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A Dynamic Model for Cash Waqf Management as One of

The Alternative Instruments for The Poverty Alleviation


in Indonesia
Dian Masyita (dianmasyita@fe.unpad.ac.id)
The Faculty of Economics, Padjadjaran University, Bandung, Indonesia
Muhammad Tasrif (tasrif_muhammad@yahoo.com )
Energy Research & Development Group, Bandung Institute of Technology, Indonesia
Abdi Suryadinata Telaga (abdi.suryadinata@astra-honda.com)
Information System Department, Astra Manufacturing Polytechnic, Jakarta, Indonesia

Submitted to The 23rd International Conference of The System Dynamics Society


Massachussets Institute of Technology (MIT), Boston, July 17-21, 2005

Abstract

This research tries to offer a design of the cash waqf management system in a system
dynamics model. The Cash Waqf Management is expected to become one of the alternative
instruments for the poverty alleviation programs in Indonesia. These programs require
huge amount of fund that cannot be provided thoroughly by the government. Therefore,
initiation of new sources of fund for such a program is inevitable. In the Islamic sosio-
economic concept, there is a source of social fund that is economically and politically free
of charge, namely cash waqf. In this concept, Nadzir (cash waqf fund manager) collects the
fund from Waqif (cash waqf payer) and invest the money in the real sector and in any
syariah-based investment opportunities. Nadzir will then allocate profits and returns gained
from the investments to poverty alleviation programs. Nadzir is obliged to maintain the
amount of fund in such a way that it does not go below the initial amount. Therefore,
Nadzir not only should be highly capable, but also needs an experienced financial
institution in helping SMEs development efforts. Using the system dynamics methodology,
we try to design the structure of cash waqf system and simulate the behaviour of cash waqf
model.

Keywords: cash waqf, portfolio investment, poverty alleviation, system dynamics


1. Preface

In the early 2005, the Indonesian poverty rate has been still discouraging.
The poverty indices are still higher than those of the previous years. The economic
crisis beginning in 1997, does not end until now. In addition, the Tsunami
Disasters destroyed two provinces in Indonesia i.e Nanggroe Aceh Darussalam
and North Sumatra in the end of the year 2004. Based on the Statistics Central
Bureau (BPS)’s data, there are about 40 million Indonesian people who are under
the poverty line.
Indonesia has come into debt trap made by the Indonesian government and
the private sectors. Large amount of debt has weakened Indonesian economy for
the past seven years. Currently, Indonesian foreign debt is approximately USD 130
billions, which consists of government foreign debt of USD 70 billions and private
sector’s foreign debt of USD 60 billions. In addition, domestic government debt
has reached IDR 650 trillions level. Nevertheless, the amount of the debt has been
inceasing since Consultative Group on Indonesia (CGI) meeting in Bali (January
2003) decided to issue a USD 2,7 billion loan to Indonesia.
Meanwhile, the government has been confronted with the deficit budget
almost every year since 1997, which means that the government may find it
difficult to cover its routine expenditures. Those regular balance sheet items
require so large amount of fund that government cannot provide adequate fund
for other strategic needs, such as good education, appropriate health, poverty, and
SME’s development. Mismanagement of debts is the largest of all factors that
make Indonesian go into crisis. Consequently, all of citizens and their offsprings
have to carry the heavy burden of that debt.

2. Problem Identification

One of potential solutions to the necessity of sufficient fund for public


needs is waqf fund from people’s donation. People donate their money as cash
waqf by purchasing cash waqf certificate. The gathered fund will be then invested
in various investment portfolio and the profit of which can be spent for the above
mentioned public necessities. The gained profit will also be used for funding
poverty alleviation programs, while the principal of funds will be reinvested in
various highly profitable investment opportunities.
Waqif donates his/her money as waqf fund to Mauquf’alaih (a person who is
entitled to get benefit from waqf fund) through Nadzir (a person/an institution
being in charge for managing waqf fund and distributing returns of waqf
investment). Only gains of the invested waqf fund will be delivered to
Mauquf’alaih. The principal of funds keep being invested in potential investment
opportunities. In relation to its role as waqf fund investment manager, Nadzir on
behalf of Waqf Institution may allocate some waqf funds to financial portfolio and
finance SMEs’ businesses on the basis of profit-loss sharing system.
The larger the investment returns, the more fund can be allocated to
poverty alleviation program. In some countries, waqf fund management has
reduced poverty effectively and enhanced people’s welfare, by providing

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additional fund for education & health development programs, cheap houses &
public facilities development programs, and so forth.

3. Objectives of Research

This research is expected to be able to find out the potency of an Islamic


innovation financial instrument, expecially cash waqf, to alleviate the poverty in
Indonesia. This research also tries to offer a design of the cash waqf management
system in a system dynamics model. Using the system dynamics methodology, we
tries to know the structure of cash waqf system and simulate the behaviour of cash
waqf model.
On the next part of this paper, we will discuss definition, law, and history
of cash waqf to recognize the concept and its potential benefit.

4. Problem Definition : Cash Waqf

Previously, waqf of building and land are the most popular forms of waqf.
Nowadays, cash waqf has become increasingly well-known, particularly because
of its flexibility, which allows distribution of the waqf’s potential benefit to be
benefited by the poor anywhere.
Cash waqf was firstly introduced in Ottoman era in Egypt. Professor
Mannan then sosialized cash waqf in Bangladesh through Social Investment Bank
Limited (SIBL). SIBL issues Cash Waqf Certificate to collect funds from the rich
and distributes gains of the managed funds to the poor.
Like those of Bangladesh, most of Indonesian people are poor.
Characteristic of communities in both countries are also similar. Therefore,
effectiveness of cash waqf certificate program to help reduce poverty in
Bangladesh gives hope that analogous program can be successfully implemented
in Indonesia.
Fatwa Commission, Board of Indonesian Moslem Scholars, responded the
necessity of cash waqf certificate program in Indonesia by issuing the following
fatwa (dated on 11 May 2002):
a. Cash Waqaf (Waqf al-Nuqud) is waqf donated by individual, group of
individuals, or legal entity, in cash.
b. Cash waqf includes securities.
c. Money donated as waqf is not forbidden (jawaz).
d. Cash waqf can only be distributed and allocated for anything not against
syariah (Islamic law).
e. Existence of waqf fund should be conserved. Waqf fund cannot be transferred
to anyone.

