Indonesia, the world’s largest Muslim nation with tech-savvy young population, is in the pursuit to combine Islamic finance with digital technology. Photo credit: Fieni Aprilia/UNDP Indonesia


By 2020, the global size of Islamic finance is projected to reach a whopping level of US$3 trillion, coincidentally equaling the size of the global annual gap in Sustainable Development Goals (SDGs) financing. To tap in the massive potential and capitalize on the innate strength of the Islamic finance for sustainable development there needs to be a next generation of digital technology that could accelerate development impact.

In seeking the solution, blockchain stands a chance to deliver such impacts. When we talk about blockchain, the first things that come to mind are bitcoin and cryptocurrency, nonetheless this new form of technology can offer much more than just online financial transactions. With its emphasis on accountability and transparency, blockchain shares surprising commonalities with Islamic finance which also champions accountability.

One form of Islamic finance that is currently under-harnessed for SDGs and can be benefited from blockchain is the multi-billion Waqf sector.

Waqf is a form of Islamic charitable giving that generally involves donating a plot of land, building, or assets for religious or social purposes, such as hospital, school, and even farming. Waqf can also be used for economic growth and income generation. In Indonesia, the potential value of waqf is massive. Around 4,300 sq. km — or five times the size of city state Singapore — classified as Waqf land with the economic value of US$27 billion. At the same time, cash waqf in Indonesia is projected to reach US$12 billion per year.

Indonesia, being the world’s largest Muslim nation with tech-savvy young population, is constantly in the pursuit to combine Islamic finance with disruptive digital technology. Through our Innovative Financing Lab, UNDP has been working in partnership Badan Wakaf Indonesia, the Indonesian Waqf board, to establish, a Waqf crowdfunding website which aims to target projects that are in line with human and economic development spirit in Indonesia. The platform will operate on blockchain technology with support from IslamiChain. Information on money collected through the platform will be stored in digital asset. The digital asset can be traced to source of contribution (such as if a person makes Waqf contribution, they can trace that asset to the level of resources distributed).

To understand how digital Waqf works, we need to first look at the core principles of blockchain. Firstly, blockchain allows immutable data to be distributed in a secure, accurate, incorruptible and transparent way. Since it does not have a central authority, its peer to peer transactions eliminate the middle man, thus improving accountability and efficiency.

Secondly, with open-decentralized system and digital ledgers, blockchain is a valuable tool for financing, governance, identification, recording, and services. This technology can protect money for social development purposes and help it being distributed as it should be. Thus, greater public trust is gained through greater transparency. In the context of Indonesia and other countries in Asia and the Pacific, blockchain technology can be utilized for development, financial inclusion, land registry, supply chain management and such.

Cash Waqf has a relatively broad appeal. It has supported small and medium-sized enterprises and generate revenue through revolving investment mechanisms; nonetheless it cannot be considered an adequate social impact financing tool.

History proves that waqf has a versatile role in human and social development. According to Yedilyidiz, during the Ottoman period, a person could be born in a house belonging to waqf, live off that that waqf, receive instruction through waqf-owned books, become a teacher in a waqf school, draw a waqf-financed salary, and at his death, be place in a waqf-provided coffin for burial in a waqf cemetery. Given this historical evidence, Badan Wakaf Indonesia has collaborated with various parties in managing waqf land productively. Among these are uses for plantations, livestock, hospitals, and mining.

The question is why is the role of waqf insignificant in economy nowadays?

Despite Waqf’s tremendous potential, numerous challenges remain. These include low awareness of the need to pay waqf given its voluntary nature and widespread public skepticism to channel their waqf through formal institution like Badan Wakaf Indonesia. The actual cash waqf collection in 2018 was only 0.2% (US$28 million) out of its total potential in billions.

Hence, it is important to convince people that giving through formal organizations with long-term spending horizon and professional management will result in more substantial impacts than giving via informal network with short-term preference and interpersonal approach. Greater trust, transparent governance, and ability to demonstrate impact are critical for such social funds to realize the ambition of reaching full potentials. Equally critical is the overarching need for enhanced performance of the Islamic social finance institutions. Thus, addressing all these issues can build a more sustainable national ziswaf system — or an integrated platform for Zakat, Waqf and other Islamic charity forms Sadaqah and Infaq — and support the achievement of SDGs.

Disruptive and faster, the business model of digital Waqf is fully in adequation with the innovative spirit of UNDP. As stated by UNDP Administrator Achim Steiner, in his annual address to the top management, “Next generation UNDP is already here, disrupting — or pushing the boundaries — in the way we think, deliver, invest and manage to perform better and faster at scale.”  The business model of digital Waqf is an example of a new way of thinking to deliver a more effective and transparent platform for sustainable development and deliver benefits to millions of Indonesian citizens.

Greget Kalla Buana is an Islamic finance specialist with the United Nations Development Program and Niall Dennehy is the co-founder of IslamiChain. They can be contacted at and, respectively.

This article was first published in Islamic Finance news Volume 16 Issue 25 dated the 26th June 2019.


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