With a dedicated Islamic capital market development plan in place, Indonesia’s Financial Services Authority (OJK) is resolute in uplifting the Republic’s Sukuk market to greater heights. VINEETA TAN discusses Indonesia’s Shariah finance strategy with the regulator.
One thing to note about OJK’s plan is that the authority is making corporate Sukuk a key priority this year. Speaking to IFN, OJK’s deputy commissioner I for banking supervision, Dr Mulya Siregar, said: “We are hoping to boost the Shariah capital market through corporate Sukuk because the market potential is significant.”
Explaining that the country has been gaining greater success with its regular sovereign Sukuk issuance and seen phenomenal demand from individual investors for retail Islamic securities, Dr Mulya said the next natural step is to encourage corporates to issue Sukuk.
According to OJK data, 33 companies tapped the Sukuk market bringing the cumulative value of corporate Sukuk issuance (as at the 6th February) to IDR12.9 trillion (US$1.03 billion). Based on the outstanding value of corporate Sukuk for that period – IDR7.1 trillion (US$568 million) – corporate Sukuk command a mere 3.2% of the total Shariah securities market. The sovereign’s recent retail Sukuk sale raised IDR21.97 trillion (US$1.76 billion) from individual investors.
Home to the world’s largest Muslim population, Indonesia’s Islamic financial landscape has predominantly been skewed towards the retail banking sector, leaving much room for its Sukuk market to grow. While the Southeast Asian nation has the demographic advantage, the scope and growth of its Islamic banking and finance industry lag behind neighboring Malaysia (See Chart 1 and Chart 2).
Nonetheless, the country is progressively working towards achieving a more holistic growth across the Shariah finance industry with regulation enhancement as a key theme in its efforts. The OJK this year declared 2015 as the Shariah capital market year for the Republic during which the authority will launch initiatives to accelerate the development of its Islamic capital markets.
Focusing on three core components, the OJK’s ambitious Shariah capital market plan includes the designing of new regulations on Shariah capital market experts and enhancing existing regulations to better support the issuance of Islamic securities; the formulation of a five-year framework for the Islamic capital markets; and raising public awareness on Shariah compliant financial products.
Expounding an optimistic sentiment for the country’s proposed Islamic megabank, Dr Mulya affirms that the OJK intends to leverage Indonesia’s retail banking strength to boost its Islamic capital market capabilities. “We intend to integrate all segments of the Islamic finance industry including banking, non-banking, [and] capital markets. And we are exploring ways to utilize the widespread Islamic banking network to support the development of the Shariah capital market,” explained Dr Mulya.