General Description of System Conceptualization

6. General Description of System Conceptualization

The system conceptualization involves establishing model boundary, identifying causal relationships and policy framework 3 . In this research the model boundary includes all relevant factors that are considered important in the problem context. The model comprises seven interrelated components in the voluntary sector management as shown as Figure 3. THE POOR THE RICH CASH WAQF FUNDS INVESTMENT PORTFOLIOS + INVESTMENT PROFITS AVAILABLE FUNDS FOR THE POVERTY PROGRAMS + + - + + - loop 1 + loop 2 + + loop 3 - ZAKAH FUNDS + + Figure 3. A Macro-view of Model As depicted in the above causal loop, the model links among the rich, cash waqf fund, zakah fund investment portfolios, investment profits, available funds for the poverty programs and the poor. A general system of cash waqf model, derived from a macro-view of model above, consists of six sectors i.e: 1. The cash waqf zakah fund raising sectors the rich links to the collected-cash waqf funds, 2 The Islamic financial portfolios sectors, 3 The global fund management sectors, 4 The direct investment in large and medium scale enterprises, 5 The microfinance sectors. number 2,3,4,5 are investment portfolios which link to investment profits 6 The distribution sectors of the profits of cash waqf investment. Investment profits link to the poor through the poverty programs. The Interrelationship among variables can be seen in Figure 4. 3 Sushil 1993, System Dynamics “A Practical Approach for Managerial Problems”,Wiley Eastern Limited. 11 Figure 4. The Interrelationship among Variables in the General System Islamic Financial Portfolio Microfinance Portfolio The Profits of Microfinance The risk of microfinance Microfinance Policy Scheme Bad debts of microfinance Unemployment rate Technical Assistances for the poor + - - - - + - + - - Indonesian Population birth rate + the rich the poor death rate cash waqf growth cash inflow of cash waqf Collected Cash Waqf Funds Average Period to Collect Funds Investment Funds - + + + + + Direct Investment Portfolios + + The Profits of cash waqf investment Management Fees for the Nazir The funds for the poverty alleviation programs - + + + + + - + Islamic Capital Market Islamic Banking Islamic Mutual Funds Dividens capital gains Mudharabah Deposits NAVs Mutual Funds + + + + + + + Islamic Bond + rate of return + Profits of Islamic Financial Investment + + + + + Risk of Islamic Financial Investment - + + + + Invest to company To maintain the existing waqf assets To make a new waqf assets + + + Dividen or Capital Gains + Waqf land productivity To maintain new assets Agriculture Real Estate + + + + Business Risk Social Projects Commercial Projects Free Education Free-charge Health Services Waqf Land Rental + + + + + The Profits of Direct Investment + + + + + + + + + - + + The poverty allevation programs - + + Global Fund Mgt + Foreign Waqif + + + + Multiplier Effects of Microfinance towards Familys Welfare - + + + Zakah Funds + 12 The interrelationship among the six sectors is described as follows : 1 The cash waqf and zakah fund raising sectors The responsibilities of this sector are collecting the cash waqf fund from the waqif and then distributing them to the investment portfolios. The profits of the investment will be distributed to the poor through the poverty alleviation programs. At which the profits will be distributed depend on the waqif requests such as the education, infrastructure, family rehabilitation, public health sanitation. At the same time, this sector also collects the zakah fund from muzakki. Different than cash waqf, the zakah fund is directly distributed to the poor. In the cash waqf raising sectors, there is several causal relationship among the rich, who have the potency as a waqif, the gathered cash waqf fund, the invested funds to various portfolios, and the gained profits from investment which will be distributed to the poor. see figure 5a and 5b. population Birth rate Cash Waqf Growth Microfinance Portfolio + The rich The poor Death Rate Cash Inflow of Cash Waqf Collected Cash Waqf Funds Average Period to Collect Funds Investment Funds - + + + + + + + - The Poverty Alleviation Programs - + Global Fund Mgt + Foreign Waqif Zakah Funds + Islamic Financial Portfolio Direct Investment Portfolio + + The Profits of Cash Waqf Investment + + + + es Management Fe + + + + + + The funds for the poverty alleviation programs - + + + Figure 5a. Causal loop of The Cash Waqf Zakah Fund Raising 13 Cash Waqf Funds