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OBSTACLES AND STRATEGY OF MUNICIPAL ISLAMIC BONDS ISSUANCE AS AN ALTERNATIVE OF MUNICIPAL FUNDING

The objective of this thesis is to identify obstacles and strategies for municipal Islamic bond issuance as an alternative in regional financing using the Analytical Networking Process (ANP). The analysis found that the most dominant obstacle in the aforementioned issue is the local government aspect. In the aspect of the central government, the obstacle is the unavailability of studies concerning the instrument of municipal Islamic bonds. In the aspect of the local government, the obstacle is the low understanding of the government about the means of municipal Islamic bonds. In the aspect of the regional house of representative, the obstacle is the behaviour of representatives, in which they complicate bureaucracy in the issuance of municipal Islamic bonds. The most dominant solution for the obstacles and strategy in the issuance of municipal Islamic bonds is a fundamental solution. The dominant strategy for a fundamental solution is the socialization of education about municipal Islamic bonds and a promotion pattern in collaboration with Indonesia’s financial service authority.


INTRODUCTION
Decentralization is a fundamental in government management marked with the presence of a division of authority and the availability of an ideal public space for interpereting authority to lower level government units or known as municipal governments (Hadi, 2005). A clear and strict seperation in the matter of central government finance with municipal governments is a form of fiscal decentralization (Isdijoso and Wibowo, 2002). In the implementation of fiscal decentralization, the central government provides funding support with the authority to collect tax and retribution in the area which is known as locally generated revenue. Other than that the central government provides funding support through transfers or what is often known as municipal fund transfers in the form of Balancing Funds which are Revenue Sharing Funds, Public Allocation Funds, and Specific Allocation Funds.
The income source which municipal governments obtain are assessed as very limited, because the funding source obtaind from the central government is much absorbed into routine spending (Kaluge and Okta, 2011). With an all limited financial condition it is confirmed that municipal governments have difficulties for implementing several development, infrastructure and renovation projects of public facilities because of the limited funds owned. This condition indicates the need for municipal governments to implement innovation soon for covering the funding gap size by searching for municipal funding alternatives. The implementation of Act Number 33 Year 2004 about Financial Balnce between the Central Government and Municipal Governments and Act number 32 year 2004 about Municipal Governments, provides Municipal Governments the opportunity for collecting funds as a funding alternative from other municipal income sources, one of which is by the issuance of securities.
The presence of a syariah based financial system (syariah finance) is growing rapidly ,and adopted by several countries in the world. The syariah finance growth which is massive is marked with the issuance of several syariah based financial instruments in several countries one of which is the islamic bond. According to the National Syariah Council fatwa no 41/DSN-MUI/III year 2004, islamic bonds are one of the long term securities based on the syariah principle issued by emittance to islamic bond holders that requires issuers to pay income to islamic bond holders in the form of revenue sharing/margin/fee and paying back the islamic bond fund in the due date. According to Act No 19 year 2008 about National Syariah Securities, other than being used as a source of national funding, the issuance of the islamic bond instrument is also used as infrastructure development project funding such as: developing toll roads, bridges, dams, airports, and power plants.
Research related with the opportunity of using municipal islamic bonds in Indonesia is still limited to the analysis of the ability of a municipal in issuing municipal islamic bonds and the benefit of issuing municipal islamic bonds. When studied in depth, the primary obstacle in the municipal islamic bond issuance is that there is not yet a municipal that is able to collect funds by issuing securities. In another point, the opportunity of municipal islamic bond issuance is very large, considering the law in Indonesia supports issuing municipal securities. Because of that, there is a need for searching obstacles that underlies the problem of municipal islamic bond issuance in Indonesia, and there is a need for formulating strategy and recommendations which are able to solve the present obstacles.

RESEARCH METHOD
This research uses the Analytical Networking Process (ANP) approach in identifying obstacle factors and issuing strategies of municipal islamic bonds as an alternative of municipal funding in Indonesia. The ANP approach is able to absorb a value or view which scholars, practitioners, and regulators represent. The ANP method selection in this research is implemented based on the fact that municipal islamic bond issuance, especially municipal bonds, have not yet been realized by Municipal Governments, even though there is already a regulation that allows the issuance of municipal bonds. Other than that, specific regulations of municipal bonds have not yet been regulated in Indonesia, other than comparing the benefit of municipal islamic bonds as a municipal funding alternative which has much potential to support municipal development. So, in line with the ANP method, this research needs expert respondents in the fields of municipal funding and syariah finance which are able to provide views relevant with the obstacles and strategy of islamic bond issuance.
Research of obstacles and strategy of municipal islamic bond issuance as a municipal funding alternative in Indonesia is implemented in accordance with the ANP research phases. Beginning with a literature review in the form of journals, books, and regulations related with islamic bonds and municipal funding, and implementing an in depth interview with an expert in the municipal funding field. The result from the literature review and the interview is validated by experts, practitioners and regulators. The result from filling the questionnaire is processed and analyzed, so it produces a conclusion about obstacles and strategy as a municipal funding alternative.
The data source used is a primary data obtained from the result of in depth interviews and questionnaire fillings by respondents. According to Narimawati (2008), primary data is data from the real source or the first and is not present in the compiled form. Respondents of this research are the experts, practitioners, and regulators by examining respondents' competence to obstacles an strategy of municipal islamic bond issuance as an alternative of municipal funding in Indonesia. The number of respondents in this research consist of 7 (seven) persons which consist of experts, practitioners, and regulators, because in the ANP analysis the sample/respondent number is not used as a validity benchmark. The requirement for a respondent to be valid in ANP is that the respondent is a competent person in the field (Ascarya, 2005). Meanwhile, data gathering methods used in this research are interviews and questionnaires. The implemented ANP research phases consist of 9 (nine) phases among others: 1) Problem identification, implemented by reading articles about the absence of municipals which are able to issue islamic regional bonds as a municipal funding alternative for obtaining topics and the research gap; 2) A literature review and in depth interview is implemented for obtaining independent variables from literature and interview results; 3) Expert validation is implemented for reducing independent variables which are relevant with the present problem; 4) The questionnaire arranging and the ANP scheme is created based on reducted variables by experts and the scheme is created with a software super decision; 5) An expert survey is implemented by filling questionnaires and studies related with the strategy with respondents; 6) The data analysis is a process of searching and arranging obtained data systematically by using the software super decision; 7) Data interpretation is implemented by combining all ANP scheme results which are processed in the data analysis phase by using microsoft excel; 8) The analysis result is the result of the average priority count of all respondents which then will be created into a variable ranking list; 9) The conclusion is the final phase of all the ANP research phases.

