Indonesia To Name Retail Sukuk Agents Next Week

Jakarta, Indonesia | December 05, 2008 by D-8 Secretariat

Islamic Banking gains momentum in Indonesia

Indonesia expects to name the selling agents for its first retail sharia bonds next week, a finance ministry official said on Wednesday, in a bid to widen the investor base for debt and finance the state budget deficit.

Indonesia has halted all bond sales since October amid a global credit crunch, but gross debt issuance is projected at 96.6 trillion rupiah ($8.08 billion) in 2009, finance minister Sri Mulyani Indrawati said on Tuesday.

As the world’s most populous Muslim nation, Indonesia has a huge domestic market for such sharia products. It plans to issue the Islamic-compliant debt, also known as sukuk, for retail investors by the end of February.

Indonesia wants to catch up with neighbours such as Malaysia and Singapore in developing an Islamic market. The domestic Islamic market had lagged behind due partly to a weak regulatory framework and tax issues.

“We will announce the winning selling agents next week,” said Rahmat Waluyanto, the finance ministry’s treasury director general, adding that 20 or so financial institutions had picked up the necessary papers by Tuesday’s deadline, including sharia banks, conventional banks, and securities firms.

He declined to give further details, such as the maturity and the size of the planned debt paper, or the names of the prospective selling agents.

Mahmoud Abushamma, the head of HSBC’s sharia arm in Indonesia, said he expected the sukuk issuance to attract strong demand from investors due to its scarcity value.

“In Indonesia, the potential for sukuk is phenomenal,” he said. “Customers in Indonesia never had such an alternative.”

Islamic bonds do not pay interest, which is banned as usury under Islamic law, and are structured as profit sharing or rental agreements underpinned by physical assets.

D-8 Economist, Esen Gonen, said that she hail this step taken by Indonesia. Among D-8 member countries, Malaysia is the first member that issue global sharia bonds or sukuk, and now followed by Indonesia. She said that the organization hopes that the rest of the memberstates could learn and follow from these both countries that has studied to optimize the use of sukuk to fund their infrastructure development programs.

News Source: REUTERS

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