Raising Sector Principal_32 Total_Return growth_rate Cash_Waqf Min_Req_Return Cash_Inflow Return_of_Global_Fund Investment_periode CW_normal Principal_4 Current_price_of_gold Collecting_period Principal_3 Principal_1 Principal_11 Principal_12 Principal_14 Principal_13 Principal_33 Principal_31 Ratio Global_Fund_Inv Invest_to_Islamic_Fin Convert_to_Gold_standard Cash_Waqf_Mgt Mikrofinance Global_Fund_Mgt Return_of_Global_Fund Total_Return Invest_to_Direct_Investment Invest_to_microfinance Ratio Return_of_Microfinancin rate_of_cash_inflow Profit_of_Glb_Fund_Mgt Return_of_Global_Fund Microfinace_Period Min_Rtrn_MK Principal_2 Total_Return Stop_Microfinance Average_Return_of_Islamic_Finance Microfinance_Policy Average_Return_Direct_Inv Average_Return_of_Islamic_Finance Figure 5b. Flow Diagram of The Cash Waqf Fund Raising 2 The Islamic financial portfolios sectors The responsibilities of this sector are investing the cash waqf efficiency and effectively. The gathered cash waqf will be then invested by Nazir, a fund manager, in Islamic financial portfolios. The structure of Islamic banking and finance is firmly rooted in the Qur’an and the teachings of Muhammad which is 14 called a Islamic Law 4 . Islamic Law has derived from revealed text a web of interrelated norms prohibiting interest-taking and undue speculative practices. Generally, these portfolios are divided into four kinds i.e a. Islamic mutual funds, b. Islamic Capital Market, c. Islamic Banking Products Mudharaba Deposits, d Islamic Bonds sukuk. All of them are issued by Indonesian financial institutions. The gained profits will be distributed to meet the poor’s basic needs and increase the quality of the poor’s life. Meanwhile, the principal keep being invested in potential investment opportunities. see Figure 6a and 6b. The rich The poor Cash Waqf growth Cash Waqf Inflows Collected Cash Waqf Fund average period to collect the funds Investment funds Islamic Financial Portfolio + + + + + The profits of cash waqf investments Management Fees The funds for the poverty alleviation programs - + + + - Islamic Capital Market Islamic Banking Islamic Mutual Funds Dividen Capital gain Mudharabah Deposits NAV of Mutual Funds + + + + + + + Islamic Bonds + rate of return + The Profits of Islamic Financial Investments + + + + + Risk of Islamic Finance Investment - + + + + The poverty alleviation programs - + + - Figure 6a. Causal loop of The Islamic Financial Portfolios 4 Frank E.Vogel and Samuel L.Hayes III 1998, Islamic Law and Finance “religion, risk and return.” Published by Kluwer Law International. 15 Islamic Financial Portfolio Sector Investment_periode Return_Islamic_Finance Invest_to_Islamic_Fin Principal_14 Invest_to_Islamic_Fin Principal_12 Islamic_Mutual_Funds Invest_to_Mutual_Funds Min_Req_Return Return_Islamic_Mutual_Fund Profit_of_Islamic_Bonds Return_of_Islamic_Bonds Invest_to_Islamic_Bond Islamic_Bonds Principal_13 rn_Islamic_Finance Min_Req_Return Invest_to_JII Islamic_Capital_Market Profit_of_Islamic_Cap_Mrkt Invest_to_Mudharabah_Deposits Principal_11 Return_Islamic_Finance Profit_of_Islamic_Mutual_Funds Investment_periode Invest_to_Islamic_Fin Return_of_Deposit Profit_of_Islamic_Deposits Profit_of_Islamic_Bonds Mudarabah_Deposits Profit_of_Islamic_Finance Investment_periode Average_Return_of_Islamic_Finance Profit_of_Islamic_Deposits Return_of_Islamic_Stocks Return_Islamic_Finance Return_of_Islamic_Bonds Profit_of_Islamic_Mutual_Funds Return_of_Islamic_Bonds Return_Islamic_Mutual_Fund Return_of_Deposit Return_of_Islamic_Stocks Min_Req_Return Figure 6b. Flow Diagram of of The Islamic Financial Portfolios 3 The global fund management sectors The responsibilities of this sector are to invest the cash waqf fund in the global financial portfolios as known a global funds management such as Amanah Fund, Lariba Fund, Islamic Indices, etc. A fund manager should choose the portfolios not only high return but also safety. The better Nazir choose the investment portfolios, the higher profits will be gained and the more funds will be acquaired by the poor. 16 The principal then will be reinvested in various highly profitably investment opportunities. see Figure 7a and 7b The rich The poor The growth of cash waqf fund Cash inflow of Cash Waqf Collected Cash Waqf Funds Average period to collect cash waqf Investment Funds + + + + The Profits of cash waqf investment Management Fee The funds for the poverty alleviation programs - + + + - The poverty alleviation programs - + + Global Fund Mgt + Foreign Citizens + + Figure 7a. Causal loop of the