4.1. Cash Waqf Certificate Framework

Waqif is a person who donate some money as waqf by purchasing cash


waqf certificate. The certificate can be bought in the name of family member, even
if he/she is already dead. Waqif expects return of the managed fund to be assigned

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for certain purpose, e.g. public facility development, poor people rehabilitation,
etc.
Nadzir invests the collected fund in various investment portfolios. Nadzir
may (1) invest the fund in syariah (non interest) banking products of both domestic
and overseas banks, (2) finance selected businesses, (3) establish new prospective
businesses, or (4) finance small and medium scale enterprises (SMEs).(see Figure
1)

4.2. Cash Waqf Certificate

According to Mannan (1998), the objectives of cash waqf certificate are;


(1) to equip banks and other waqf management institutions with cash waqf
certificate,
(2) to help collect social savings through cash waqf certificate (cash waqf
certification can be done in the name of other beloved family member to
strengthen familiy integration among rich families),
(3) to help transform the collected social savings to social capital, as well as to
help develop social capital market,
(4) to increase social investment,
(5) to encourage rich communities’ awareness on their responsibility for social
development in their environment.,
(6) to stimulate integration between social security and social welfare.

As cash waqf practice has not yet been popular in Indonesia, cash waqf
management institutions in Indonesia can replicate successful practices from other
countries, such as Bangladesh.
In addition to the above-mentioned objectives of cash waqf practice, profit
of the managed waqf fund can be allocated for: (see figure 2)
1. Poor Family Rehabilitation.
‰ Enhancing poor people’s welfare
2. Educational and Cultural Development.
‰ Supplying free books
‰ Funding relevant research and development
‰ Improving educational programs
‰ Scholarship
‰ Grant for schools
‰ Preserving and developing cultural values
3. Health and Sanitation
‰ Health and Sanitation for poor people
‰ Establishing health center
‰ Providing cheap medicines with appropriate quality
4. Social services
5. Building facilities for religious activity
6. Fixing social facilities.

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Aspects involved when purchasing Cash Waqf Certificate include:
‰ One’s own welfare (in this life and life after death)
‰ Family’s welfare (in this life and life after death)
‰ Social welfare and social investment
‰ Developing social awareness: social security for poor people and social
harmony for rich people.

Contribution of cash waqf to sosio-economic development in developing


countries is significant. Fund collected through cash waqf certificate program can
be allocated to social-related development areas (e.g., agriculture, education,
health, and infrastructure), urban poverty alleviation program, and other public
service development. This opportunity in turn will reduce poverty level and will
allow people help themselves (Mannan,1998).

Cash waqf certificate will be issued in various denominations, e.g. IDR


(Rupiah)-100-million, IDR-50-million, IDR-10-million, IDR-5-million, and IDR-1-
million, in order that more prospective donors can afford them. Name of the
donor (it can be on behalf of dead individual) and specific purpose of the donation
(e.g. for educational services, health assistance, or other welfare enhancement
efforts) will be stated on the certificate.

4.3. Requirements for Nadzir

Utomo (2001) states that cash waqf management institution is a legal entity,
and therefore should fulfil some requirements, which are called rukun waqf. The
rules can be explained as follows:
a. Al-waqif is a person who donates waqf fund. He/she should be health
physically and mentally. The decision to donate should not be made under
pressure.
b. Assets or fund donated as waqf are technically called al-mawquf in fiqh
(Islamic law). Existence of mawquf should be clear and durable. Therefore,
people can benefit from the waqf for long time.
c. Those who are entitled to benefit from return of waqf fund management are al-
mawquf ‘alaih.
d. The way of a waqif stating his/her asset or fund as waqf is called sighah.

Dr.Muhammad Anwar Ibrahim in his paper titled “Wakaf Dalam Syariat


Islam (Waqf in Islamic Law)” 1 explains conditions that should be satisfied in
managing cash waqf. They are as follows:
1. Nadzir is a person/entity that is assigned to manage waqf fund.
2. As a matter of fact, waqif has the right to determine person or institution that
will manage his/her waqf fund. If a waqif does not appoint a nadzir, then Kadi
(Islamic Judge) will do it for him/her. [Asy-Syarbini op.cit p. 396].

1
This paper was presented in International Workshop on People’s Economy Empowerment
Through Productive Waqf Management, in Batam, 2002.

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3. Fiqh experts determine flexible requirements for being a Nadzir. Fit and proper
nadzir should be capable of managing waqf fund to be productive source of
capital. If a nadzir cannot do his job properly, Kadi must replace him with
someone else after explaining reasons for the replacement.
4. Nadzir’s responsibilities include:
Maintaining waqf asset, preparing waqf asset for rent, managing waqf fund,
collecting waqf investment returns and distributing them to al-mawquf ‘alaih.
Fiqh expert can expand these authorities as needed.
5. Nadzir’s division of work. A waqif can appoint more than one nadzir to handle
his/her waqf fund. If a waqif does so, each nadzir will conduct a more specific
job. Asset maintenance, investment management, and investment return
distribution will be carried out by different nadzir. If there are more than one
nadzir for one job, a decision can only be made after necessary consultation
among them.[Asy-Syarbini op.cit. hal 410-411].
6. Salary for Nadzir. Waqif may determine certain amount of money or
percentage of waqf investment return as compensation for nadzir. A nadzir will
not receive any compensation if he quits the job or gets fired. [Ibid].
7. A Nadzir cannot take any part of waqf fund.[Ibid hal 412].

