Liability-based waqf bank in Indonesia : a feasibility study to strengthen Indonesia Islamic bank's role as social and commercial institution

Abstract

Islamic banking has been in existence for more than four decades, but continuous criticism from scholar’s points to many Islamic financial institutions becoming more and more like conventional banking institutions, focusing on profit maximization instead of risk-sharing, social justice and equitable distribution of wealth. The global trend toward universal banking and financialization has affected this phenomenon and it has weakened redistributive and ethical mission of Islamic finance. In order to correct this structural imbalance, this study suggests a liability-based waqf bank as an alternative institutional structure where the capital base, equity base and funding base are built using waqf funds, thereby eliminating the problem of conflict of interest between the shareholders as well as the risk of financial market speculation. The study aims to provide a preliminary feasibility exploration of the establishment of a waqf bank in Indonesia with four main objectives: (1) Financial sustainability and stability of waqf bank; (2) Mapping and analysis of existing laws and regulations related to the potential for establishing a waqf bank in Indonesia; (3) Demand of Waqf Bank; (4) assessment of the strategic feasibility of establishing a waqf bank by applying the multi-criteria decision-making method. A mixed methods approach is used, including a Scoping Review Framework (SRF) to map regulations, an Analytic Network Process with Benefits, Opportunities, Costs and Risks (ANP-BOCR) framework. Financial analysis of Vakif Katilim Bank indicates waqf bank sustainability and stability are possible despite its charitable-linked ownership. The study identifies a three-dimensional regulatory gap: the religious ruling gap where existing fatwas permit the use of cash waqf but silent for bank capitalisation, waqf law gap where UU No. 41/2004 designates banks as the intermediaries rather than nazir (waqf managers), and banking law gap where neither UU No. 21/2008 nor P2SK Omnibus Law (UU No. 4/2023) mentions waqf as a source of bank capitalisation). The ANP-BOCR analysis shows that the strategic feasibility of a waqf bank is mostly benefit-oriented, with the Benefit dimension having the highest geometric mean weight (0.4000), followed by the Opportunity (0.2000) and the Cost (0.2000) and the Risk (0.2000). Benefit dimension as the highest indicate expert’s desirability of waqf bank establishment. The Regulation and Legal Framework criterion consistently proved to be the key strategic enabler across all BOCR dimensions, confirming the pivotal importance of the regulatory gap highlighted in the legal mapping. The initial capital requirements and technology infrastructure investments were found to be the most critical cost barriers, while the regulatory uncertainty, governance and mismanagement risk, awareness among the public, and financial sustainability concerns were identified as equally critical risk factors.