Municipal bond : An alternative to Boosting Infrastructure

Municipal bond : An alternative to Boosting Infrastructure Muhammad Shodiq  ;  The Sharia and Microfinance Academy head of Bank CIMB Niaga

JAKARTA POST,  02 Desember 2014

                                                                                                                       

Based on the survey conducted by the Geneva-based business group, World Economic Forum (WEF), Indonesia climbed four places this year to 34th out of the 144 countries surveyed for the WEF’s global competitiveness index measuring improved ease of doing business. The 2014-2015 report attributed Indonesia’s progress primarily to enhanced infrastructure and connectivity along with the issue of corruption, access to financing, inflation and inefficient government bureaucracy, which were considered the top five hurdles to doing business in Indonesia. Based on the report, Indonesia has a lot of problems in infrastructure such as on the institutional problems undermining delivery of infrastructure services, expenditure and efficiency, urbanization pressure and lack of financing. First, institutional problems, just one example in the case of roads, most roads are designed to fail, with only an 8-ton axle limit, which should be at least 16 tons. Coupled with widespread overloading and poor maintenance, roads are only lasting less than eight years, often only two to four years, instead of 12-20 years. Second, expenditure and efficiency, the increasing budget commitment does not necessarily translate into improved infrastructure outcomes. Consider national highways, while the budget over the past 10 years has risen significantly, the actual output has stagnated or fallen over that period and the cost per unit of output has risen dramatically. The efficiency of translating funding into output has thus seriously declined. Third, urbanization pressure. Most major airports are running at 200-300 percent capacity. Road speeds between cities, typically as low as 30-40 kilometers per hour are 100-200 percent below capacity. Fourth, lack of financing; President Joko “Jokowi’ Widodo has raised subsidized fuel prices by an average of 33.6 percent as he seeks to shift subsidy spending to more productive sectors. By raising the subsidized fuel prices and slashing fuel subsidy spending, the government will now have over Rp 100 trillion (US$8.3 billion) in additional funding in its war chest that can be spent on infrastructure, welfare and development of the nation’s maritime sector This article will only focus on how to maximize municipal bonds as an alternative source of funding in order to boost infrastructure development. By definition, municipal bonds are municipal securities issued by local governments and by entities that they establish. Local governments include provincial governments, cities and regencies. Municipal securities are issued for various purposes. Municipalities issue long-term bonds as the principal means of financing projects such as the construction of schools, universities, bridges, hospitals, roads and airports and also budget deficits that arise from current operations. We recognize two types of municipal bond. First, conventional bonds. The number of conventional bond issuers is remarkable, the Bloomberg Financial Markets database contains 55,000 active issuers. Second, Islamic municipal bonds, there are at least two issuers of Islamic municipal bonds, sukuk, which are Saxony Anhalt Municipal Sukuk in Germany and Sukuk Pasir Gudang in Johor Malaysia. The distinguishing feature between conventional bonds and sukuk is that a conventional bond is a contractual obligation whereby the issuer is obliged to pay to bond holders, on certain specified dates, interest and principal. In comparison, under a sukuk structure the sukuk holders each hold an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to share in the revenues generated by the sukuk assets as well as being entitled to share in the proceeds of the realization of the underlying assets. Sukuk can be issued on a short-term, medium-term or long-term basis in accordance with the principles of sharia. The sukuk may also be issued without specifying a period depending upon the nature of the contract underlying the sukuk issue. The legal basis of Indonesian municipal bonds is in Law No.8/1995 on capital markets, Law No.32/2004 on local government, Law No.33/2004 on the financial budgets of central and local governments and Law No.19/2008 on Islamic bonds. However, there are still a lot challenges to encourage local governments to utilize municipal bonds as a means to boost infrastructure development. There are at least three challenges. First, the availability and capability of the human resources of local government to meet the basic standards in issuing the bonds. Second, the attractiveness of the local bond in raising funds from investors. Third, the incentives scheme to successfully implement the initiatives. ●

Dual banking leverage model Muhammad Shodiq; The sharia and microfinance academy head of Bank CIMB Niaga

JAKARTA POST, 17 November 2014

                                                                                                                       

