Tapping the Potential of Zakat and Other Forms

Tapping the Potential of Zakat and Other Forms of Islamic Finance to Achieve the SDGs in Indonesia Francine Pickup, Irfan Syauqi Beik, Mohamad Ikhsan Modjo, Greget Kalla Buana Jeddah, 21 December 2017 / 3 Rabiul Tsani 1439

Introduction: SDGs and Maqasid Al-Shariah (1) No. SDGs Dominant Maqashid Level of Needs 1 No Poverty Wealth Daruriyah 2 Zero Hunger Life, Wealth Daruriyah 3 Good Health and Well Being Life, Wealth Daruriyah 4 Quality Education Intellectual Daruriyah 5 Gender Equality Wealth, Intellectual, Life, Lineage Daruriyah 6 Clean Water and Sanitation Life, Lineage Daruriyah 7 Affordable and Clean Energy Lineage Hajiyah 8 Decent Work and Economic Growth Wealth Daruriyah 9 Industry, Innovation and Infrastructure Wealth Hajiyah

Introduction: SDGs and Maqasid Al-Shariah (2) No. SDGs Dominant Maqasid Level of Needs 10 Reduced Inequalities Wealth Daruriyah 11 Sustainable Cities and Communities Lineage, Life, Wealth Hajiyah 12 Responsible Consumption and Production Lineage, Life Hajiyah 13 Climate Action Lineage, Intellectual Hajiyah 14 Life Below Water Lineage, Wealth, Intellectual Hajiyah 15 Life on Land Lineage Hajiyah 16 Peace, Justice and Strong Institutions Life, Wealth, Lineage Daruriyah 17 Partnership for the Goals Wealth, Intellectual Hajiyah

Zakat Potential in Indonesia No Variable 1 Individual (household) zakat potential 2 Zakat of industry consists of: - Corporate zakat - Zakat of state-own companies (BUMN) Total 3 Zakat potential of outstanding private deposits in commercial and rural banks and deposits in Islamic banks TOTAL Zakat Potential (trillion rupiah) Percentage of GDP 82. 7 1. 3 117. 29 1. 84 17. 01 0. 27 217 (USD 22 billion) 3. 4 114. 89 2. 40

Collection of Zakat, Infaq and Sadaqa in Indonesia Year IDR (billion) USD (million) Growth (%) GDP Growth (%) 2002 68. 39 4. 98 - 3. 7 2003 85. 28 6. 21 24. 70 4. 1 2004 150. 09 10. 92 76. 00 5. 1 2005 295. 52 21. 51 96. 90 5. 7 2006 373. 17 27. 16 26. 28 5. 5 2007 740 53. 86 98. 30 6. 3 2008 920 66. 96 24. 32 6. 2 2009 1200 87. 34 30. 43 4. 9 2010 1500 109. 17 25. 00 6. 1 2011 1729 125. 84 15. 30 6. 5 2012 2200 160. 12 27. 24 6. 23 2013 2700 196. 51 22. 73 5. 78 2014 3300 240. 17 22. 22 5. 02 2015 3700 269. 29 12. 21 4. 79 Source: BAZNAS (2017)

Zakat Allocation Based On Program Economic; [PERCENTAGE] Social; [VALUE] Health; [VALUE] Source: BAZNAS (2017) [CATEGORY NAME]; [VALUE]; Education; [VALUE];

Zakat Allocation Based On Asnaf Ibnu Sabil 1% Fi Sabilillah 22% Gharimin 1% Riqob 1% Mualaf 1% Fakir Miskin 74% Source: BAZNAS (2017)