As the appointed nadzir, fund manager may carry out the followings to
sustain investment return of cash waqf fund:
1. Invest cash waqf fund in various domestic or global syariah portfolios with
good prospect.
2. Invest cash waqf fund in real sectors or businesses whose sources, process, and
outputs are in line with syariah. Fund can be invested in existing business or in
newly initiated one. Nadzir may establish new businesses that provide public
services, such as convenience stores, hypermarkets, basic food stores,
universities, hospitals, etc. This will generate more job opportunities and
appropriately satisfy some people’s basic needs.
3. Allocate some of the collected fund as profit sharing-based loan to selected
small businesses. Technical and managerial assistance are required to
accompany this investment. If this investment runs well, nadzir will not only
generate returns, but also help accelerate poor people’s economic development.

Nadzir should also pay attention on some points described below:


a. Transparency. Nadzir has to manage cash waqf fund transparently and
regularly make financial and performance reports, which are accessible by
waqif.
b. Productivity. Nadzir has to be able to manage the fund productively, so that
disadvantaged people can benefit form cash waqf fund continuously.
c. Trustable. Integrity of a nadzir is crucial. It has to avoid any business
opportunity and process that can lead to moral hazard. All proposed business
activities should be assessed in terms of Islamic law.

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4.4. Cash Waqf Management Institution’s Duties and Responsibilities

Waqf Management Institution should manage waqf fund in such a way that
the collected fund become more and more productive. The more the waqf
investment return, the more mawquf ‘alaih benefit from waqf fund. According to
fiqh, nadzir, as a waqf fund manager, is obliged to handle the fund productively
(Utomo, 2001). Furthermore, Manshur bin Yunus al-Bahuty states in Syarh
Muntaha al-Adaab (p. 504-505) that nadzir is responsible for maintaining,
expanding, and developing waqf assets in order that they can provide some
income such as investment return, rent fee, agricultural products, etc.

4.5. Waqif’s Requirements

Waqif has a right to settle on particular requirements related to his/her


waqf. Such a requirement is classified in two groups, i.e. (1) requirement that goes
in line with syariah, and (2) condition that does not align with syariah. Nadzir does
not have to obey the latter, even if waqif has agreed to donate his fund as waqf.
Any rule or requirement should not violate Islamic law. Fiqh experts affirm that
power of waqif’s requirement status should not contravene Allah the Almighty’s
rule.

5. Research Metodology

This research used system dynamics methodology to capture dynamic


phenomenon of a system, in which variables change simultaneously as time
moves. It also carried out a survey on possible implementation of cash waqf in
Jakarta and Jawa Barat. The survey concluded that most people did not trust any
existing government institution to manage cash waqf fund and control its
investment activities, especially because cash waqf management will involve large
amount of endowment funds. Most of them also recommend that if a special
purpose institution is established to manage cash waqf fund, it has to be highly
capable of detecting any potential dishonesty and assessing performance of cash
waqf fund manager, i.e. nadzir. Therefore, it’s necessary to design an instrument
which is able to control the cash waqf management.
Based on the survey’s result, using exclusively designed computer program
then simulated some scenarios of cash waqf implemention to formulate some
policy concepts applicable in Indonesia. The computer program was designed to
help the policy makers (1) estimate cash waqf potential in alleviating poverty in
Indonesia, (2) supervise performance of nadzir or waqf fund management
institution, and (3) identify appropriate policies conducive to poverty alleviation
programs.
Since there was no similar study preceding the research, some assumptions
were applied. The ability of three national TV corporations (RCTI, SCTV, and
Indosiar) to collect donation amounting IDR 2 billions in two nights in 2000 and
the other charity programs to collect donation in 2001-2005 were used as an
assumption basis of amount of fund could be gathered by cash waqf management

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institution. This research also used data supplied by Biro Pusat Statistik Republik of
Indonesia (National Beaurau for Statistics), BKKBN Republic of Indonesia
(National Coordinating Agency for Family Planning) and Islamic Financial
Institution.

5.1 Limitation of Research

This research put more emphasived on financial management expecially


raising and investing of cash waqf funds. The duties of Nazir, as a cash waqf fund
manager, are to increase the cash waqf funds and invest those funds in profitable
portfolios. As we know, the poverty alleviation problems are complicated.
However, they need multidiscipline knowledge to formulate and figure out the
solutions. With this research we want to try to make an early design of poverty
alleviation in the financial viewpoint using system dynamics modeling.

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Figure 1. National Waqf Institution

WAQIF Cash Waqf Certificate INSURANCE

Indonesia citizens Foreign Citizens


N A Z I R (Fund Manager)

Islamic Financial Society Charity


Institutions Organizations Institutions

Islamic Financial Global Fund Microfinancing Direct Investment


Portfolio (domestic) Management Portfolio Portfolio

Islamic Traditional Waqf Assets Company


Islamic Capital Islamic Financial Microfinance BMT
Market Institution Banking Institutions
To Maintain Waqf Assets To Create New Waqf

Islamic Mutual Islamic Mudharabah


Funds Bonds Deposit
LAND BUILDINGS

Waqf Land Rental Real Estate Agricultural Non-Profit Projects Comercial Projects Waqf Buildings
Rental

Free Education Free Health Service

THE PROFIT- LOSS SHARING from Cash Waqf Investment


___ (eliminate)
Management Fees
9
Ready to Distribute the Funds To Poverty Alleviation Programs in Indonesia
Figure 2.
Microfinancing Ready to Distribute the Funds To Poverty Alleviation Programs in Indonesia
Portfolio

To promote self-
sufficient & dignity
for the poor Poor Family Educational & Social Fasilities & Health & Sanitation
Rehabilitation Culture Services

Natural Disaster
(Tsunami,
Rehabilitating Improving the condition Flood,Volcanics)
physically handicapped of poor living below the
Establishing Supplying
poverty line
health care pure drinking
programs for the water
poor

Free Education (i.e. free Supporting any Supporting local culture,


tuitition fee, books free projects in the art & heritages
of cost, scholarships etc) area of
education,
research, Social Public Utilities Religion
religious, etc) Infrastructure Services Fasilities

Increasing The Standard of Life of Indonesian Citizens

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To Alleviate the Poverty in Indonesia
6. General Description of System Conceptualization

The system conceptualization involves establishing model boundary,


identifying causal relationships and policy framework 2 . In this research the model
boundary includes all relevant factors that are considered important in the
problem context. The model comprises six interrelated components in the cash
waqf management as shown as Figure 3.

