In this interview, we will be speaking to Dr Hurriyah El Islamy, a member of the Executive Board of the Hajj Fund Management Agency (BPKH) for the Republic of Indonesia. She was appointed by the President of Indonesia, Joko Widodo. Previously, she was a consultant for the President of the Central Informatics Organisation in Bahrain. She has also served as an IFN Advisory Board member, Shariah Board Member and Strategic Advisor of Islamic Fintech Alliance and the Head of Professional Development in AAOIFI before which she served as an AAOIFI Shariah Central Board Working Group member. Until recently, she was an IMF expert in Islamic Finance and a member of the Islamic Finance Advisory Council of the AIFC. The discussion will touch on her background, her current work, fintech and investing in Indonesia.
You can watch the full interview here:
Can you share more on your history and background?
My name is Dr Hurriyah El-Islamy and I’m a member of the Executive Board of the Hajj Fund Management Agency (BPKH) for the Republic of Indonesia which, is worth 139.5 trillion rupiahs or around $8-9 billion USD. We manage this fund to ensure that there is enough profit each year to subsidize Hajj for Indonesian pilgrims as half of the expenses are borne by us and to generate income for the 4.5 million people who are waiting for their turn to go for Hajj.
As soon as I graduated from the Islamic Boarding School in Jakarta, I applied to the International Islamic University (IIUM/UIA) in Malaysia in 1994 and since then, I’ve been living overseas for 20 years as I did my masters in IIUM and my PhD at the University of Strathclyde in Glasgow. While I was in Glasgow, I was requested to serve the government of Bahrain as the consultant of the President of the Central Informatics Organisation.
When I studied at UIA, the term “Islamic finance” had not been coined yet but, I ended up in the field because of my interest in two areas which were cyber law and finance/commerce. Hence, for my masters and Ph.D., I had the elements of Shariah, common law, cyber law, business law and commerce. When I was in Bahrain from 2005 to 2007, I was invited to be the consultant on cyber law so I drafted a number of the cyber-related laws for Bahrain. I was the person behind the scenes drafting most of the cyber laws in Bahrain and alhamdulillah, they entrusted me with such a huge responsibility. When I was serving the government, a consultant asked for my work to be referred to a legal firm in Bahrain — the best legal firm I would say because they were associated with Clifford Chance then — and the firm offered me the opportunity to join them which I accepted. During this time, Bahrain was opening up for Islamic finance so the Central Bank revamped laws, created new rules for Islamic finance and so forth. They established themselves as the Islamic finance hub for the Middle East and the Gulf Cooperation Council (GCC). Bahrain started doing this before the United Arab Emirates (UAE) and I was in the thick of it helping to set up Islamic banks and giving advice to big companies from elsewhere including those from the US who wanted to have a presence in Bahrain. Back then, everyone wanted to have a bit of an Islamic finance presence in Bahrain.
Since then, I have served Kuwait Finance House (Bahrain), Capinnova Investment Bank and CIMB Group. It has been amazing because I just happened to be in the right country at the right time. For instance, when things were developing rapidly in the GCC, I was there and in 2014, when the same was happening in Malaysia after the enactment of IFSA, I was there leading the industry. I guided several legal representatives of the banks in Malaysia to come up with a strategy on how they were going to ensure compliance with the new law.
I’m a Singaporean but I’ve lived in Indonesia before and am currently living in Malaysia. In general, I’ve noticed that there are some cultural differences between how Indonesians and others work and think. Was that a challenge for you?
Yes, indeed it was. It was a big challenge for me, especially since I had been away for 23 years. I came back to the country because the President of Indonesia, Joko Widodo issued a decree on the 7th of June 2017, appointing 14 people to manage the Hajj fund. I was one of these 14 people — the youngest and the only female. It was quite a challenging transition and it still is because the culture is completely different from what I am used to. I am used to the culture in the GCC because I was with CIMB group where it’s very open, competitive and people can express their opinion directly. It does not matter how you express an opinion because it is more about what you are saying rather than how you convey it. Thus, as long as the message is right, it will be accepted. However, in Indonesia what I’ve learned is that even if what you are saying is right, if you communicate the message wrongly, the message may not be conveyed effectively. They used to tease me saying “Oh we have to ‘javanize’ Dr Hurriyah” implying that I have to be more like a Javanese in terms of politeness and manner of expression. However, in my opinion, this is a good thing because I have to embrace my culture again since I am an Indonesian after all.
Aside from that, what is interesting is that I have learned a lot from the other members of the board as they have more experience and know how things work in Indonesia.
Recently, I have noticed that recently Indonesia has had more presence in Islamic finance globally. For example, during webinars or events, the logo of Indonesia’s National Sharia Economy and Finance Committee (KNEKS) that was formerly known as the National Islamic Finance Committee (KNKS) can be seen. Was this something that resulted from a conscious effort or was it accidental?
