Islamic Finance

Indonesia appointing 20 investment managers to run $1 bln of its haj fund

FILE PHOTO: Muslim haj pilgrims get on a plane to depart to Saudi Arabia at Sukarno Hatta airport in Jakarta on November 17, 2007. REUTERS/Dadang Tri

JAKARTA – Indonesia’s haj fund management agency (Badan Pengelola Keuangan Haji, BPKH) is selecting 20 investment managers to run 15 trillion Indonesian rupiah ($1.1 billion) of its haj fund that will be moved from Islamic bank deposits to capital market investments, Benny Witjaksono, a member of the agency’s executive board told Salaam Gateway.

The fund currently stands at 104 trillion Indonesian rupiah ($7.6 billion), around 65 percent of which is deposited in 23 Islamic banks. 15 trillion rupiah of this 67 trillion rupiah will be re-allocated into Shariah-compliant capital market instruments. They will then make up about 4.5 percent of total third party funds of the Islamic bank industry that stood at around 334.7 trillion rupiah at the end of 2017, according to data from the Financial Services Authority (Otoritas Jasa Keuangan, OJK).

“We will gradually move investments from deposits into capital market instruments,” said Witjaksono.

He added that some investment managers without prior experience in managing Shariah-compliant instruments are also in the race to be selected by BPKH.

“We will select 20 investment managers as our counterparties by conducting a series of tests including self-assessment, document submissions, etc. We will shortlist them, from the current 90 investment managers, according to their skills.

“We hope to get 20 names by the end of this month,” he said.

BPKH is working with OJK to select the investment managers.

According to Witjaksono, the plan follows government regulation on haj fund management (PP No.5/ 2018) that demands as much as 50 percent of the haj fund be channeled into Shariah-compliant banks, 20 percent to be placed as direct investments, 15 percent into capital market instruments such as equities, sukuk and mutual funds, and 15 percent into other investments including gold.

The fund’s allocation to capital market investments will increase gradually from 15 percent to a minimum of 35 percent by the end of 2021. Based on the agency’s strategic plan 2018-2022, this will reach around 47 trillion rupiah, or 35 percent of the total estimated 135 trillion rupiah fund in the year 2021.

“In the end, the ultimate goal is to give maximum capital gain for haj pilgrims,” said Witjaksono.

At the end of January, total net active Shariah-compliant capital market instruments reached 28.3 trillion rupiah, according to the OJK.

The BPKH started operating last year and is run independently of the government’s religious affairs ministry, which was previously responsible for the management of the fund. The agency was set up to increase transparency and profitability for Indonesia’s haj fund.    

($1 = 13,744 Indonesian rupiah)

(Reporting by Yosi Winosa; Editing by Emmy Abdul Alim

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