(-) loop 4 - THE POOR


THE RICH -
-
+
AVAILABLE FUNDS
CASH WAQF
(-) loop 1 FOR THE POVERTY
FUNDS
PROGRAMS
+
(+) loop 2 +

+ INVESTMENT
+ INVESTMENT (+) loop 3
PORTFOLIOS + PROFITS

Figure 3. A Macro-view of Model

As depicted in the above causal loop, the model links among the rich, cash waqf
fund, investment portfolios, investment profits, available funds for the poverty
programs and the poor.
A general system of cash waqf model, derived from a macro-view of model
above, consists of six sectors i.e:
1). The cash waqf fund raising sectors (the rich links to the collected-cash waqf
funds),
2) The Islamic financial portfolios sectors,
3) The global fund management sectors,
4) The direct investment in large and medium scale enterprises,
5) The microfinance sectors.
( number 2,3,4,5 are investment portfolios which link to investment profits)
6) The distribution sectors of the profits of cash waqf investment. (Investment
profits link to the poor through the poverty programs).

The Interrelationship among variables can be seen in Figure 4.

2
Sushil (1993), System Dynamics “A Practical Approach for Managerial Problems”,Wiley Eastern Limited.

11
Figure 4. The Interrelationship Among Variables in the General System

Foreign
Islamic Financial
Waqif + birth rate +
Indonesian Portfolio
++ Population
- +
the rich
the poor - - Islamic Banking
Quality of + + +
cash inflow of +
Life - - + +
+ cash waqf Islamic Bond Islamic Capital Mudharabah Islamic Mutual
Living Cost cash waqf growth + death rate Market Deposits Funds
Cash Waqf Funds are + + + +
Average Period to +
Healthy Cost collected by Nazir
Collect Funds rate of return Dividens capital gains NAV's Mutual
+ Funds
Education Cost + Global Fund
The poverty + +
Microfinance + Mgt
allevation + + + + + +Risk of Islamic
The Family Portfolio + +
programs Investment +
Rehabilitation Cost + Funds Financial Investment
Profits of Islamic
+ + Financial Investment
Unemployment -+
Natural Disaster To meet the rate -
Victims Costs poor needs Microfinance Policy
- +
Scheme
The funds for the Technical Assistances
Infrastructure +
poverty alleviation Direct
Recovery Cost for the poor Bad debts of + To make a new
programs microfinance Investment waqf assets
+ - - Portfolios To maintain new
Multiplier Effects of +- - + + assets
The risk of +
Microfinance towards + microfinance Invest to company To maintain the
Family's Welfare
existing waqf assets + +
+ - +
- + Commercial
The Profits of Waqf land + Social
Projects Projects
Microfinance + productivity Real Estate
+ +
Management Fees Dividen or Capital Free-charge Health
Gains +
for the Nazir Agriculture + Services
+
+
+ + + Free Education
+ + Waqf Land +
Business Risk
+
The Profits of cash Rental
waqf investment+
+
+
The Profits of Direct -
Investment + +

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The interrelationship among the six sectors is described as follows :

1) The cash waqf fund raising sectors


The responsibilities of this sector are collecting the cash waqf fund from the
waqif and then distributing them to the investment portfolios. The profits of the
investment will be distributed to the poor through the poverty alleviation
programs. At which the profits will be distributed depend on the waqif requests
such as the education, infrastructure, family rehabilitation, public health &
sanitation.
In the cash waqf raising sectors, there are several causal relationship
among the rich, who have the potency as a waqif, the gathered cash waqf fund,
the invested funds to various portfolios, and the gained profits from investment
which will be distributed to the poor. (see figure 5a and 5b).

Foreign Waqif Birth rate


+ population -
+ + Death Rate

The poor -
- The rich Average Period to
+ Collect Funds
- +
+ Cash Waqf
The Poverty + Growth Collected Cash
Alleviation Programs Cash Inflow of Waqf Funds
+ +
Cash Waqf
+
Investment Islamic
The funds for the Microfinance + +
+ + Financial
poverty alleviation Portfolio Funds
Portfolio
programs +
+ +
+
- +
Direct Investment Global Fund Mgt
Portfolio

Management Fees
+ + + +
+
The Profits of Cash
Waqf Investment

Figure 5a. Causal loop of The Cash Waqf Fund Raising

13
Cash Waqf Funds Raising Sector

growth_rate
Cash_Waqf
Min_Req_Return

Return_of_Global_Fund Cash_Inflow
Investment_periode
Principal_4 CW_normal
Current_price_of_gold
Collecting_period
Ratio Return_of_Microfinancin
Global_Fund_Mgt

Profit_of_Glb_Fund_Mgt rate_of_cash_inflow

Convert_to_Gold_standard
Return_of_Global_Fund Total_Return

Global_Fund_Inv Microfinace_Period
Principal_13
Principal_1
Principal_11 Min_Rtrn_MK
Principal_12 Principal_2
Principal_14

Cash_Waqf_Mgt Mikrofinance
Invest_to_Islamic_Fin
Invest_to_microfinance
Total_Return Total_Return
Ratio Stop_Microfinance

Average_Return_of_Islamic_Finance

Principal_31 Invest_to_Direct_Investment Microfinance_Policy


Principal_3

Return_of_Global_Fund

Principal_33
Average_Return_Direct_Inv
Principal_32
Average_Return_of_Islamic_Finance

Figure 3b. Flow Diagram of The Cash Waqf Fund Raising

14
2) The Islamic financial portfolios sectors
The responsibilities of this sector are investing the cash waqf efficiency and
effectively. The gathered cash waqf will be then invested by Nazir, a fund
manager, in Islamic financial portfolios. The structure of Islamic banking and
finance is firmly rooted in the Qur’an and the teachings of Muhammad which is
called a Islamic Law 3 . Islamic Law has derived from revealed text a web of
interrelated norms prohibiting interest-taking and undue speculative practices.
Generally, these portfolios are divided into four kinds i.e a). Islamic
mutual funds, b). Islamic Capital Market Indices, c). Islamic Banking Products
(Mudharaba Deposits), d) Islamic Bond. All of them are issued by Indonesian
financial institutions.
The gained profits will be distributed to meet the poor’s basic needs and
increase the quality of the poor’s life. Meanwhile, the principal keep being
invested in potential investment opportunities. (see Figure 6a and 6b).

