Indonesia approves law for first Islamic bond

Click here: IINA – Indonesia approves law for first Islamic bond

Indonesia’s parliament passed a new bill on Sharia-compliant debt, paving the way for country’s first Islamic bonds (sukuk) to be sold in international and domestic markets. The country’s House of Representatives had agreed to pass the new bill on Monday which will allow the government to sell a total of 15 trillion Indonesian rupiah ($1.63 billion) worth of sukuk, reported Indonesian newspaper Jakarta News.

“We still do not know whether we will issue the Sharia bonds in foreign currencies or rupiah,” said Anggito Abimanyu, the Finance Ministry’s head of fiscal policy, following the law’s approval. “We will evaluate the market first,” he said. Finance Minister Sri Mulyani Indrawati said earlier in the week it might take between one to one-and-a-half months for the ministry to draw up the necessary regulations following the approval of the bill. Sukouks have risen by 64% to $5.5 billion so far this year, data from Thomson Financial shows, whilst Islamic finance assets are growing at an annual pace of 20% and are set to hit $2 trillion in 2010 from the current $900 billion.

Ramzi A. Zuhdi, director for Sharia banks at Bank Indonesia, said he expected the endorsement of the sukouk law would boost the Islamic finance sector in the world’s most populous Muslim country. “We hope the government can launch Sharia bonds right away and boost Sharia-based finance products,” Zuhdi said. “Today, Sharia-based investment products are still fairly limited.”

Indonesia’s total Sharia-based assets are currently worth 33 trillion rupiah ($3.5 billion), compared to more than the 1.7 trillion rupiah reached in 2000. The government expects the market share for Sharia-based banking compared to the conventional banking sector to grow by up to 5% this year from 1.71% last year. Muhammad Syafii Antonio, an Indonesian Islamic finance analyst told Jakarta News that the sukuk law was beneficial globally.

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