In this interview, we will be speaking to Dr Hurriyah El Islamy who is a member of the executive board in the Hajj fund 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 also as the Head of Professional Development in AAOIFI prior to which she served as 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, what she is currently working on, fintech and investing in Indonesia.
You can watch the full interview here:
Can you share more on your history and background before you came back to Indonesia?
My name is Dr Hurriyah El-Islamy and I’m a member of the executive board in the Hajj fund for the Republic of Indonesia which is worth $139.5 trillion rupiah 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 current 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) in Malaysia in 1994 and since then, I’ve been living overseas for 20 years — I did my masters in IIUM and my PhD at the University of Strathclyde in Glasgow. When 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 in UIA, the term “Islamic finance” had not been coined yet but I ended up in the field anyways because of my interest in two areas: cyber law and finance/commerce. Hence, for my masters and PhD, I had the elements of Shariah, common law, cyber law, business law and commerce. When I went to Bahrain from 2005-2007, I was invited to be the consultant on the area of cyber law so I drafted a number of the cyber-related laws for Bahrain then. 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 also associated with Clifford Chance back then. 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, etc. 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 the Islamic finance presence in Bahrain.
Since then, I have served Kuwait Finance House, Capinnova Investment Bank and CIMB Group and it has been amazing because I just happened to be in the right country when the right actions were happening. 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 in Malaysia leading the industry. I led/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 work and think and how 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 amongst them and the only female. It was quite a challenging transition and it still is at the moment for me because the culture is completely different to what I am used to. I was 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 in a more direct manner. It doesn’t matter how you express an opinion because it’s more about what the substance of what you are saying rather than its form thus, as long as the substance is right, it will be accepted. However, in Indonesia what I’ve learned is that no matter how correct the substance of what you are expressing might be if the manner in which it is communicated is wrong, you may not be able to convey the message effectively. They used to tease me saying “Oh we have to ‘javanize’ Dr Hurriyah” as in I have to be more like a Javanese with their politeness and manner of expressing themselves. In my opinion though, it is a good thing because I have to embrace my culture again since I am after all Indonesian.
Aside from that, what’s interesting is that I have learned a lot from the other members of the board as they have more experience than me and know how things work in Indonesia.
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 found. Is 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, maybe it’s by the will of God — everything else is the result of a concerted effort in Indonesia. The 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 needed to do more. 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. The KNEKS is headed by the President but the Vice-President is the person responsible for its daily operations.
That’s really good to know. Moving onto the Hajj fund, would you like to share a bit about it including the parts that you think are relevant to the global audience and how COVID-19 has affected plans?
Thank you so much for the opportunity to speak about this. I’ve been really looking forward to introducing what the Indonesian Hajj Management Agency is about to the world at large. 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 that we have and the quota on the number of Muslims in each country who can go to Hajj, there is a queue of 4.5 million people who would like 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 if they would like to go for Hajj. The registration fee is substantially higher than those charged by the Tabung Haji because, in Indonesia, this is proof of one’s financial ability. At the moment, it costs $25 million rupiah to secure a seat so this fee along with the number of people who are willing to pay has resulted in a fund that has $139.5 trillion rupiah.
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 which regulated the management of the fund but it was only in 2017 that the 14 people were appointed.
Since then, we have been working on the groundwork for the fund because there was nobody else except for us at that time so we were both the leaders and the workers. Also, being a civil law country, we needed to firstly establish fundamentals like laws, regulations, etc so when I was appointed, I was entrusted with the responsibility of looking after the legal and compliance areas of the fund. Recently in April, we established the laws and other fundamentals so now, we need to focus more on the function of the fund itself, which is to generate good, Shariah-compliant income for the Hujjaj (pilgrims) so as to provide better facilities for them as we subsidize them and give higher returns for those who are waiting. In April, we established a new department called the 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 in a responsible manner for the best interests of the Hujjaj (pilgrims) and since the subsidy/expenses is in USD and SAR, that means we have to do natural hedging. We have to invest in a way that provides natural hedging for the Hujjaj (pilgrims) and for the fund because irrespective of what happens to the rupiah and Indonesia — of course, I’m not saying that we don’t care — we are very concerned but we have to ensure that these Hujjaj (pilgrims) are able to go for Hajj whenever possible. We have to provide the funds, best facilities, services etc for them as they are the Duyuf Al-Rahman (guests of Allah). Thus, if we do not manage the fund properly and do not do hedging whether natural or otherwise, we might have a mismatch because with the 50% subsidy, if all of the investments are in Indonesia we might face a sustainability issue potentially. Whether the rupiah weakens or not, it should not be our primary issue because what is most important to us is to ensure that when the Hujjaj (pilgrims) go for Hajj, things are ready. This is why we have this new department of Foreign Investment and we are hoping that soon we will be able to invest in a hotel in Mecca or Medina so we can control the price because we will definitely need this as Hajj cannot be performed anywhere else after all.