Cash Waqf
Cash Waqf growth + Inflows +
Collected Cash
+
Waqf Fund
The poor - The rich + +
- Investment funds
average period to
-+ - + collect the funds
The poverty Islamic Financial
alleviation programs Portfolio + +
Islamic Mutual
+ Islamic Banking
+ Funds
+ +
The funds for the Islamic Islamic Capital +
poverty alleviation Mudharabah NAV of Mutual
Bonds Market Deposits
programs Funds
- + +
+ +
+
rate of return Dividen Capital gain
+ Risk of Islamic
Management Fees Finance
+ Investment
+
+ + + -
+
The profits of cash The Profits of Islamic +
waqf investments + Financial Investments

Figure 6a. Causal loop of The Islamic Financial Portfolios

3
Frank E.Vogel and Samuel L.Hayes III (1998), Islamic Law and Finance “religion, risk and return.”
Published by Kluwer Law International.

15
Islamic Financial Portfolio Sector

Return_Islamic_Finance

Invest_to_Islamic_Fin

Return_Islamic_Mutual_Fund Min_Req_Return
Islamic_Mutual_Funds Investment_periode

Profit_of_Islamic_Bonds Invest_to_Mutual_Funds

Principal_12
Return_of_Islamic_Bonds
Return_of_Islamic_Bonds Return_of_Islamic_Bonds Profit_of_Islamic_Mutual_Funds

Return_Islamic_Mutual_Fund
Islamic_Bonds Return_of_Islamic_Stocks
Invest_to_Islamic_Bond Principal_13
Return_Islamic_Finance

rn_Islamic_Finance Return_of_Deposit
Min_Req_ReturnInvestment_periode
Invest_to_Islamic_Fin
Invest_to_Islamic_Fin Average_Return_of_Islamic_Finance
Islamic_Capital_Market
Invest_to_Mudharabah_Deposits Profit_of_Islamic_Deposits
Invest_to_JII Principal_14

Return_of_Islamic_Stocks
Mudarabah_Deposits
Principal_11
Profit_of_Islamic_Cap_Mrkt Return_Islamic_Finance
Return_of_Deposit Investment_periode
Profit_of_Islamic_Bonds
Min_Req_Return
Profit_of_Islamic_Mutual_Funds
Profit_of_Islamic_Deposits
Profit_of_Islamic_Finance

Figure 6b. Flow Diagram of of The Islamic Financial Portfolios

3) The global fund management sectors


The responsibilities of this sector are to invest the cash waqf fund in the global
financial portfolios as known a global funds management such as Amanah Fund,
Lariba Fund, Islamic Indices, etc. A fund manager should choose the portfolios
not only high return but also safety. The better Nazir choose the investment
portfolios, the higher profits will be gained and the more funds will be acquaired
by the poor.

16
The principal then will be reinvested in various highly profitably investment
opportunities. (see Figure 7a and 7b)

The growth of cash


The poor - The rich
- + waqf fund +
Foreign Citizens

- Collected Cash
+ +
+ Cash inflow of Waqf Funds
+
Cash Waqf +
The poverty alleviation
programs Average period to Investment Funds
+ collect cash waqf
+
+
The funds for the
poverty alleviation Global Fund Mgt
programs +
-

Management Fee + The Profits of cash


waqf investment

Figure 7a. Causal loop of the global fund management portfolios

Global Fund Management Sector

growth_rate
Cash_Waqf
Min_Req_Return

Return_of_Global_Fund Cash_Inflow
Investment_periode
Principal_4 CW_normal
Current_price_of_gold
Collecting_period
Ratio Return_of_Microfinanc
Global_Fund_Mgt

Profit_of_Glb_Fund_Mgt rate_of_cash_inflow

Convert_to_Gold_standard
Return_of_Global_Fund Total_Return

Figure 7b. Flow Diagram of The global fund management portfolios

17
4) The direct investment in large and medium scale enterprises
A cash waqf fund manager, Nazir, allocates the gathered funds to the big
companies in the forms of stocks which the gained profit are dividends or capital
gains. The nature of this sector is the long term. The other forms of direct
investment are building the new waqf buildings and maintaining the existings
waqf assets either for social projects or the commercial projects. (See Figure 8a
and 8b.)

Foreign Waqif Cash Waqf Inflow


Collected Cash
+ + Waqf Fund
+
Cash
+ Waqf growth + +
The poor
- - The rich Average Period to
Investment Funds
Collect Funds
- +
+
The poverty alleviation Direct Investment
programs Portfolio
+ +
Invest to + +To make the new
The funds for poverty To maintain the To maintain waqf
company waqf assets
alleviation programs existings waqf assets
+ buldings
- +
+ +
dividen or capital Waqf Land
gains Productifity + Social
Management fees +
+ Real Estate + Projects
+ + + Commercial
Waqf Land Projects
rental Agriculture
The Profits of Cash +
Waqf Investment + +
+ ++ +
+ Free-Charge
Free Education Healthy Services
Business Risks
+ +
The Profits of Direct -
Investment + +

Figure 8a. Causal loop of the direct investment to real sectors

18
Direct Investment to Real Sectors

Return_Real_Estate

Principal_331a Age_of_Waqf_Prodctvty
Profit_of_Waqf_Land Principal_331b
Profit_of_agriculture

Return_of_Waqf_Land
Profit_of_Real_Estate Principal_331 minimum_ROI
Age_of_Waqf_Prodctvty
To_Increase_Waqf_Land_Productivity

