Assessing the Urgency of Establishing the Community Funds Management Agency

The proposal to establish the Lembaga Pengelola Dana Umat (LPDU), put forward by Minister of Religious Affairs Nasaruddin Umar, reopens a long-standing discourse that has never been fully resolved: how to manage the enormous potential of community funds to have a tangible impact on societal welfare. On one hand, this idea sounds promising or even visionary. On the other hand, it raises several fundamental questions, such as whether forming a new institution is the right answer? Or is the main problem actually in the governance and coordination of existing institutions? This article seeks to assess this urgency more comprehensively, not only from an economic potential perspective but also from institutional, public trust, governance, and its relevance within the framework of Islamic economics. Ultimately, the success of an idea is not determined by its novelty, but by its accuracy in addressing problems. Indonesia possesses a vast potential in community funds. Zakat, infaq, sedekah, waqf, and other religious social funds form a unique and dynamic Islamic philanthropy ecosystem. Various studies indicate that the national zakat potential could reach hundreds of trillions of rupiah per year. Waqf, whether in the form of assets or cash waqf, also holds equally significant potential. However, the realisation of these fund collections remains far from optimal. The gap between potential and realisation is not merely a statistical figure but reflects deeper structural issues, namely low literacy, limited public trust, and weak institutional integration. Furthermore, the current management of community funds is highly fragmented. Zakat is managed by the Badan Amil Zakat Nasional (BAZNAS) and various Lembaga Amil Zakat (LAZ). Waqf falls under the coordination of the Badan Wakaf Indonesia (BWI). Hajj financial funds are managed by BPKH. Beyond that, there are also various independent Islamic philanthropic organisations. This fragmentation creates ambivalent dynamics. On one side, it reflects diversity and innovation. On the other, it causes inefficiency, such as overlapping programmes, competition in fund collection, and lack of integration in beneficiary data. It is in this context that the LPDU idea emerges as an effort towards consolidation. This idea offers hope to unite various sources of community funds under a more integrated and strategic management framework. Although the integration idea sounds logical, a critical question that must be asked is whether integration must be achieved through the formation of a new institution? Indonesia’s institutional history shows that creating new institutions does not always result in efficiency. In many cases, the opposite occurs: bureaucracy becomes more complex, coordination more complicated, and accountability more blurred. In institutional economics theory, this phenomenon is known as institutional overload, where too many institutions with overlapping functions reduce the overall system effectiveness. If LPDU is not designed clearly, this institution has the potential to become a “new player” that complicates the existing ecosystem. Instead of being a solution, it could become part of the problem. Therefore, the urgency of LPDU cannot be based solely on the need for integration but must also consider the risks of centralisation. Excessive integration without proper design can stifle the innovation and flexibility that have been strengths of philanthropic institutions. A common mistake in policy formulation is assuming that structural problems can be solved with structural changes. However, not all issues require a new institution. In the context of community funds, the main problem actually lies not in the absence of institutions, but in the quality of governance. Issues of transparency, accountability, professionalism, and integrity remain challenges in various community fund management institutions. Public trust, for example, is heavily influenced by perceptions of governance. Cases of fund misuse, although not dominant, are sufficient to erode trust broadly. In such situations, forming a new institution without improving governance risks exacerbating the problem. Conversely, if the focus is directed towards strengthening governance through higher transparency standards, independent audits, and the use of digital technology, the effectiveness of community fund management can improve without needing to form a new institution. The experience of hajj fund management by the Badan Pengelola Keuangan Haji (BPKH) is often cited as a success in this context. With funds reaching hundreds of trillions of rupiah, BPKH has managed to maintain stability, transparency, and sustainability in management. However, it is important to note that this success is not solely due to the existence of a new institution, but because of a clear institutional design, specific mandate, and strong oversight system. BPKH does not overlap with other institutions because it has a firm scope and focus. This becomes an important lesson for LPDU, namely that clarity of mandate is an absolute requirement. If LPDU is formed without clear differentiation, it has the potential to create authority conflicts with existing institutions. In community fund management, trust is not merely an additional factor but the main foundation. Unlike taxes which are mandatory, community funds are voluntary. Without trust, fund collection will stagnate. Herein lies the greatest challenge for LPDU. As a new institution, it lacks a track record. Public trust cannot be built insta