Along with the call towards a climate-neutral economy, one solution that has in recent years become popular is the circular economy. Indonesia has local wisdom, which is a form of circular economy, namely 'waste bank.' The waste bank is a practice of social engineering that encourages people to sort waste from its source so that it can generate economic value. Besides preserving the environment, the waste bank in Indonesia also helps to increase financial inclusion through nano finance for its customers. Through literature studies, observations or field studies, interviews, and using nethnography, this study aims to describe the evolution of waste banks in Indonesia in supporting the circular economy. This study found that waste banking brings not only implications for economy and environment, but also brings implication for social and religious value at the same time. Nano finance in the waste bank is similar to qard al-hasan. In Islamic finance, qard al-hasan is a kindness loan that is recommended as the most appropriate contract to be implemented in ultra-micro community groups.
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Waste has become a global and national matter. Waste problems are tightly related to economic and population growth, and changes in people’s consumption system. One approach to sustainable waste management that is currently widely discussed is the circular economy. The concept of a circular economy carries a mission to extend the life of waste into efficient something for reuse as an alternative raw material or recycled into new products. This concept can save production costs or become a new product to sell. Toward the climate-neutral economy, the circular economy has an important role in tackling climate change, reducing greenhouse gases (GHG), and mitigating carbon dioxide emissions which arising from the transportation, manufacturing, construction, extractive and other sectors (Ellen MacArthur Foundation, 2019, 2021; Musari, 2021, 2022a, 2022b; Musari and Zaroni, 2021; Khan, 2019; Kaye, 2021; Van Veldhoven and Schmidt, 2021).
In Indonesia, circular economy is a relatively new issue. In fact, one form of waste management based on a circular economy is actually commonly practiced by the Indonesian people, namely ‘waste bank’. Waste bank is a part of social engineering in informal economy which has become local wisdom in Indonesia to encourage the community to sort waste at its source to produce the economic value (Musari, 2010a, 2010b, 2020a, 2020b). For this reason, the circular economy is increasingly being sounded by the Government of Indonesia (GoI) through the Ministry of Environment and Forestry (MoEF). The GoI is committed to continuing to encourage the practice of circular economy. Especially with the existence of waste banks that spreads in various cities in Indonesia.
The GoI has set a target to reduce household waste and similar up to 30% in 2025. Also, the handling of household waste and similar up to 70% than before the existence of a national policy and strategy for handling household waste and similar. This is stated in Presidential Regulation No. 97 Year 2017 about the National Policy and Strategy for Handling Household Waste and Similar which is realized by reducing waste generation, recycling, and reuse of waste. One strategy for handling waste is through sorting, collecting, transporting, processing, and final processing. For this reason, the existence of waste bank is very helpful in realizing it.
In addition to helping the environment preserve through waste sorting activities, the waste bank in its journey also contributes to increasing financial inclusion through its role as an ‘Islamic financial institution’ that serves ‘Islamic nano finance’ through qard al-hasan for waste bank customers. Therefore, this paper aims to describe the transition of waste banks in Indonesia as local wisdom in supporting the circular economy towards a climate-neutral economy. The waste bank becomes empirical evidence as community-based waste management at the local level in an effort to reduce the waste problem which brings not only implications for economy and environment, but also brings implication for social and religious value through nano finance.