Real_Estate Agriculture
Principal_331b Invest_to_Real_Estate Invest_to_Agriculture
Principal_331a
Invest_to_Waqf_Land

minimum_ROI

Average_Rtrn_Waqf_Land Return_of_Agricltr Profit_of_agriculture


Return_Real_Estate
Return_of_Agricltr

To_Increase_Waqf_Productivity Principal_33

Total_Rtrn_Waqf_Prodctvty Invest_to_Waqf_Assets
Principal_331
Principal_332
Total_Rtrn_Waqf_Prodctvty
Invest_to_Direct_Investment
Average_Return_of_Waqf_Prodctvty Average_Rtrn_Waqf_Land

Invest_to_Waqf_Building
Company_rate_of_return
Total_Return_Direct_Inv
Profit_of_Waqf_Building

Return_of_Waqf_Building
Average_Rtrn_New_Waqf_Assets
Average_Return_Direct_Inv
Profit_of_Waqf_Productivity

To_Increase_Waqf_Building_Productifity

Age_of_Waqf_Prodctvty Profit_of_Waqf_Land
Principal_332
minimum_ROI

Adjust_to_Social_Projects

Commercial_Projects_investment_Periode
Social_Projects_Policy
Return_Social_Projects
Social_Projects

Rtrn_Commercial_Projects Total_Rtrn_New_Waqf_Assets
Principal_322

Invest_to_Social_Projects Principal_321
Average_Rtrn_New_Waqf_Assets

Build_New_Waqf_Assets Principal_32
Principal_322
Invest_to_new_waqf
Invest_to_Direct_Investment
Total_Return_Direct_Inv Total_Rtrn_New_Waqf_Assets
Invest_to_build_Comrcl_Projects minimum_ROI
Average_Rtrn_New_Waqf_Assets
Principal_321

Profit_of_Commercial_Projects Commercial_Projects
Rtrn_Commercial_Projects
Commercial_Projects_investment_Periode
Rtrn_Commercial_Projects
Invest_to_Direct_Investment
minimum_ROI Principal_31
Total_Return_Direct_Inv Time_to_Direct_inv

Company Company_rate_of_return
Invest_to_Company
Company_Profits_
Company_rate_of_return
Profit_of_Waqf_Land_Rental Age_of_Waqf_Prodctvty
The_number_of_Waqif

Rental_Price
Fraction_of_year

Waqf_Land_Availability
Waqf_Land_Growth Decrease_of_Waqf_Land Waqf_Land_Devaluation

Profit_of_Waqf_Land_Rental Profit_of_Direct_Investment
Profit_of_Waqf_Productivity

Profit_of_Commercial_Projects Company_Profits_ Time_to_invest_in_Direct_Investment

Figure 8b. Flow Diagram of the direct investment to real sectors

19
5) The Microfinance Sectors
The microfinancing programs, which used the loss-profit sharing, are one of the
most important sectors for poverty alleviation. Most of funds collected through cash
waqf certificate issues will be allocated as loan for microenterprises. This microcredit
program should particularly be aimed at helping poor people initiate their business and
enhance their quality of life, accordingly. Nevertheless, merely supplying them with
capital is not sufficient, since most of them do not have adequate knowledge and skill to
choose and to run a business that is suitable to their condition. Consequently, relevant
business technical assistance is needed to help them survive.
Family’s business activities have significantly influenced economy of a
community, particularly in developing countries. Big manufacturing companies indeed
dominate mass production processes, both for goods and services, but most of enterprises
are initiated by family. In addition, family’s consumption behaviour also affects
production and marketing activities, as well as other business activities.
Government’s programs for family business empowerment has to do with
informal sector development efforts, as most of family businesses are operated in non
formal format and business system. Family businesses, which absorb the largest number
of employee, are also found mostly in small and medium scale. In most developing
economies, these small and medium enterprises (SMEs) have limited access to formal
financing practices, as well as to adequate government’s technical assistance. (see figure
9a and 9b)

+
Collected Cash Investment funds
+
- The rich Waqf Fund

Multiplier Effects of +
--
The poor Microfinance towards
+ Microfinancing
+ family's welfare Portfolio
-
+
The poverty Unemployment
alleviation programs Technical + - rate
+ Assistances -
+
Microfinance Policy
The funds for poverty - Scheme
-
alleviation programs Risk of
+ Microfinance
-
+
Management Fees Bad debt of + +
microfinance - The profit of
+ -
microfinance
The profits of cash
waqf investment +
Figure 9a. Causal loop of The Microfinancing Sectors

20
Microfinance Portofolio Sectors
Microfinace_Period
Return_of_Microfinancing Policy_ratios

Profit_of_Microfinance Microfinance_Policy
Mikrofinance microcredit

Pra_welfare_people
Indonesian_population Stop_Microfinance

Figure 9b. Flow Diagram of The Microfinancing Sectors

6) The profits of cash waqf investment distribution sectors


The gained profits from the various portfolios will be distributed to the poor
through the poverty alleviation programs such as basic needs, health services,
sanitations, education, natural disasters victims, etc. The principal of cash waqf
will be reinvented to various portfolio opportunities. (see figure 10a and 10b).

- The rich + Cash Waqf


The poor Growth +
-
- Foreign Waqif
-
+ +
The Poverty
Quality of Life Alleviation Programs Cash Waqf Inflow
+ + +
+ +
+ ++ Living Cost +
Collected Cash Average period to
Healthy Cost
Waqf Funds collect the cash waqf
Education cost +
The funds for the
To meet the poor poverty alleviation +
The family
needs programs
rehabilitation cost + Investment funds
-
+
Natural Disaster +
Victims Cost Infrastucture
Recovery cost Management fee + The Profit of cash
waqf investment

Figure 10a. Causal Loop of the cash waqf profits distribution sectors

21
Profits of Cash Waqf Investment Distribution

Profit_of_Microfinance Profit_of_Glb_Fund_Mgt

Living_cost

Profit_of_Islamic_Finance Profit_of_Direct_Investment Natural_Disaster_Cost Healthy_cost

