Demand for Local Sukuk ‘Excessive’ With More Likely Ahead, Official Says

The government has issued Rp 120 trillion ($12.8 billion) in Islamic bonds during the past four years, which the Finance Ministry attributes to an “excessive” demand for them among Muslim investors.

The ministry’s director for Shariah financing, Dahlan Siamat, said the government issued its first Islamic bond, known as sukuk, in 2008, and as of Thursday it had issued a total of Rp 120 trillion.

“The achievement has been supported by excessive demand for sukuk in the domestic market,” Dahlan said in Surabaya on Thursday.

“The potential for state sukuk in the country is developing rapidly, given that 80 percent of Indonesians are Muslims and there remains large potential for them to become investors.”

Indonesia has been selling conventional and Islamic bonds during the past year to help plug its growing budget deficit. The country’s budget shortfall is forecast to reach 2.23 percent of the gross domestic product this year, according to a revised 2012 state budget.


Indonesia ulama to back Islamic finance sector

imagesINDONESIA’S Council of Ulama said in Jakarta yesterday it would assist the growth of the Islamic finance sector by issuing market-friendly fatwas or edicts, a move that would enable Indonesia to fund its growing budget deficit by issuing more Syariah debt.Ma’ruf Amin, a senior official with the Ulama Council, or MUI, said the religious authority supported the government’s efforts to develop the market for Islamic products.

“We are encouraging innovations among industry players who are planning to introduce new products,” said Amin, who is head of MUI’s commission in charge of fatwas or edicts related to sharia financial products.

“We have just completed drafting a fatwa on sovereign Islamic bonds which will be issued shortly. We will send it to the government after we hold a plenary hearing,” Amin told Reuters in an interview in his office at the sprawling Istiqlal Mosque complex in Jakarta.

In April, Indonesia’s parliament passed a new bill on Islamic sharia debt, which paves the way for the government to sell its first Islamic bond and tap a wider array of global investors.

The government hopes to raise as much as $2 billion from the bond, or sukuk, to help plug a budget deficit which is forecast to widen this year due to higher fuel subsidies.

With higher inflation and a food and energy subsidy bill that’s set to top $20 billion in 2008, Indonesia’s cost of borrowing using conventional debt instruments is likely to rise.

Indonesia, the largest economy in Southeast Asia and the world’s most-populous Muslim nation, has been slow to tap the fast-growing Islamic finance market, for example to fund its huge infrastructure needs.

It lags neighbouring Malaysia and Singapore in developing the Islamic financial market.

brunai times