global fund management portfolios Global Fund Management Sector Total_Return Principal_4 Investment_periode CW_normal Convert_to_Gold_standard growth_rate Cash_Waqf Min_Req_Return Cash_Inflow Return_of_Global_Fund Current_price_of_gold Collecting_period Global_Fund_Mgt Ratio rate_of_cash_inflow Profit_of_Glb_Fund_Mgt Return_of_Global_Fund Return_of_Microfinanc Figure 7b. Flow Diagram of The global fund management portfolios 17 4 The direct investment in large and medium scale enterprises A cash waqf fund manager, Nazir, allocates the gathered funds to the big companies in the forms of stocks which the gained profits are dividends or capital gains. The nature of this sector is the long term. The other forms of direct investment are building the new waqf buildings and maintaining the existings waqf assets either for social projects or the commercial projects. See Figure 8a and 8b. The rich The poor Cash Waqf growth Cash Waqf Inflow Collected Cash Waqf Fund Average Period to Collect Funds Investment Funds + + + + Direct Investment Portfolio The Profits of Cash Waqf Investment Management fees The funds for poverty alleviation programs - + + + - Invest to company To maintain the existings waqf assets To make the new waqf assets + + + dividen or capital gains + Waqf Land Productifity To maintain waqf buldings Agriculture Real Estate + + + + Business Risks Social Projects Commercial Projects Free Education Free-Charge Healthy Services Waqf Land rental + + + + + The Profits of Direct Investment + + + ++ + + + + - + + The poverty alleviation programs - + + Foreign Waqif + + Figure 8a. Causal loop of the direct investment to real sectors 18 Direct Investment to Real Sectors Figure 8b. Flow Diagram of the direct investment to real sectors Invest_to_Agriculture Invest_to_Waqf_Assets Principal_33 Principal_331b Principal_331 Invest_to_Real_Estate ocks To_Increase_Waqf_Productivity Average_Rtrn_Waqf_Land Return_Real_Estate Return_of_AgricltrProfit_of_agriculture Invest_to_Waqf_Land Agriculture Real_Estate minimum_ROI Age_of_Waqf_Prodctvty Profit_of_Waqf_Land Profit_of_Real_Estate Profit_of_agriculture Principal_331b Return_of_Waqf_Land Principal_331a Return_Real_Estate Principal_331a Age_of_Waqf_Prodctvty minimum_ROI To_Increase_Waqf_Land_Productivity Return_of_Agricltr Invest_to_Direct_Investment Total_Rtrn_Waqf_Prodctvty Principal_331 Principal_332 Total_Rtrn_Waqf_Prodctvty Average_Return_of_Waqf_Prodctvty Average_Rtrn_Waqf_Land Invest_to_Waqf_Building Principal_332 To_Increase_Waqf_Building_Productifity Age_of_Waqf_Prodctvty minimum_ROI Return_of_Waqf_Building Average_Rtrn_New_Waqf_Assets Total_Return_Direct_Inv Company_rate_of_return Profit_of_Waqf_Building Average_Return_Direct_Inv Profit_of_Waqf_Productivity Profit_of_Waqf_Land 19 Figure 8b. continue… Flow Diagram of the direct investment to real sectors Principal_322 Invest_to_Company Build_New_Waqf_Assets Invest_to_new_waqf Invest_to_build_Comrcl_Projects Principal_32 Total_Return_Direct_Inv Total_Rtrn_New_Waqf_Assets Company Total_Return_Direct_Inv Waqf_Land_Growth Decrease_of_Waqf_Land Age_of_Waqf_Prodctvty Average_Rtrn_New_Waqf_Assets Invest_to_Direct_Investment Commercial_Projects Commercial_Projects_investment_Perio erage_Rtrn_New_Waqf_Assets Principal_321 Total_Rtrn_New_Waqf_Assets Principal_322 Invest_to_Social_Projects Profit_of_Commercial_Projects Rtrn_Commercial_Projects minimum_ROI Rtrn_Commercial_Projects Commercial_Projects_investment_ Principal_321 Company_rate_of_return minimum_ROI Company_Profits_ Company_rate_of_return Time_to_Direct_inv Invest_to_Direct_Investment Principal_31 Waqf_Land_Devaluation he_number_of_Waqif Fraction_of_year Profit_of_Waqf_Land_Rental Rental_Price Profit_of_Direct_Investment Profit_of_Waqf_Land_Rental Profit_of_Commercial_Projects Company_Profits_ Profit_of_Waqf_Productivity Time_to_invest_in_Direct_Investment Waqf_Land_Availability Social_Projects n_Commercial_Projects Adjust_to_Social_Projects Social_Projects_Policy Return_Social_Projects 20 5 The Microfinance Sectors The microfinancing programs, which used the loss-profit sharing, are one of the most important sectors for poverty alleviation. Most of funds collected through cash waqf certificate issues will be allocated as loan for microenterprises. This microcredit program should particularly be aimed at helping poor people initiate their business and enhance their quality of life, accordingly. Nevertheless, merely supplying them with capital is not sufficient, since most of them do not have adequate knowledge and skill to choose and to run a