144 Chapter V Extension of Fund Investment Model: Hajj Fund Management V.1 Introduction This section provides an extension of investment management model using system dynamics for fund management concern in other institutional setting. The generative capabilities of the structural analysis approach allow its application to other investment domains, such as Hajj fund offering more fundamental and context-specific solutions. The Hajj is a crucial religious pilgrimage and is considered one of the five pillars of Islam. It involves a journey to sacred sites and various acts of worship. This mandatory pilgrimage, hosted in Saudi Arabia, occurs annually and attracts more than two million Muslims worldwide. To ensure fair access to holy sites, in 1987, Saudi Arabia government established Hajj quota that was set on 0.1% of the Muslim population for each country. The quota for Indonesia was set at 221,000 pilgrims. For 2024, Indonesia was able to send the largest hajj delegation, with 241,000 pilgrims (CNN, 2023) having an additional 20,000 pilgrim. However, despite being the largest in Haj quota, the demand for Hajj continues to grow, resulting in an ever- growing number of waitlisted pilgrims. To secure a seat, eligible Muslims in Indonesia must register on the Hajj waiting list on a first-come-first-serve basis. As of February 25, 2024, the Indonesia Ministry of Religious Affairs (MORA) reported a staggering 5.3 million hajj registrants on the waiting list (MORA, 2024). Having limited departure quota, the national average waiting time is 22 years. This condition poses aging risks. It is a risk associated with the waiting. First, some registrants may experience declining health during the waiting period or may even pass away before their departure. Second, when they do eventually depart for the hajj, they become senior pilgrims, particularly those aged 65-75, who are at the highest risk of hospitalization during the hajj (Gaddoury & Armenian, 2024). 145 An initial deposit is required to secure placement on the Hajj waitlist. As the number of registrants grows, these initial deposits accumulate into a substantial pooled fund. As of December 2023, the total accumulated funds had reached IDR 163.90 trillion. This fund is managed by an institution called BPKH, which invests it to generate returns that partially offset the total Hajj cost. In principle, pilgrims are expected to finance the entirety of the Hajj cost themselves. However, the departing pilgrim pays the Hajj cost after BPKH’s contribution has been accounted for. Figure V-1Figure V-1 illustrates the historical average Hajj cost per pilgrim, highlighting the direct outlay by pilgrims and the portion subsidized by BPKH’s investment yields. The trend in the graph shows a higher contribution from BPKH until 2019; however, over the past three years, this trend has reversed. Figure V-1 Direct and Indirect Cost of Hajj. Source: BPKH (adapted) Contrary to the expectations that BPKH would independently determine its level of financial support guided by operational or financial imperatives, these decisions are made in parliament. Although pooled-fund management offers flexibility in providing subsidies, questions persist regarding its long-term sustainability (Perdana et al., 2024). To illustrate the issue of sustaining the subsidy for Hajj, let us look at the average cost for the 2024 pilgrimage, which has been approved at IDR 93.59 million. BPKH will cover 40% of the cost, while the remaining 60% will be borne by the pilgrims. At the granular level, if BPKH managed to invest the IDR 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Year201020112012201320142015201620172018201920202021202220232024 PilgrimBPKH 146 25 million hajj registration fee at a 6% yield, it will take 15 years to achieve the targeted subsidized amount. However, if BPKH managed allocation of 75% of the fund to investment and 25% to bank placement, it will take an average of 18 years to reach the target amount. It is important to note that investment returns are proportional to the waiting time. If the average waiting time for the latest departed pilgrim is 10 – 13 years (Republika, 2023), BPKH may have to dip into the investment returns meant for future pilgrims to cover the subsidy. Priority queues for senor pilgrim may add to the problem, as they expected to have shorter waiting time as it is regulated that a minimum 5 years waiting time is eligible for departure. The current management of the pooled fund also raises concerns about equity at the individual level, with varying levels of mandated subsidy resulting in unequal support for pilgrims with different waiting times or departing in different years. It is crucial to enhance record-keeping of the fund at an individual level to uphold both fairness and transparency. Equally important is adherence to the principle of istitā’ah—ensuring that pilgrims bear responsibility for their obligations—and the broader accountability underpinning sustainable Hajj fund management. This paper examines the structure of the Hajj fund management mechanisms alongside its queue. We then explore various strategies to establish a sustainable financing system. Central to this discussion is the significance of fund ownership and BPKH’s fiduciary responsibility to act in pilgrims’ best interests. The study contributes to the literature in several ways. First, it clarifies the interdependent causal relationships that shape both the hajj fund management Hajj and its waitlist queue. Second, it employs simulation as a tool for complex policy analysis. The insights from the model and associated policies suggest viable business models—at both individual and collective levels—to achieve a more sustainable Hajj fund system while accommodating a reasonable waiting time. V.2 Literature Review Islamic law mandates that a Muslim must satisfy the criteria of istitā'ah before embarking on the hajj pilgrimage (Al-Zuhaili, 1985). These criteria include 147 physical ability, financial capability, and safe conditions/security to perform the hajj (Huda & Haeba, 2021). Physical ability is determined by the individual's condition to undertake long-distance travel and perform various physical worship activities and their overall health conditions, considering the exposure to adverse health risks (Ahmed et al., 2006; Alandijany, 2024; Gaddoury & Armenian, 2024). Safe conditions depend on the circumstances prevailing in the host country (Zainudin & Khairuldin, 2017). Financial capability pertains to the economic condition of bearing the cost of the Hajj. However, the meaning of istitā'ah gets narrowed down to economic capability (Arifin et al., 2023). Haj services are among Saudi Arabia top priorities (Arab News, 2016). Various strategic initiatives under the Kingdom of Saudi Arabia Vision 2030 pilgrim experience program aim to improve the overall haj process, increasing