Hajj Pilgrims Help Fund Indonesian Deficit
The Finance Ministry has sold Rp 3.34 trillion ($360.7 million) of Islamic bonds to the Ministry of Religious Affairs, tapping the latter ministry’s idle cash to finance the 2010 budget deficit. The Ministry of Religious Affairs committed in April last year to buying up to Rp 9 trillion of Islamic bonds, known as sukuk , issued by the government to make use of funds accumulated from prospective hajj pilgrims.
The sukuk has a tenure of 2 years with a coupon of 7.61 percent. Unlike other Islamic bonds, these will not be backed by underlying physical assets but will be secured against the government’s provision of services to pilgrims. The bonds will not be tradable. The ministry had already invested Rp 2.69 trillion in such notes. The cash came from the ministry’s endowment and hajj funds, which handle the mandatory advance payments of prospective pilgrims, who may have to wait up to three years before their turn to travel to Mecca.
Although there are 700,000 people on the hajj waiting list, Indonesia has a quota for only 200,000 pilgrims per year.
Prospective pilgrims have to pay $3,000 to secure a place. The Ministry of Religious Affairs manages at least Rp 15 trillion of endowment and hajj funds.
The ministry’s decision to invest in government sukuk was welcome. For years, investors have seen the funds managed in non-Islamic ways as it was put in conventional bank accounts. Now it can be managed in Islamic ways.