Studies on Zakat Impact (1) Survey on 13 Districts throughout Indonesia and involve 2, 656 respondents of mustahik No Monthly Income Before Programme After Programme (Rp) Impact (%) 1 Bandung Barat 1, 678, 791 2, 059, 585 22. 68 2 Bantul 1, 998, 558 2, 550, 077 27. 60 3 Tabanan 3, 894, 061 4, 626, 192 18. 80 4 Sumedang 371, 605 814, 553 119. 20 5 Sukabumi 3, 516, 859 4, 237, 977 20. 50 6 Gresik 1, 754, 850 2, 103, 600 19. 87 7 Semarang 2, 188, 077 2, 885 31. 75 8 Aceh 7, 494, 553 8, 043, 250 7. 32 9 Nusa Tenggara Barat 4, 464, 753 4, 964, 753 11. 00 10 Kutai Timur 2, 471, 800 3, 948, 828 60. 00 11 Gorontalo 1, 614, 286 1, 731, 429 7. 00 12 Sijunjung 1, 590, 333 2, 014, 917 27. 00 13 Siak 1, 551, 482 2, 030, 648 31. 00 Average 2, 660, 770 3, 231, 438 27. 00 Source: BAZNAS (2016)

Studies on Zakat Impact (2) Survey on 13 Districts throughout Indonesia and involve 2, 656 respondents of mustahik Average Spiritual Score Before Programme After Programme 3. 84 4. 21 Source: BAZNAS (2016) Notes: This is measured by using CIBEST Model

Studies on Zakat Impact (3) Survey on 13 Districts throughout Indonesia and involve 2, 656 respondents of mustahik No CIBEST Index Value Before Programme Index Value After Programme Percentage Change 1 Welfare Index (W) 0. 63 0. 73 15. 87% 2 Material Poverty Index (Pm) 0. 27 0. 26 -3. 70% 3 Spiritual Poverty Index (Ps) 0. 04 0. 01 -75. 00% 4 Absolute Poverty Index (Pa) 0. 06 0. 00 -100. 00% Source: BAZNAS (2016) Notes: This is measured by using CIBEST Model

Challenges to Zakat as a Poverty Prevention Measure 1. Low awareness of the needs to pay zakat 2. Muzakkis’ continuing desire to have a direct connection with those to whom they are donating resulting in deep wariness with regard to channelling funds through zakat institutions 3. Expanding access to the unbanked segment of the population 4. Aligning zakat and the SDGs

Other Potential Instrument of Islamic Finance Islamic Microfinance: BMT Potential Islamic Financial Instrument to Achieve SDGs Waqf Sukuk

BMT Growth in Indonesia (2007 – 2014) BMT No Province Number of Poor 2007 2014 1 Sumatera Utara 4 2 401 274 2 Sumatera Utara 2 5 263 102 3 Sumatera Selatan 1 1 288 192 4 Lampung 1 4 285 191 5 Kep. Bangka Belitung 0 1 13 8 6 DKI Jakarta 3 3 318 144 7 Jawa Barat 19 19 1334 557 8 Jawa Tengah 21 27 1077 746 9 DI Yogyakarta 13 9 471 335 10 Jawa Timur 4 13 1321 719 11 Banten 1 3 245 133 12 Bali 1 3 297 133 13 Nusa Tenggara Barat 0 3 641 315 14 Kalimantan Selatan 7 8 315 171 15 Sulawesi Selatan 5 2 340 204 16 Sulawesi Barat 1 0 16 9 Source: Indonesia Family Life Survey (2017)

Waqf Potential • Waqf Land: - 4, 300 sq. km. - in 435, 768 locations, and - with a value of Rp 370 trillion (US$27 billion) based on Bank Indonesia identification • Cash Waqf: - Potential reaches Rp 120 trillion (US$ 8. 76 billion) per annum

The Role of UNDP Indonesia • Signing Mo. U and Mo. A with BAZNAS (The National Zakat Board of the Republic of Indonesia) pilot project in Jambi Province • Help zakat organizations target the communities and households in greatest need, identifying key vulnerabilities and how to overcome them • Support key potential innovation in optimizing zakat and other Islamic social finance instruments • Enhance sustainability of Islamic microfinance • Extending cooperation with the Indonesian Waqf Board to optimize waqf potential

Thank You Contact Person: 1. Dr Irfan Syauqi Beik (Director, BAZNAS Center of Strategic Studies) email: irfan. beik@puskasbaznas. com 2. Dr Mohamad Ikhsan Modjo (Technical Advisor of UNDP – Indonesia) email: mohamad. modjo@undp. org