Currency Mismatch Between Assets and Payments Poses Challenge for Indonesia's Hajj Fund Management
The Head of the Hajj Financial Management Agency (BPKH), Fadlul Imansyah, stated that the difference in currency between managed assets and payment obligations is a challenge in managing hajj funds.
According to him, the majority of costs for organising the hajj pilgrimage are paid in Saudi riyals and US dollars, whilst the hajj funds managed by BPKH are predominantly in rupiah.
“Our obligations are 80 percent in Saudi riyals and US dollars. Our financial reports are still denominated in rupiah, so economically the value declines if the exchange rate rises,” Fadlul said in Bandung, West Java, on Friday.
His statement addressed the dynamics of the rupiah exchange rate against the US dollar and the still-unstable geopolitical conditions in the Middle East, which impact the management of hajj funds.
He explained that these conditions mean the management of hajj funds cannot solely focus on achieving optimal investment returns, but must also consider exchange rate risks that could affect the ability to finance the organisation of the hajj pilgrimage.
Therefore, BPKH applies the principle of prudence in investment management by considering the alignment between assets held and future obligations to be met.
Fadlul explained that in financial management theory, assets should be matched with the liabilities to be paid. Thus, obligations in foreign currencies should ideally be supported by assets in the same currencies.
“This is standard financial theory, called asset-liability management. Assets must match liabilities. If the obligation is in dollars, there should be assets in dollars as well,” he said.
However, he acknowledged that implementing such a scheme is not straightforward, as it relates to the stability of the national financial system and the use of the rupiah as the primary currency in hajj fund transactions.
Fadlul even put forward an extreme illustration that from a risk management perspective, the financial position of the hajj fund would be more protected if bookkeeping were done in US dollars. However, such a step would have broad consequences, as pilgrims’ deposits would also have to be made in foreign currency.
“If we were to be extreme, financial reports in US dollars would certainly be safer from exchange rate risk. But the consequence is that pilgrims would have to deposit in US dollars. That could disrupt the monetary system and the stability of the rupiah exchange rate,” he said.
Therefore, Fadlul considers it important to have a shared understanding among regulators, supervisors, auditors, and stakeholders regarding the characteristics of hajj fund management, which is heavily influenced by exchange rate movements and the need for payments in foreign currencies.