Well, except for my position at the moment — which I don’t know may have been by the will of God — everything else is the result of a concerted effort in Indonesia. KNEKS was formed due to the political will and push from many stakeholders who believed that Indonesia as the country with the largest Muslim population had to do more. Also, KNEKS was not recently formed, it was around even before I came back to Indonesia but it was improved in 2017 or 2018 if I’m not mistaken. At the end of last year, when the new Vice-President, Pak Ma’ruf Amin was appointed, he became the person in charge of the KNEKS’s daily operations so KNEKS is headed by the President but the Vice-President is the person responsible for its daily operations.
That’s good to know. Moving onto the Hajj fund, would you like to share a bit about it and how COVID-19 has affected plans?
Thank you so much for the opportunity to speak about this. I’ve been looking forward to introducing the Indonesian Hajj Fund Management Agency (BPKH) to the world. The reason is that we have met several representatives from other countries who have expressed their interest in doing something similar.
In Indonesia, due to the large number of Muslims and the quota on the number of Muslims in each country who can go for Hajj, there is a queue of 4.5 million people who are waiting to go for Hajj and in some parts of Indonesia, the waiting period can be as long as 38 years. Due to this reason and to ensure that only those who have the financial means go, the system is such that people need to pay to secure a seat. The registration fee is substantially higher than those charged by Tabung Haji because in Indonesia, this is proof of one’s financial ability. At the moment, it costs 25 million rupiahs to secure a seat so this fee along with the number of people who are willing to pay has resulted in a fund that is worth 139.5 trillion rupiahs.
In the past, the fund was managed by the Ministry of Religious Affairs but the Ministry has its own priorities and they also have to look into the organization of the Hajj itself in Saudi Arabia thus, they needed professionals to focus on the management of the fund. This was why they issued a law in 2014 to regulate the management of the fund but it was only in 2017 that the 14 people (the board members) were appointed.
Since then, we have been working on the groundwork for the fund because back then, there was nobody else except for us so we were both the leaders and workers. Also, being a civil law country, we needed to first establish fundamentals like laws, regulations and so forth so when I was appointed, I was entrusted with the responsibility of looking after the legal and compliance side of the fund. Recently in April, we established laws and other fundamentals so now, we need to focus more on the function of the fund itself, which is generating good, Shariah-compliant income for the Hujjaj (pilgrims) to provide better facilities for them as we subsidize them (the costs of Hajj) and give higher returns for those who are waiting. In April, we established a new department called Foreign Investment and International Relations which I have been entrusted to lead and I would like to take this opportunity to call upon those who would like to collaborate with us. We believe that we have to invest responsibly in the best interests of the Hujjaj (pilgrims) and since the subsidies/expenses are in USD and SAR, we have to do natural hedging. We have to invest in a way that provides natural hedging for the Hujjaj (pilgrims) and fund irrespective of what happens to the rupiah and Indonesia. Of course, I’m not saying that we don’t care as we are very concerned but we have to ensure that these Hujjaj (pilgrims) can go for Hajj whenever it is possible. We have to provide the funds, facilities, services and so forth for them as they are the Doyof Al-Rahman (guests of the Lord of Mercy). Thus, if we do not manage the fund properly and do not do hedging — whether natural or otherwise — we might have an issue because with the 50% subsidy, if all of the investments are in Indonesia we could potentially face a sustainability issue. Whether the rupiah weakens or not, it should not be our primary concern because what is most important to us is ensuring that when the Hujjaj (pilgrims) go for Hajj, everything is ready. This is why we have the new department and we are hoping that soon we will be able to invest in a hotel in Mecca or Medina so we can control prices because we will definitely need this as Hajj cannot be performed anywhere else.
Yes, I understand that there is a need for diversification as part of a hedging strategy for the currency and investing in infrastructure facilities in Mecca and Medina as you’ve mentioned. How many Indonesians go for Hajj every year and how many go for Umrah?
In total, it is about 230,000 yearly. For Umrah, it was estimated that the number would have reached about 1 million per year if not for COVID-19. The thing is that when we talk about this fund and infrastructure, it is as if people become allergic to it for the lack of a better phrase. They believe that the Hajj fund was created to support the government’s agenda which is not true. The fund is meant to serve the Hujjaj (pilgrims) so when I’m asked if I want to invest in infrastructure, I will say yes but in Mecca and Medina to serve the Hujjaj (pilgrims) unlike what the viral online hoax has been claiming. The truth is that the funds are safe with us and we are looking for opportunities to invest in the services that the Hujjaj (pilgrims) require in the holy cities.
Are there some netizens who are creating stories and spreading rumours?
Oh yes, at the moment there are. When it comes to the Hajj fund, everyone feels that it is theirs so there is a lot of concern which is a good thing. However, I just hope that people will be more responsible meaning if they hear or read something on the news, they will try to seek clarification from the source rather than base their beliefs on viral information that may not represent the truth.
Due to COVID-19, there is no travel, Hajj or Umrah. I’m sure that has affected a lot of the plans and maybe even the financials of the Hajj fund but how do you counter it or is it something that you just have to wait out?
Of course, we do not wish for the cancellation of Hajj but it is not within our jurisdiction to determine that as that decision is up to the government. However, what we have done, for example, last year was give higher subsidies to the pilgrims instead of the usual 50%. This was because the conversion rate from rupiah to USD was not really in our favour then and we had improved the services given.