DISCUSSION Obstacles and Strategy of Municipal Islamic Bond Issuance as a Municipal Funding Alternative
Based on literature review and interview results with competent sources in the fields of municipal islamic bond issuance and municipal funding, so the expert validation is then implemented in reducing variables which are assessed to be related with the obstacle of the issuance of municipal islamic bonds as a municipal funding alternative. The variable reduction table of the expert validation results is able to be seen in table 1 and the expert validation recapitulation result is able to be seen in table 2. Meanwhile the municipal bond issuance strategy variable becomes a reference in implementing an in depth study with respondents for arranging the mapping action plan matrix. Education and training related with municipal islamic bonds S1.2 Optimizing the application of New Public Management for improving Municipal Government performance S1.3 The preparation of supporting professions and institutions of municipal islamic bond issuance

Source: writer processed
Based on the data processing result related with the obstacles and strategy of municipal islamic bond issuance as an alternative of municipal funding, the following results are obtained:  The exposure in the action plan mappig matrix clearly shows that there is an influential relation between aspect processing results, obstacles, solutions and the priority strategy or dominant with every phase of municipal islamic bond issuance as an alternative to municipal funding. It clearly shows than the Municipal Government aspect appears as many as 7 (seven) times in all the subphases of municipal islamic bond issuance, in line with the selection of Municipal Governments as the most dominant aspect compared with other aspects. It is able to be concluded that Municipal Governments are parties which are not yet ready and not yet commited in issuing municipal islamic bonds as an alternative of municipal funding, even though the Central Government already provided incentives in the form of policies which tell that Municipal Governments are provided opportunities in issuing securities.

Municipal Islamic Bond Issuance Action Plan Matrix
The strategy in the fundamental solution is also filled by the education and training strategy related with municipal islamic bonds which is also the most dominant strategy compared with other strategies. The intended education and training is a continuation of the Central Government's policy and the policy related with municipal islamic bonds has to be followed specifically and education and training need to be provided to apertures in the funding division in Municipal Governments. Other than that, the strategy in the technical solution is also dominated by the strategy of regulation socialization related with municipal islamic bonds and is also the most dominant strategy compared with other strategies. It is able to be concluded that, after there are specific regulations related with municipal islamic bonds, The Central Government needs to implement the present policy socialization in the frame of educating Municipal Governments and the Municipal People's Representative Council about the importance of the funding factor through securities, one of which is the municipal islamic bond.

CONCLUSION
Based on research analysis results to obstacles and strategy of municipal islamic bond issuance as a municipal funding alternative, the following conclusion is obtained: 1. Research results show that the obstacles of municipal islamic bond issuance as an alternative to municipal funding consist of 3 (three) aspects which are the Central Government aspect, the Municipal Government aspect, and the Municipal People's Representative Council aspect. As a whole, the dominant obstacle or which becomes the priority obstacle and the strategy of islamic bond issuance is the Municipal Government aspect. As for the most dominant obstacle in each aspect are: 1) In the Central Government aspect the most dominant is the absence of a review about the municipal islamic bond instrument; 2) In the Municipal Government aspect the most dominant is the low understanding of Municipal Governments to the municipal islamic bond instrument; 3) in the Municipal People's Representative Council aspect the most dominant is the complicated bureaucracy of municipal islamic bond issuance. The most dominant solution in the obstacles and strategy of municipal islamic bond issuance is a fundamental solution. While the most dominant strategy in each solution is: 1) A fundamental solution, education and training related with municipal islamic bonds; 2) A technical solution, socialization of regulations of municipal islamic bond issuance; 3) A roadmap solution, arranging the grand design of the education pattern and promonting municipal islamic bons effectively collaborating with the Financial Services Authority. 2. The action plan matrix mapping shows that there is an influential relation between aspect processing results, obstacles, solutions and the priority strategy or dominant with each phase of municipal islamic bond issuace as a municipal funding alternative. The Municipal Government Aspect appears as many as 7 (seven) times in the whole sub-phase of municipal islamic bond issuance, the strategy in the fundamental solution is filled with the education and training strategy related with municipal islamic bonds, and the strategy in the technical solution is also dominated by the socialization strategy of regulations related with municipal islamic bonds, which are all the most dominant variables.