Indonesia’s banking sector is characterized by a growing economy, with a population of 250 million, increasing per capita income (US$3,500), high financing margins and low banking penetration (loan to gross domestic product [GDP] ratio of 26 percent). Islamic commercial banks had Rp 250 trillion ($21 billion) in assets in June 2014, expected to grow to $100 billion plus by 2018 at a four-year compound annual growth rate of 37 percent. Islamic bonds had $15.48 billion in June in 2014 (government bonds $14.9 billion and corporate bonds $0.58 billion). Total Islamic commercial and investment bank assets amounted to $36.48 billion in June 2014. The Dual Banking Leverage Model (DBLM) is a business model that was first introduced by CIMB Group in 2005. The Islamic division of a financial institution leverages on and operates parallel to its conventional platform. Some sharia units act as the Islamic banking window of conventional commercial banks. There are at least three benefits for banks that apply this model.  First, it allows the sharia unit to utilize the full resources and infrastructure of the conventional bank without raising additional unnecessary costs, through engagement and economies of scale. Second, it fosters close cooperation between relevant departments, emphasizing synergy and integration throughout the bank. As a result, the potential effects of diseconomies of scale are minimized. Third, this model provides bank customers with the convenience of enjoying both Islamic and conventional banking offerings at all branches. The implementation of the DBLM, which has a meaningful role in boosting the performance of sharia bank units, requires well-defined strategies that focus on three main areas, building awareness among both employees and customers, ensuring sharia compliance fulfillment and internal coordination across functions related to key performance indicators (KPI), products offered and the process.  The first task is to identify the nature of the Islamic banking system and products that are appropriate for and easily understood by customers. There needs to be an exploration of strategies that make sure all employees understand basic sharia principles, the products offered and ways to sell them. The second task is putting in place the comprehensive sharia compliance framework, especially for the conventional branches offering Islamic banking products. With support of the distribution network, as well as a reliable electronic channel owned by the conventional bank, the sharia unit has the power to penetrate larger markets compared to other Islamic banks, even to conventional banks. An existing customer base can be developed to use the facilities of sharia, while meeting the needs of major clients in transactional banking. In this way, customers can try out Islamic banking gradually. To achieve the expected target, the establishment of appropriate KPIs is required. KPIs are determined through a clear target and consistency with a timetable. ●

Next generation of microfinance : Leveraging Indonesian experience

Next generation of microfinance : Leveraging Indonesian experience Muhammad Shodiq  ;   The head of the Sahabat Financial Institute and the group head of human capital development at the Sampoerna Financial Group, Jakarta

JAKARTA POST, 11 September 2014

                                                                                                                       

                                                      