Luckily, the rupiah was performing better at the beginning of this year so we are trying to save and in order to manage the risk in case there is a hike of SAR or the dollar, we will do purchase a certain amount of dollars as a reserve. As mentioned earlier, it was decided recently that Indonesia will not allow their pilgrims to perform Hajj this year but there are some positives to this decision as well for the BPKH. This is because as the subsidy has increased, more money is needed which means that it shrinks the size of the pool (the fund) and the amount of money that we can pay to those who are waiting for their yearly profit. Now that Hajj has been canceled, our operations have been majorly affected but before this, we had already considered what to do in this case. There have been rumors stating that we will use the funds to support a government agenda but that is not true. At the end of the day, there are laws and regulations on how we manage the fund, invest it and so forth. We cannot simply do as we wish — there are constraints in place and parameters that we have to observe. So going back to our plans regarding the portion of the fund that would have been part of this year’s subsidies, we will continue to invest it because we do not know whether next year there will be an increase in the quota of people allowed to go for Hajj and thus, an increase of subsidies. We will need to prepare for such a scenario because we cannot say that we do not have the money should the scenario arise.
Meanwhile, the current market condition globally is not performing well. There has been a decrease in profit margins and there is the possibility that when the pilgrims go for Hajj next year, prices will increase due to the exchange rate. This means that the subsidy might have to go beyond 50% again. Thus, the portion of funds that would have gone to this year’s subsidy will be kept safe and we will continue to invest it in order to generate higher returns for next year’s pilgrimage. Additionally, we are planning to ensure that those Hujjaj (pilgrims) who could not go this year and the Hujjaj (pilgrims) who are waiting will receive higher profit margins.
Is there anything else you’d like to share about the Hajj fund? I would like to touch on Indonesia itself as a country and destination for investments. Secondly, could you share your views on fintech? Do you think it is something that can and will have a significant impact on Islamic finance and the world?
I would consider myself among the few who went against the grain because initially people —especially in 1998 — thought that e-cash or e-checks were haram but I disagreed and wrote a book to prove that they were halal as well as Shariah-compliant. Hence, I would consider myself as one of the pioneers in the promotion of technology usage in Islamic finance as I’ve been telling people that technology makes transactions more Shariah-compliant and easier.
When it comes to fintech, Indonesia did not join in too late in terms of regulation but they were slightly behind when it came to the adoption of the market itself so the market is slightly behind.
This is something that I think comes with the culture as people here find it hard to believe or trust those whom they have not met met/seen in person because for the majority of Indonesians, the online world is still something new. Actually, we should be grateful for this pandemic because now, those who previously did not believe that technology can help us are now being forced to use it. They have no other option since they have to stay at home, work from home, do transactions from home so everything is done online. You’ll be surprised at the number of generous people in Indonesia who give zakat every day. Previously, it was very easy for these people to do so along their way to work for example but now that they have to stay at home, they have to have an alternative. I was quite surprised to know that there are many alternatives offered online for these people through commonly used social media platforms. I do not know whether this is legal and proper but people have resorted to crowdfunding for everything including the drilling of wells and so forth. Also in the past, e-wallets and online modes of payment, in general, were very limited in terms of options but now there are so many that have appeared within the past 2 months so not everything that has happened recently is bad.
As I mentioned before, I am one of those who truly believe that transactions become more Shariah-compliant through the use of technology. Of course, certain areas might be grey areas and should be subjected to analysis and discussions but otherwise, I believe that the Maqasid Al Shariah is being served better through the use of technology.
Fintech has been serving us very well and if you ask me, the prospects of fintech have become very positive in Indonesia.
See Also: Islamic Fintech in Indonesia
Right now at Ethis, we see that a lot of the bigger investors are becoming more aggressive and open to investing in new destinations including Indonesia. Through my experience, I can see that Indonesia is very resilient: no matter what happens, Indonesia and Indonesians seem to bounce back as if nothing happened. In light of the crisis, how do you see things panning out over the next few months?
Well, people had this hope that the curve would be V-shaped but with what has been happening and the way things are being handled, people now believe that it will be a U-shaped curve. However, I believe that in every challenge, there are opportunities to be found. For those who would like to invest in Indonesia, this is the time for you to do so because you will get deals at good prices.
I completely agree with you on your earlier point about the resilience of Indonesians. I consider us as survivors and after all, we were under occupation for 350 years so resilience is within us. In Indonesia, you can find the brightest people with a hard-working work ethic and at a lower salary price than you would have to pay somewhere else.
Things are still relatively cheap and are getting increasingly cheaper due to the pandemic. Hence, if people are thinking of investing, certain areas are still in high demand despite the current pandemic and that demand is increasing so if investors can pick the right area/field/industry, then this is the right moment for them. I would also argue that you cannot get it wrong when you invest in Indonesia because you do not have to worry about the market. After all, we have a population of 250 million people so even if you get just 1% of the market share, that is more than enough for you to make a good margin from your investments.