[I received a call from Shakeeb Saqlain, CEO of IslamicBanker.com, back in October 2016, asking my permission to post a redacted version of my paper – Islamic ETF as a waqf asset – on the Islamic Banker website. The first part of the article was posted on 22 October 2016. Note: IslamicBanker.com changed to IslamicMarkets.com in April 2018.]
Waqif (the party who part with its asset) has created awqaf (plural of waqf) since the time of the Prophet (pbuh). They are considered as avenues for waqif to obtain continuing religious rewards as the awqaf assets are to be maintained in perpetuity to fulfill the needs of the beneficiaries as intended by the waqif.  Traditionally in the past, waqif was associated with the rich as only rich people could donate hard assets such as land and building. Although cash waqf had been approved in the 8th century, it was not until the 16th century that cash waqf gained its popularity. 
Editor’s Note: In this series of articles on IslamicBanker.com, Yoga Prakasa explores Islamic REITs as an investment asset for waqf management in Indonesia, with a particular focus on regulatory framework and shariah-compliancy.
In Indonesia, the Government has issued formal waqf regulation in 2004. Under Law 41/2004, waqf is no longer limited to hard assets. The Waqf Law allows money or cash to be donated as waqf assets.  As such, waqf is no longer limited to the rich since cash donation for waqf can be made by everyone, opening up the space for ordinary people to be waqif. Consequently, the power of crowd donation is made possible as a source of endowment funding.
Nevertheless, it was not until 2009 that more definitive regulations on the administration and management of cash waqf were issued. Even then, the pace of development for cash waqf asset management leaves a lot to be desired, especially in the capital market investment.
The capital market authority had issued regulations on REIT in 2007, and Indonesia’s first REIT has been listed on the Stock Exchange since August 2013. There has been no REIT issuance again to this day. As a part of the attempt to reinvigorate Indonesia’s investment climate against the backdrop of a slowing global economy, the Government of Indonesia under President Joko Widodo has issued a series of fiscal policies starting on 9 September 2015. The fifth policy (announced on 22 October 2015) targets the real estate and property sector, among others, with one, in particular, seeking to eliminate double taxation on REIT.  The Government intends to spur domestic REIT issuance and transfer foreign-issued REIT assets back to Indonesia.
On the other hand, Shariah capital market development has been relatively slow. Until the end of 2014, the market share (based on the amount size) of Sukuk and Shariah-compliant mutual funds was under 5% relative to total (conventional and Shariah) instruments outstanding.  While lack of awareness of the Shariah capital market has been a major hindrance, part of the slow growth was due to the limited supply of Shariah-compliant instruments themselves. OJK (Financial Services Authority) responded by issuing regulations in 2015 with incentives given to Shariah instruments issuance. Islamic REIT was not among those set in the new regulations.
Since its first issuance in 2012, REIT is still largely unknown in Indonesia despite the popularity of tangible property assets as society’s favorite form of investment.  Even with the lack of public awareness of REIT, this series of articles on IslamicBanker.com tries to introduce the potential issuance of domestic Islamic REIT, further stretch its potential as a waqf investment asset and also list its challenges and solutions for adoption by nazirs. The series draws upon Indonesian regulations in the waqf and capital market, particularly in REIT, Shariah capital market, and Collective Investment Scheme. Further references are also made to published papers to provide scholarly background and Shariah framework to the notion of Indonesian-domiciled Islamic REIT. The series postulates that although specific regulations and fatwas regarding Islamic REIT do not exist yet, the existing regulatory framework for REIT and waqf is sufficient for Islamic REIT creation and its inclusion as waqf investment assets.
Part 2 is to be published next week…
 Chowdhury, M.S.R., et al. (2011), “Economics of Cash Waqf Management in Malaysia: A proposed cash waqf model for practitioners and future researchers”, African Journal of Business Management, Vol. 5 No. 30, pp. 12155-12163.
 The implementing regulation, MOF Regulation 200/2015, allows for tax exemption on dividends received by REIT from SPC, effectively eliminating double taxation on REIT’s operation. Stamp duty for property transactions by REIT is not eliminated. The Ministry’s newly instituted 25% capital gain tax in lieu of existing 5% final income tax for property owners has received widespread objection as contradictory to the spirit of stimulating REIT issuance. The Government is reviewing this Regulation and plans to issue revisions on it.
 Bank Indonesia’s 4Q2015 survey on residential property reported the housing mortgage amount of IDR 337 trillion. On the assumption of a 57% banking product utilization rate based on the 2013 financial literacy survey conducted by OJK, it is assumed that a higher number of people surveyed utilized (invested in) mortgage relative to a 0.1% capital market product utilization rate. Single Investor Identification (SID) recorded on KSEI numbered only 434,107 as of October 2015, showing some 0.1% capital market investors out of the total Indonesian population of more than 237 million, and further confirming the assumption.