Bank Indonesia (BI) and the Financial Services Authority (OJK) are discussing the possibility of allowing the trading of short-term sukuk (Islamic bonds) in a move that could both diversify sharia financial products and help sharia banks raise cash in the market.
Indonesia’s corporate sukuk market remains dull, with the market merely 0.4 percent the size of Malaysia’s. Experts have called on regulators to approve new products to boost the market for sharia-compliant corporate bonds.
“We want to push the creation of three- or six month-period sukuk, because currently there is no such product in the sharia market,” BI deputy governor Halim Alamsyah said at the central bank headquarters in Jakarta on Monday. “BI and OJK are still discussing the possibility and specialty of sharia financial products, especially for short-term corporate sukuk.”
The short-term corporate sukuk might help banks better manage their liquidity, as they could park their excess funds in the debt papers and raise funds by issuing the sukuk, he added.
Islamic bankers and money market players are said to have welcomed the plan as one of the efforts toward developing the nation’s Islamic financial market in the long-term. Indonesia is the world’s most populous Muslim-majority nation, but financial literacy remains an issue in the country where almost half of its 250 million inhabitants live on just US$2 a day or less.
Sharia banks only hold a 5 percent market share in the country’s overall banking industry, versus 25-30 percent in Malaysia. There are currently 11 sharia banks and 23 sharia business units of commercial banks operating in the country as per May this year, OJK data shows.
Currently, the sharia banks and business units are allowed to place their excess liquidity in the central bank’s sharia monetary instruments, as well as in corporate sukuk and the Sharia Sovereign Bonds (SBSN).
“We still have to develop sharia instruments, but the Indonesian government has been quite progressive in utilizing the sharia market. The government has offered retail sukuk and corporate sukuk, even though their volumes were still small,” BI senior deputy governor Mirza Adityaswara said.
University of Indonesia Islamic economist Agustianto and Danamon Syariah director Herry Hykmanto said the regulators’ plan to allow short-term corporate sukuk would help sharia banks raise cash, as well as gain more profit by investing their excess funds in the instrument.
“I hope it will widen the domestic sharia financial market in the future, as currently seen in Malaysia,” Agustianto said.
However, Bank Mega Syariah president director Beny Witjaksono said short-term corporate sukuk would swallow up liquidity for certain sharia banks.
“I don’t think we need three- or six-month period sukuk, because we already have FASBIS [Bank Indonesia Sharia Deposit Facility]. The main instrument that we need is five to seven-year period sukuk with interesting ujroh (yield) or above time deposit weighted average rate in sharia banks,” he said.
The central bank’s sharia monetary instruments in which sharia banks can place their excess funds are namely, Bank Indonesia Sharia Certificate (SBIS), Wadiah Depositing Fund (SWBI), Wadiah Demand Deposit, Sharia Interbank Money Market (PUAS) — including Bank Indonesia Sharia Deposit Facility (FASBIS) or Sharia Overnight, and SBSN reverse repo.
Sharia banks and sharia business units in the country invested Rp 10.9 trillion ($932.7 million) worth of excess funds in BI’s Wadiah Demand Deposit, Rp 6.23 trillion in SWBI and Rp 10.88 trillion in other instruments, according to OJK statistics.