opposition lawmakers also accuse the government of attempting to use the hajj fund to "plug its fiscal deficit." Indonesia's 2016 fiscal deficit was estimated at 2.46% of gross domestic product, while the 2017 budget has a fiscal deficit target of 2.41%.

Prosperous Justice Party lawmaker Iskan Qolba Lubis said the funding plan was "legally questionable" because a Religious Affairs Ministry regulation on hajj funds stipulates that they must be managed in accordance with the principles of safety, benefit and liquidity. The relatively high business risks attached to infrastructure projects, by comparison with sukuk purchases, deposits and savings, could be in breach of the safety principle, he said.

Other opponents have questioned the government's promises of investment returns, arguing that if there are projects as promising and potentially profitable as suggested, foreign investors should already be lining up to back them.

"We want the money to be used for the benefit of pilgrims," said Iskan, who is also the deputy chairman of House of Representatives Commission VIII, which oversees social and religious affairs. "The government can collect revenue using other methods, such as initial public offerings (of state owned companies) and selling shares and obligations to foreign parties. Many instruments can be used."

Iskan argued that if the hajj fund were to be invested in projects unrelated to the hajj, but with the aim of yielding high returns for pilgrims, decisions should be made by an independent agency known as the BPKH, which is to be established later in 2017 to manage hajj funds.

"The religious affairs minister should not make any move before the BPKH is formed. In August it will be formed and the minister will no longer be able to meddle with this fund because the ministry is not designed to make money or raise funds, it is established to spend funds," he said.

Iskan said his commission has already summoned and spoken to the religious affairs minister about the government's plan. It was ready for further talks with government officials to clarify the matter and defend the best interest of pilgrims, he said.

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