The history of microfinance institutions in Indonesia dates back more than 100 years. The primary reason for their initial establishment was to combat extortionate lending practices in rural areas and to impose tight restrictions on money lenders. The first rural bank in Indonesia was the Hulp-en Spaar Bank der Indlandsche Bestuurs Ambtenaren or Bank for Civil Servants, founded by R. Bei Aria Wiraadmadja in 1895. The bank then expanded its operations to farmers and other local residents and offered saving facilities at fair interest rates. Many “paddy banks” or Lumbung Desa institutions were also established to provide savings and loans facilities for rice farmers. During the colonial period, the Lumbung Desa, Bank Desa, farmer banks, market banks and village trade credit institutions became the pioneers of microfinance in Indonesia and the forerunners of today’s rural banks. In the 1970s, microfinance institutions became established throughout the country under government sponsorship for Village Fund and Credit Institutions (LDKP). In 1992, the government enacted a new Banking Law that extended formal recognition to rural banks as distinct from commercial banks. This law also allowed a transition period for LDKP to transform themselves into rural banks by fulfilling the specific requirements applicable to rural banks. The relationship between lenders and borrowers is characterized by the asymmetry of information. There are two main problems: Adverse selection and moral risk. The first involves the creditor’s lack of knowledge in relation to the type of borrower; that is, the lender does not know how risk-inclined the borrower is, or how honest, how responsible, etc. On the other hand, moral risk involves the lender’s lack of information regarding the type of action the borrower can have. In this particular case, it is in relation to what the borrower will do with the loan and what type of investment he or she will choose. Stiglitz and Weiss (1979) describe how the rationing of credit occurs in equilibrium. According to them, the bank’s return does not always grow with the interest rate increase, since after a certain point of increase in the rates, there is a reduction in the average quality of borrowers. This leads to the attraction of less honest and less well-intentioned borrowers, or simply those with more risk and who are more inclined to perform riskier investments, therefore reducing the compliance rate, due to a simultaneous problem of adverse selection and moral risk. There is an optimal interest rate, which therefore brings maximum return to the banks, and if there are more credit buyers than suppliers for the interest rate, there will be credit rationing. That is, many agents will not have access to credit even though they are willing to pay a higher interest rate. Microfinance providers in Indonesia are currently divided into formal and informal sectors. In the formal sectors, at least 15 out of 120 commercial banks run special divisions of microfinance, and in addition there are, 1,667 rural banks, 155 Islamic rural banks, 600,000 microfinance institutions and cooperatives, 5,500 Islamic microfinance institutions and more than 500 zakat (alms) fund institutions. The players in the vast informal microfinance sector range from various NGOs, community self-help groups (PHBK), money lenders, informal savings and loans groups and informal cooperatives. The number of informal entities in operation possibly exceeds 40 million, spurred by economic growth in rural areas that has led to a significant increase in small and medium enterprises (SMEs). Indonesian commercial banks have become a success story in terms of micro-lending by commercial banks. The most important players among microfinance institutions in Indonesia are the commercial banks and the rural banks. These are regarded as representing the best Indonesian experience in the development of microfinance institutions. Below are major players in microfinance in Indonesia: Commercial banks’ achievements demonstrate that financial services to micro-entrepreneurs can generate a commercially competitive rate of return and achieve the strategic goals of commercial banks. The key success factors of Indonesian commercial banks in microfinance are: loans based on the needs and repayment capacity of the borrowers; retention of good borrowers and use of debtor performance as a key consideration in subsequent borrowings; provision of simple and professional services to customers; close supervision of loan performance by assigning special supervisors; simple administrative procedures; and efficient organizational structure with limits on staff numbers to keep overhead costs low. While rural banks are part of the banking system, they operate under specific limitations. Rural banks are only permitted to accept savings and provide loans. Despite these limitations, rural banks have the advantage of their location in rural and urban areas, which affords close proximity to their specific market segments. They are able to identify potential clients and maintain relationships with depositors as well as debtor customers. ●

Wacana Penghapusan Pekerja Alih Daya Muhammad Shodiq  ;   Human Capital Development Sampoerna Financial Group

KOMPAS,  03 Januari 2014

                                                                                                                        