business that is suitable to their condition. Consequently, relevant business technical assistance and spiritual treatment is needed to help them survive 5 . Family’s business activities have significantly influenced economy of a community, particularly in developing countries. Big manufacturing companies indeed dominate mass production processes, both for goods and services, but most of enterprises are initiated by family. In addition, family’s consumption behaviour also affects production and marketing activities, as well as other business activities. Government’s programs for family business empowerment has to do with informal sector development efforts, as most of family businesses are operated in non formal format and business system. Family businesses, which absorb the largest number of employee, are also found mostly in small and medium scale. In most developing economies, these small and medium enterprises SMEs have limited access to formal financing practices, as well as to adequate government’s technical assistance. see figure 9a and 9b 5 Muljawan, Dadang and Masyita, Dian et al. 2006, “The Pilot Project of Linkage Program for Sharia Financial Institution in Indonesia”. Bank of Indonesia report. 21 Microfinancing Portfolio The profit of microfinance Risk of Microfinance Microfinance Policy Scheme Bad debt of microfinance Unemployment rate Technical Assistances + - + - - + - + - - Investment funds + The profits of cash waqf investment Management Fees The funds for poverty alleviation programs - + + + Multiplier Effects of Microfinance towards familys welfare The poverty alleviation programs + The poor - + + - The rich + Collected Cash Waqf Fund + - + + Figure 9a. Causal loop of The Microfinancing Sectors Microfinance Portofolio Sectors Mikrofinance microcredit Profit_of_Microfinance Indonesian_population Stop_Microfinance Microfinace_Period Return_of_Microfinancing Pra_welfare_people Microfinance_Policy Policy_ratios Figure 9b. Flow Diagram of The Microfinancing Sectors 6 The profits of cash waqf investment zakaf fund distribution sectors The gained profits from the various portfolios will be distributed to the poor through the poverty alleviation programs such as basic needs, health services, sanitations, education, natural disasters victims, etc. The principal of cash waqf will be reinvented to various portfolio opportunities. On the other hand, the zakah fund collected by Amil is directly distributed to the poor through the poverty alleviation programs such as basic needs and natural disasters vistims. see figure 10a and 10b. 22 The rich The poor Cash Waqf Growth Cash Waqf Inflow Collected Cash Waqf Funds Average period to collect the cash waqf Investment funds + + + + The Profit of cash waqf investment Management fee The funds for the poverty alleviation programs - + + + - The Poverty Alleviation Programs - + + Foreign Waqif + + To meet the poor needs + Living Cost Healthy Cost Education cost The family rehabilitation cost Natural Disaster Victims Cost Infrastucture Recovery cost Quality of Life + + + + + + - + Zakah Funds + Figure 10a. Causal Loop of the cash waqf profits zakah fund distribution sectors 23 Zakah Funds Profits of Cash Waqf Distribution Cost_4 needs_rate_4 needs_rate_6 Cost_2 Cost_3 Cost_5 Cost_6 Healthy_needs Rehabilitation_needs Profit_of_Glb_Fund_Mgt Profit_of_Microfinance Living_cost Healthy_cost Natural_Disaster_Cost Profit_of_Direct_Investment Infstructure_Cost Profit_of_Islamic_Finance Daily_needs Family_Rehbiittion_Cost Education_cost Total_available_fund_for_poor Cost_1 Needs__ratio_2 Needs_ratio_3 Needs_ratio_4 Needs__ratio_5 allocation_ratio_3 allocation_ratio_4 allocation_ratio_5 Enter_to_pra_welfare C Profit_of_Cash_Waqf_Investment o Potency_of_Zakah Pra_welfare_people the_poor Waqf_Zakah Std Enter_to_pra_welfare Needs_ratio_1 allocation_ratio_1 Inflation available_fund_for_healthy available_fund_for_education available_fund_for_rehbltation available_fund_for_infrastrctr allocation_ratio_2 needs_rate_2 needs_rate_1 needs_rate_3 Education_needs Disaster_needs Infrastructure_needs allocation_rate_6 Needs_ratio_6 Living_needs available_fund_for_living Living_cost available_rate_1 Healthy_cost available_rate_2 Education_cost available_rate_3 Family_Rehbiittion_Cost available_rate_4 needs_rate_5 available_fund_for_disaster available_rate_5 Natural_Disaster_Cost Infstructure_Cost available_rate_6 Waqf_Zakah Enter_to_pra_welfare Inflation Figure 10b. Flow Diagram of the cash waqf profits zakah fund distribution sectors 24

7. The Cash Waqf Management Control