Daily_needs
Total_available_fund_for_poor
Profit_of_Cash_Waqf_Investment
Family_Rehbiittion_Cost Infstructure_Cost
ent
Education_cost
Pra_welfare_people

the_poor

Inflation allocation_ratio_1Profit_of_Cash_Waqf_Investment
Enter_to_pra_welfare
Needs_ratio_1

available_fund_for_living
Living_cost Living_needs
Needs__ratio_2 available_rate_1
allocation_ratio_2
Cost_1 needs_rate_1

Healthy_cost available_fund_for_healthy
Healthy_needs
poor Needs_ratio_3 available_rate_2
Cost_2
needs_rate_2 allocation_ratio_3

Education_cost available_fund_for_education
Education_needs
Cost_3 available_rate_3
Needs_ratio_4 needs_rate_3 allocation_ratio_4

Family_Rehbiittion_Cost available_fund_for_rehbltation
Rehabilitation_needs
Cost_4 Needs__ratio_5 needs_rate_4 available_rate_4
allocation_ratio_5
Enter_to_pra_welfare

Natural_Disaster_Cost available_fund_for_disaster
Disaster_needs
available_rate_5
Cost_5 needs_rate_5

Infstructure_Cost available_fund_for_infrastrctr
Infrastructure_needs
Cost_6 available_rate_6
needs_rate_6

Needs_ratio_6
allocation_rate_6
Enter_to_pra_welfare

Inflation
Profit_of_Cash_Waqf_Investment

Figure 10b. Flow Diagram of the cash waqf profits distribution sectors

22
7. The Cash Waqf Management Control

The survey concluded that most people did not trust any existing
government institutions to manage cash waqf fund and control cash waqf
investment activities, especially because cash waqf management will involve
large amount of endowment funds. Most of them also recommend that if a
special purpose institution is established to manage cash waqf fund, it has to be
highly capable of detecting any potential dishonesty and assessing performance
of cash waqf fund manager, i.e. nadzir. Therefore, it’s necessary to design an
instrument which is able to control the cash waqf management. This model tries
to design a control tools which is able to detect the human error in decision
making either mismanagement or dishonesty quickly. (see figure 11.)

The Control Function for Fund Management

rate_of_cash_inflow
Cummulative_Cash_Waqf_Fun

Convert_to_goldCurrent_price_of_gold

Mudarabah_Deposits Total_cash_waqf_in_gold

Company Islamic_Bonds
available_fund_for_living
available_fund_for_rehbltation
Mikrofinance
Commercial_Projects
Control_Function Islamic_Mutual_Funds
available_fund_for_healthy
Profits_Mobilization
Islamic_Capital_Market available_fund_for_disaster

Agriculture
Real_Estate Global_Fund_Mgt
available_fund_for_education
available_fund_for_infrastrctr
Social_Projects

To_Increase_Waqf_Building_Productifity

Figure. 11 Flow Diagram of The Control Function for Fund Management

The collected cash waqf fund from the waqif will be distributed to the
various portfolios and then the usage will be controlled periodically. The early
warning system will be prepaired by the system in order to the amount of cash
waqf fund will not go below the initial amount. It is the difference of the cash
waqf from the other sources of funds. Gold standard can be used as the currency
standard because of its stability. (see figure 11a-d).

23
2e9 2

1
2
1,5e9

rupiah 2 1
1e9 Control_Function
1
2 Cummulative_Cash_Waqf_Fund
2
500.000.000 1 1
2

0 1
20 40 60 80 100
day

Figure 11a. The simulation result (short term)

1
20
Gold Standard (kg)

2
1
15
1 2
Total_cash_waqf_in_gold
10 1
1 Convert_to_gold
2 2 2
5
1

0 2
20 40 60 80 100
day

Figure 11b. The Simulation result (short term)

1e15
rupiah

5e14 Cummulative_Cash_Waqf_Fund
1
Control_Function
2

0 12 12
5.000 10.000 15.000
day

Figure 11c The Simulation Result (long term)

24
gold standard (kg)
10.000.000

Convert_to_gold
5.000.000 1
Total_cash_waqf_in_gold
2

2
0 12 1
5.000 15.000
day

Figure 11d The Simulation Result (long term)

The waqif and public can control or monitor the cash flow of cash waqf
investment. If mismanagement and dishonesty occurred, the simulation result
could demonstrate the deviation. (see figure 11e-f)

1 5e9 2
50
gold standard (kg)

1 4e9 2
40
2 1
3e9
rupiah

1 2
30 Total_cash_waqf_in_gol Control_Function
2 1 d 1 1
1 2e9 2 Cummulative_Cash_Waqf_Fund
20 Convert_to_gold
2 2
2 2 1e9 1 1
10 1 2

0 2 0 1
20 40 60 80 100 20 40 60 80 100
day day

Figure 11e. The Simulation Result (short term)


gold standard (kg)

6e13
600.000
rupiah

Total_cash_waqf_in_gold 4e13 Control_Function


1 1
300.000 2 Convert_to_gold Cummulative_Cash_Waqf_
2 2 Fund
1 2e13 2
12
2 1
0 12 12 0 12 12 1
2.000 10.000 2.000 6.000 10.000
day day

Figure 11f. The Simulation Result (long term)

25
8. The Potency of Cash Waqf for the Poverty Alleviation Programs
It can be concluded from the system that the larger the amount of cash
waqf collected, the larger the amount of fund can be invested in highly cost-
effective profit sharing-based portfolios, and the larger the amount of return can
be distributed to poor people. The more fund allocated to finance microbusiness,
the sooner poverty in Indonesia can be alleviated. (see Figure 12).