haj capacity (Ministry of Hajj and Umrah, 2020). Numerous studies have also addressed efforts to overcome the challenges of mass gathering such as crowd management (Bhuiyan et al., 2023; Jiang et al., 2021; Noor, 2023), reducing traffic congestion (Gazzawe & Albahar, 2024), disease prevention (Thabit et al., 2024), food safety (Alnafisah et al., 2023) and so on. However, there is imbalance between the demand growth for hajj and the speed of capacity increase. In 1987, after consultations with the Organization of Islamic Countries (OIC) to address these limitations, the Saudi government established an initial Hajj quota of 0.1% of the Muslim population for each country. However, annual negotiations determine the actual quotas, which may result in additional or reduced quotas. The quota for Indonesia is set at 221,000 quotas. For 2024, there are an additional 20,000 quotas. The accumulation of capital due to the growing Hajj waiting list raises concerns from the perspective of Maqasid Shariah. It is urged to use the Hajj fund for the benefit of a larger society (Samsudin et al., 2023). Furthermore, Islam discourages idle capital that could be put to productive use (Choudhury, 1983). This aligns with economic rationality, which incentivize reallocation of economic resources to make 148 room for productive investment. To address this, several Muslim-majority countries, including Malaysia, Jordan, and the Maldives, have established legal entities or institutions to manage funds and offer related services to Hajj registrant (Muneeza et al., 2018). In Indonesia, for instance, BPKH has been established in 2018, which mandated as an institution that manages Hajj Fund (Kurniadi et al., 2019). BPKH manages the Hajj fund under the Wakalah contract with each Hajj registrants on the waiting list (Jumali, 2018). Serving as an agent or wakil on behalf of the fund owner (principal), BPKH facilitates economic exchanges with any third parties related to fund safekeeping and generates possible economic benefits. As an agent, BPKH holds the fiduciary position of a trustee and is responsible for the legal position of the principal's property (Saleem, 2012). BPKH is bound by ethical and legal obligations to act in the principal's best interests. Consequently, any investment returns will be used to cover the cost of Hajj and maximize services to the principal during Hajj. According to research by Ichwan (2008) the Hajj pilgrimage in Indonesia has complex political and economic dimensions. While the Hajj is often viewed as religious, Ichwan argues that political and economic factors primarily drive its complexity. The Hajj pilgrimage is viewed as a national duty in the political context and is managed by the government. Hence, the decisions regarding Hajj costs and funding structure proposed by the government through hearing mechanisms in parliament may be biased with political agendas. The issue of increasing Hajj costs is not a popular policy and is considered a sensitive issue. Even the term “subsidy” may be used to obfuscate masses on the source of the fund. Saberi (2018) highlight that the political matter surrounding the Hajj subsidy is not new. In the case of India, the government has been accused of using the hajj subsidy as a political tool for decades. While previous research has provided valuable insights into the Hajj from various perspectives, there is still a lack of research that examines the management of Hajj 149 funds in Indonesia from a detailed business perspective. The current studies often focus on isolated issues and rely heavily on qualitative methods, limiting their ability to provide a holistic understanding of the topic. However, conducting a comprehensive study that delves into individual Hajj fund management and offers a model based on a system perspective could lead to significant breakthroughs in this area. Such a model would consider the interrelation between various aspects and could serve as a template for policymakers to propose policies to improve the management of Hajj funds in Indonesia, which will ultimately benefit the pilgrims. V.3 Methodology Little's Law is a foundational theory in queueing processes, stating that under steady-state conditions, the queue size is proportional to the arrival rate. However, real-world systems rarely maintain constant inflows and outflows, leading to temporary imbalances that create disequilibrium dynamics. These imbalances result in the accumulation of stocks, directly influencing variables such as Hajj waiting time, which is a key metric in this study. Gonçalves (2022) extends Little's Law to system dynamics, demonstrating its ability to capture the instantaneous relationship between the transient value of a stock (e.g., accumulated waiting list) and the associated registration and hajj departure rates. This integration of system dynamics and queueing theory provides a powerful framework for analyzing the factors affecting Hajj waiting time. According to Meadows (2009), a system is a group of interconnected components, consisting of stock and flow, that exhibit their own behavior pattern over time. However, past studies have shown that people often struggle to understand even basic stock-and-flow systems, relying instead on intuitive yet flawed heuristics (Cronin et al., 2009; J. D. Sterman, 2010; Sweeney & Sterman, 2000). From a systems perspective, Hajj fund and queue management are driven by complex interdependencies. An increased waiting list may boost the accumulated fund and creating opportunities for financial return. However, fund management decision such as determining fund availability play a pivotal role in curbing long-term risks as larger stocks of registrants may become a financial burden on future Hajj 150 arrangements. The interdependence of these variables underscores the inseparability of decisions about fund management and waiting times. This research supports (Homer, 1997) assertion that robust stock-and-flow modeling structures could provide critical insights for decision-making. By explicitly linking decision in waitlist and fund management this research highlights the systemic trade-offs involved in Hajj fund management. V.4 Data Collection The study gathered data from various sources to conduct a comprehensive analysis. Information such as hajj quota, waiting list, and cost of hajj were collected from the Indonesia Ministry of Religious Affairs/MORA (2024). Financial reports, including asset under management, asset allocation, and investment yield, were obtained from BPKH (2024) The study also collected information from international sources, such as the Ministry of Haj and Umrah and General authority for statistics of Kingdom Saudi Arabia, to gain a broader perspective. By gathering information from multiple sources, the study can provide a well-rounded analysis of the Haj Fund Management system and its sustainability.