Indonesia Prepares an Islamic Bonds Industry

The world’s biggest Muslim nation struggles to build its Islamic finance industry

In a bid to drive growth in the fledgling Islamic bonds industry, Indonesia’s central bank says it will relax the rules for investors who buy the bonds.

Despite being home to roughly 10 percent of the world’s estimated 1.3 billion Muslims, Indonesia has struggled to build up its Islamic finance industry, lagging well behind countries such as Malaysia, Singapore and even Pakistan.

However, the recent introduction of a new law that would allow the government to issue Sukuk, or Islamic bonds, is expected to trigger significant growth in the sector. The government announced this week it has already set aside US$2 billion in assets to back the bonds, which it expects to sell in two separate issues this August and October. Sukuk bondholders are paid income derived from assets such as rent from property because Islamic law bans lending for interest.

Mulya Siregar, Bank Indonesia’s head of Islamic finance, pledged this week that the central bank would change the rules surrounding Sukuk to boost investor interest in the securities.

As the rules stand, investors in Islamic bonds are required to hold them until maturity