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INDONESIA:
The Indonesian government has decided to boost project-based Sukuk
issuances fourfold next year, confirms industry reports. The Finance
Ministry plans to utilize various infrastructure projects as underlying
assets for the Sukuk issuances.
Dahlan Siamat, the director of Islamic financing at the Indonesian
Ministry of Finance, said that the government seeks to issue up to
IDR6.9 trillion (US$604.2 million) worth of new project-based Sukuk in
the country’s 2015 state budget, according to a local daily. He is of
the view that Sukuk will provide ministries an additional avenue of
funding. They would not have to rely solely on the state budget to
finance projects.
“Ministries and institutions like this kind of financing because of its
degree of certainty. If they depend on the state budget, there are
fears that the government may not prioritize their projects; with the
funds eventually not being earmarked there,” explained Dahlan.
As a start, the Indonesian government has identified seven
infrastructure projects as underlying assets for its project-based
Sukuk next year. They include: the double-track railway from Muara Enim
to Lahat in South Sumatra, the monorail project in Surabaya, roads in
Jayapura and Raja Ampat in Papua, as well as the renovation of Hajj
dormitories in six provinces across the country.
According to data from the Financial Services Authority of Indonesia
(OJK), government Sukuk account for approximately 9.2% of total bonds
issued by the Finance Ministry this year. A representative from OJK
highlighted that there is high potential for Sukuk to be developed in
the country as many investors are keen on investing in Shariah
compliant debt. This could further assist in the advancement of the
country’s Sukuk market.
The Basel III regulations have made it more difficult for banks finance
long-term projects. Project-based Sukuk have been suggested to suit
long-term financing such as infrastructure projects, as it is
positively related to real sector development. This would assist to
decrease the over-reliance of corporates on the Indonesian banking
industry, moderating the heightened borrowing costs in the economy.
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