The Potency of Cash Waqf for


The Poverty Alleviation Profit_of_Cash_Waqf_Investment
Multiplier_Effects Profits_of_CW_Investment_
Average_Period_to_become_prawelfare
the_poor Daily_needs

Birth_rate3 death_rate3
alleviation_1 the_poor

aleviation The_poor_decrease
Pra_welfare_people The_poor_reducing

birth_rate2 death_rate2
lifetime_expectancy Microcredit_for_a_poo
Population_growth
Pra_welfare_reducing the_welfare_increase
Indonesian_populationwelfare
Multiplier_effect
Average_period_to_become_welfare
Average_of_Microfinacing

the_rich Average_of_Microfinacing
birth_rate death_rate Invest_to_microfinance

Figure 12. Flow Diagram of The Potency of Cash Waqf for The Poverty
Alleviation

9. The Simulation Result


Since there has been no similar study preceding the research, some
assumption were applied. The ability of five national TV corporations (RCTI,
SCTV, Indosiar, MetroTV and Lativi) to collect donation amounting IDR 3
billions in two night in 2003 was used as an assumption basis of amount of fund
could be gathered by cash waqf management institution.
It was then assumed that the cash waqf institution could obtain IDR 20
millions a day in form of cash waqf from various components of Indonesian
people. The study also assumed that the gathered fund would grow 25%

26
annually and it would be invested in Islamic financial products with profit
sharing- based various rate of return.( see figure 13).

6
Return_Islamic_Mutual_Fund
6 1
0,0010 6
6 Return_of_Agricltr
1 2
9 2 2 2 Return_of_Deposit
2 9 8 9 2 3
8 10 9 6
10 8
8 10 10 Return_of_Global_Fund
4
ratio

0,0005 4 4 1 5 Return_of_Islamic_Bonds
5 1 5 5
5 4
3 1 4 4 Return_of_Islamic_Stocks
5 1 6
3 3 3
7
7 Return_of_Microfinancing
7 7 3 7
7
0,0000 Return_of_Waqf_Building
8
Return_Real_Estate
9
Rtrn_Commercial_Projects
10

5.000 10.000 15.000 20.000 25.000


day

Figure 13. Rate of return of Cash Waqf Investment Portfolio


Using the above assumption and data supplied by Biro Pusat Statistik (National
Beaurau for Statistics) , BKKBN (National Coordinating Agency for Family Planning)
and syariah financial institution in Indonesia, the computer-based data process resulted in
approximation of cash waqf investment return 25% annum. Such an amount of fund is
expected to be available for the poverty alleviation efforts in Indonesia, especially
through microfinance distribution program. If this plan can be implemented smoothly and
if those assisted micro enterprises can get well run maximum of 8 years after being
financed, it will take approximately 12500 days (35 years) to eliminate poverty and
22400 days (63 years) to increase quality of live for Indonesian population. (see figure
14a-b) Poor people, in this study, are those with very low quality of life. In other words,
poor people are not only those who cannot feed once a day, but also those who cannot
afford proper health and education services.
4 4 4 4 4
200,000,000
1

3
150,000,000 3
population

3 the_rich
3 1
100,000,000 the_poor
2
Pra_welfare_people
3
50,000,000 1 Indonesian_population
1 1 1 4
2
2
3
0 2 2 2
5,000 10,000 15,000 20,000 25,000 30,000
day

Figure 14a. The Simulation Result (based on IDR 20 million a day)

27
500.000.000

population
400.000.000
300.000.000
The_poor_decrease
1
200.000.000 2
the_welfare_increase
100.000.000 2
1
0 12 12 12 12
5.000 15.000 25.000
day

Figure 14b. The Simulation Result (based on IDR 20 million a day)


Based on the study result above and various scenarios proposed, if the
gathered fund through cash waqf certificate increase i.e. IDR 50 million in a day ,
it will take approximately 11000 days (30 years) to eliminate poverty and 21000 days (57
years) to increase quality of live for Indonesian population with the assumption the others
constant. (see figure 15a)

78 78 78 78 578
200,000,000
6 the_poor
1
34 the_poor
150,000,000 2
34 4
3 Pra_welfare_people
34 3
100,000,000 Pra_welfare_people
4
the_rich
5 5
6
50,000,000 56 56 56 the_rich
6
12
4 Indonesian_population
12 7
0 12 12 123 Indonesian_population
5,000 10,000 15,000 20,000 25,000 30,000 8

Time

Figure 15a. Simulation Result (based on IDR 50 million in a day compare with IDR
20 million in a day)

28
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Britain, 1997.
3. Frank E.Vogel and Samuel L.Hayes III (1998), Islamic Law and Finance
“religion, risk and return.” Published by Kluwer Law International
4. Ibrahim, M.Anwar, Waqf in Islamic Law, International Workshop on
Productive Waqf Management, Batam, 2002.
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Ministry of Economy and LP3E Faculty of Economics, Unpad, Desember
2000.
6. Mannan, M.A.Abdul, Cash Waqf, Enrichment of Family Heritage Generation to
Generation, Social Investment Bank Publication Series no. 1, 1st edition, 1998
7. Mannan, M.A.Abdul, Cash Waqf Certificate- an Innovation in Islamic Financial
Instrument: Global Opportunities for Developing Social Capital Market in the
21stCentury Voluntary Sector Banking”, Presentation at the Third Harvard
University Forum on Islamic Finance, October 1, 1999
8. Mannan, M.A.Abdul, Global Mobilization and Creation of Cash Waqf Fund for
Human and Social Capital Infrastrukture for the Islamic Ummah, Social
Investment Bank Publication Series no. 5, 1999.
9. Mannan, M.A.Abdul, Lesson of Experience of Social Investment Bank in Family
Empowerment Micro-credit for Poverty Allevation: A Paradigm shift in Micro-
financ”, Social Investment Bank Publication Series no. 10, 1999.
10. Masyita, Dian, Preliminary Implementation Model Design of Cash Waqf Certificate
as Alternative Instrument for Poverty Alleviation in Indonesia using System
Dynamics Methodologi, Thesis, ITB, 2002
11. Sushil, System Dynamics- A Practical Approach for Managerial Problems, Wiley
Eastern Limited, India, 1993
12. System Dynamics Review, The Journal of the System Dynamics Society, vol. 16
No. 1, Spring 2000, Wiley InterScience.
13. Tasrif, Muhammad, System Thinking & Dynamics Modeling, 1996
14. Utomo, Setiawan Budi, Fiqh on Waqf and Cash Waqf, Presentation in Monthly
Discussion for Cash Waqf Implementation in Indonesia, MUI Commission
of Economy, 2001.

29

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