Endowment, Fiscal Discipline, and the Future of Indonesia's Wakaf: Inspirations from the Harvard Endowment
Harvard University’s Fiscal Year 2025 poses a serious test for the global higher education institution, not only as a leading university but as a model of modern endowment management. In its financial report, Harvard closed the year with a deficit of US$113 million (approx. Rp1.75 trillion), or -1.7 percent of total operating revenue of US$6.7 billion (approx. Rp103.85 trillion). The deficit occurred amid rising operating costs, global inflation pressure, the near-complete suspension of federal research grants, and the threat of higher taxes on endowment income slated to take effect in fiscal year 2027. The figures are significant even for Harvard. But more important than the nominal amount is the strategic approach taken.
Rather than depleting the endowment to close short-term deficits, Harvard reaffirms the principle that the endowment is a generational trust. The endowment is not a budget patch, but a foundation for sustainability.
In FY 2025, the endowment produced a return of 11.9 percent. At the same time, more than 80 percent of the endowment is restricted—tied to donor-imposed objectives. This means that flexibility in use is limited. Yet it is precisely these limitations that strengthen governance. They create discipline, prevent opportunistic short-term decisions, and safeguard the institution’s mission.
Harvard continued to spend the endowment substantially, namely US$2.5 billion (Rp38.75 trillion) in FY2025—around 40 percent of the university’s total operating costs. This funds core programmes, including access to education.
More than US$750 million (Rp11.63 trillion) was allocated to financial aid, including more than US$250 million (Rp3.88 trillion) in need-based scholarships (not loans) for 55 percent of undergraduate students. In addition, more than US$500 million (Rp7.75 trillion) was provided for graduate student support.
The policy on educational access is also designed with clear, measurable indicators. Students from families with incomes below US$100,000 (Rp1.55 billion) can attend without tuition, while those from families earning below US$200,000 (Rp3.1 billion) are exempt from tuition. This approach shows how the endowment translates into a concrete instrument of social equity.
Strengthening Liquidity: In the face of fiscal pressure, Harvard did not rely solely on investment returns. The university implemented structural cost-saving measures, froze certain pay raises, postponed non-critical projects, and reorganised the organisation.
At the same time, to strengthen liquidity and safeguard strategic investments, Harvard issued long-term debt of US$1.2 billion (Rp18.6 trillion). This decision demonstrates the importance of balance sheet management in maintaining long-term stability.
From this, there are several strategic lessons for Indonesia, particularly in the context of managing educational endowments and wakaf funds.
First, endowments must be understood as instruments of sustainability, not as cash reserves. Many Indonesian institutions still view endowments or wakaf as a source of funds that can be drawn on for urgent needs. This approach risks eroding principal and undermining the future of the institution. Harvard shows that even when facing a US$113 million deficit, the discipline to preserve sustainability takes precedence over instant solutions.
Second, strong governance is the main foundation. The fact that more than 80 percent of Harvard’s funds are restricted underscores respect for donor intent. In Islamic tradition, this principle is even more fundamental. Wakaf requires the preservation of principal and compliance with the wakif’s intended purposes. Therefore, strengthening the capacity of the nazhir, transparency in reporting, and independent audits become urgent needs in developing productive wakaf in Indonesia.
Third, impact measurement must be at the centre of strategy. Harvard does not stop at the 11.9 percent return; they demonstrate how the funds were translated into access to education and research support. Indonesia needs to develop similar metrics: how many beneficiaries, how much tuition relief, and how its impact on social mobility. A large endowment without measurable impact is merely a number in a report.
Fourth, diversification of funding sources is an important strategy. In FY2025, Harvard also recorded direct-use gifts (current-use gifts) of more than US$600 million (Rp9.3 trillion)—the highest in the university’s history. This shows that the endowment is not the sole pillar. There is a clear separation between long-term endowment and flexible annual funds. In the Indonesian context, a combination of productive wakaf and regular charitable giving (infak or sadaqah) can create a more resilient financing structure.
It should be emphasised that wakaf and endowment are not identical. Wakaf has spiritual, Shariah-law, and institutional structure dimensions. Endowment originates from Western philanthropic tradition with broader investment flexibility. But these differences do not close the space for learning. Indeed, with an open mindset, wakaf managers in Indonesia can adopt best practices in risk management, portfolio diversification, prudent spending policies, and public transparency.