Yes, definitely 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 it would have reached about 1 million per year if not for COVID-19. The thing is that when we talk about this fund and about infrastructure, it is as if people become allergic for the lack of a better word. They believed 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 with us, it is safe and we are looking for opportunities to invest in the services that the Hujjaj (pilgrims) require in the holy cities.
There are some netizens who are creating stories and spreading rumours?
Oh yes, at the moment there are. When it comes to the Hajj fund, it’s like everyone feels that it is theirs so there a lot of concern which is good. However, I just hope that people will be more responsible in the sense that 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 during this period 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 whether the pilgrims go as that is up to the government to decide but what we have faced for example, last year was higher subsidies instead of the usual 50% for pilgrims. This was because we improved the services given and the conversion rate from rupiah to USD was not really in our favour then. Luckily, the rupiah was performing better in the beginning of the year so we tried to save and to manage the risk in case there is a hike of SAR or the dollar what we will do is purchase some 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 is a good aspect to this decision as well for the PBKH. This is because as the subsidy has increased, more money is needed which means that it shrinks the size of the pool and the amount of money that we can pay to those who are waiting for their yearly profit. Now that Hajj has been cancelled, our operations have been majorly affected but we have already considered what we have to do in the event that Hajj is cancelled. There have been rumours 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, etc. We cannot simply do as we wish — there are constraints in place and parameters that we have to observe.
With regards to the portion of the fund that would have been part of the subsidies for this year’s cancelled Hajj, we will continue to invest it because we do not know whether next year there will be an increase in the quota 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’s a decrease in profit margins but there is the possibility that when the pilgrims go for Hajj next year, the price will increase due to the exchange rate, etc. This also 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 for next year’s pilgrimage and we will continue to invest it in order to generate higher returns. Besides, 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. Although I know you are doing it from Indonesia outwards, I’m sure you are also involved in Indonesia. Secondly, I’d like to touch on fintech and your views on it. 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 very few who went against the grain because initially people, especially in 1998, said that things like e-cash or e-checks were haram but I disagreed and actually wrote a book to prove that these were halal as well as Shariah-compliant. Hence, I would call myself as one of the pioneers in the promotion of the use of technology in Islamic finance. I’ve been telling people that technology actually makes transactions more Shariah-compliant and they are easier than the traditional transactions.
When it comes to fintech, Indonesia did not start too late with the regulation but they were slightly behind when it came to the adoption of the market itself so the market is slightly behind compared to the regulator.
I think you raised a good point with bringing up culture earlier because I think it comes with the culture as people here find it hard to believe or trust those who they have not met face-to-face with because for the majority of Indonesians, the online world is still something new. Actually, we should be grateful to this pandemic because due to COVID-19, those who previously did not believe that technology can help us with activities are now being forced to use technology. 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 especially for the sale of the mushaf, for the waqf of the mushaf, for the drilling of wells, etc. Also in the past, e-wallets, e-payments and online modes of payment in general were very limited but now there are so many options available that have appeared in less than 2 months so not everything that has happened with 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, there are certain areas that might be grey areas and should be subjected to analysis and discussions but otherwise, I believe because the Maqasid Al Shariah is actually being better served with the use of technology.
Fintech has been serving us very well and if you ask me, the prospect of fintech has 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 which Indonesia is to most of them. In my experience through observations, working and doing business in Indonesia for many years, I can see that Indonesia is very resilient. Whatever 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 from the fallout resulting from COVID-19?
Well, people had this hope that our 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.
With regards to your point earlier about the resilience of Indonesians, I completely agree with you. I consider us as survivors and after all, we were under occupation for 350 years so resilience is in us. The thing is you see with the right management coming in at the right time, many big companies have already had their success story. In Indonesia, you can find the brightest people with a hard-working work ethic and at a lower salary price then 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, there are areas that still have high demand despite the current pandemic and that demand is increasing. If they can actually pick the right area/field/industry to invest in, this is the right moment for them to come here and I would say 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.