DEMO buruh 31 Oktober-1 November 2013 mengusung tiga tuntutan besar. Pertama, menaikkan upah minimum provinsi 50 persen. Kedua, penghapusan sistem kerja alih daya (outsourcing). Ketiga, pelaksanaan jaminan kesehatan secara langsung tanpa tahapan. Tulisan ini hanya akan membahas perihal usulan penghapusan sistem alih daya. Apakah hal ini dimungkinkan untuk dihapuskan? Apakah permasalahannya serta bagaimana solusinya? Kontroversial alih daya Konsep sistem alih daya pertama kali diperkenalkan pada tahun 1990 oleh CK Prahalad dan Gary Hamel melalui sebuah artikel berjudul ”The Core Competences of the Corporations”. Disebutkan bahwa dalam persaingan bisnis global saat ini, agar bisa bertahan hidup serta sukses dalam jangka panjang setiap perusahaan harus memiliki keunggulan kompetitif dalam menjalankan bisnisnya. Di antaranya dengan cara penerapan konsep pekerja alih daya. Secara sederhana, alih daya artinya menyerahkan pekerjaan yang bukan pekerjaan pokok perusahaan tersebut kepada pihak di luar perusahaan. Diharapkan perusahaan hanya fokus pada pekerjaan pokoknya sehingga dapat mengurangi biaya perusahaan secara keseluruhan. Dalam Undang-Undang Nomor 13 Tahun 2003 Pasal 64 disebutkan, ”Perusahaan dapat menyerahkan sebagian pelaksanaan pekerjaan kepada perusahaan lainnya melalui perjanjian pemborongan pekerjaan atau penyediaan jasa pekerja/buruh yang dibuat secara tertulis”. Peraturan Menteri Tenaga Kerja dan Transmigrasi Nomor 19 Tahun 2012 tentang Syarat-syarat Penyerahan Sebagian Pelaksanaan Pekerjaan Kepada Perusahaan Lain, antara lain dalam Pasal 2 disebutkan, ”Penyerahan sebagian pelaksanaan pekerjaan kepada perusahaan lain dapat dilakukan melalui perjanjian pemborongan pekerjaan atau perjanjian penyediaan jasa pekerja/buruh”.  Butir-butir ketentuan inilah yang dijadikan landasan legalitas bagi perusahaan di Indonesia dalam menerapkan sistem alih daya. Pelaksanaan sistem alih daya menuai kontroversi dikarenakan kurang berperannya sistem kontrol pihak Kemenakertrans dalam pelaksanaan amanat UU dan peraturan menteri di atas. Tuntutan buruh bahwa sistem alih daya harus dihapuskan jelas bukan merupakan solusi yang tepat. Hal ini mengingat sistem alih daya merupakan sebuah keniscayaan yang dibutuhkan agar perusahaan tetap dapat beroperasi secara efisien dan menguntungkan, yang pada akhirnya juga menguntungkan semua pihak, termasuk buruh, pemerintah, maupun masyarakat secara keseluruhan. Namun, apakah pelaksanaan sistem alih daya yang dijalankan perusahaan telah mengikuti ketentuan yang berlaku, sebagaimana yang disampaikan para demonstran buruh tersebut, harus dilakukan klarifikasi dan dilakukan pengecekan oleh instansi ketenagakerjaan, baik di tingkat kabupaten/kota maupun provinsi, bahkan di pusat.  Ada dua hal pokok yang berpotensi menjadi penyebab masalah sistem alih daya ini. Pertama, perihal definisi kegiatan utama dan kegiatan penunjang perusahaan. Kedua, perihal konsistensi pemberian perlindungan kerja dan syarat-syarat kerja bagi pekerja alih daya. Berdasarkan UU Nomor 13 Tahun 2003 Pasal 65 bahwa kegiatan yang dapat dikerjakan secara alih daya antara lain adalah bukan kegiatan utama, bukan kegiatan penunjang perusahaan. Pasal ini merupakan pasal karet yang dapat dijadikan justifikasi oleh perusahaan dalam mendefinisikan kegiatan utama dan kegiatan penunjang. Sepanjang perusahaan dapat menjelaskan bisnis modelnya perihal definisi kegiatan perusahaan, maka perusahaan telah mengikuti UU dan Permenakertrans tersebut. Namun pertanyaannya adalah siapa yang berhak menghakimi bahwa definisi sebuah perusahaan A telah sesuai dan perusahaan B belum sesuai? Hal ini adalah yang paling sulit karena ini adalah judgment masing-masing perusahaan. Berdasarkan Pasal 4 Permenakertrans No 19 Tahun 2012, masalah alur proses serta definisi kegiatan perusahaan tersebut diserahkan kepada asosiasi industri masing-masing. Pertanyaan berikutnya adalah apakah Kemenakertrans telah mendapatkan alur proses dan definisi dari setiap asosiasi serta telah melakukan pengontrolan di lapangan? Aspek ini juga merupakan hal yang harus dijelaskan kepada publik oleh pihak Kemenakertrans. Konsistensi perlindungan Sepanjang perusahaan telah memberikan perlindungan kerja dan syarat-syarat kerja sesuai undang-undang, maka tidak ada alasan untuk menuntut penghapusan sistem alih daya. Namun jika yang terjadi adalah sebaliknya, yang harus dituntut juga bukan sistemnya melainkan konsistensi pelaksanaannya. Dengan hal ini telah jelas bahwa semua pihak memiliki kontribusi atas terjadinya kontroversial ini. Oleh karena itu, semua pihak hendaknya dapat berdiskusi dengan akal pikiran yang jernih dan melakukan introspeksi bukan untuk saling menyalahkan, melainkan untuk menyelesaikan PR masing-masing. Pihak buruh hendaknya bekerja secara produktif dan dapat menyampaikan aspirasi secara argumentatif disertai data dan fakta secara spesifik dan tak terjebak dengan generalisasi. Pengusaha hendaknya menjalankan bisnis dengan etika dan memperhatikan hak dan kewajiban karyawan sesuai amanat UU. Pemerintah hendaknya menjalankan amanah UU secara konsisten dengan melakukan fungsi pengontrolan dan pengawasan secara adil. Semoga kita semua dapat bekerja sama membangun bangsa Indonesia menuju bangsa yang makmur dan sejahtera. Amin. ●