IQPC: Could you please tell us what lies behind the attraction of Sukuk?
Rizqullah:
There are 2 (two) kinds of Sukuk (Islamic Bond) which generate interests from investors (both foreign and domestic) in Indonesia. There are Government and Corporate Sukuks. Both are similar but differ in terms of the issuer.
1. Government Sukuk (Sukuk Negara)
Sukuk Negara or Surat Berharga Syariah Negara (SBSN) issued by the Indonesian Government is an instrument of debt without usury. It has similar characteristics with Indonesian retail bond where the instrument is guaranteed by the government. Sukuk Negara is considered to be a safer instrument and offers better return compared to savings and time deposits.
2. Corporate Sukuk (Sukuk Korporat)
Sukuk Korporat is issued by Indonesian private companies (including state-owned companies) that practice the Syaria' principles in managing their companies (including operational and financial activities). Sukuk offers more benefits compared to Conventional Bond. It has underlying activities or assets attached to the instrument. It provides clear information to the investors regarding the purpose of the investment and
can also minimize default risk..
Unfortunately, the superiority of Sukuk has been fully supported only by the local rating agencies. Until today, we still do not have standardized sukuk rating from international rating agency.
IQPC: What are some of the lessons learnt from sukuk defaults and what can be done to minimize or prevent future occurrences of these defaults?
Rizqullah:
In Indonesia, the first Sukuk instrument, which was based on Mudharabah basis, was issued in 2001 by PT. Indosat, Tbk, a state owned telecommunication company. Other companies followed. Afterwards, Indonesian government issued Sukuk to finance national budget in 2008.
Until this year, there is no occurrence of Sukuk default in Indonesia. Unfortunately, the event occurred in Dubai, United Emirates Arab. It happened to Nakheel Company (the subsidiary companies of Dubai World), an infrastructure company. To prevent future occurrences of Sukuk defaults, Islamic Countries should have good and strong economic fundamentals. In developing countries such as Indonesia, political and public issues have important influences over the conditions of Indonesian industries and companies.
IQPC: Indonesia is a potentially huge market for Islamic finance. In your view, what do you think are the factors affecting the slow growth? And why?
Rizqullah:
Today, Indonesia population has reached around 240 million people with 80% of the population being Moslem. It’s a huge market for Islamic Finance institution and Banks to develop their products and services.
Unfortunately, the growth of Syaria’ financial products is not as rapid as the growth of conventional products. We can identify three (3) reasons why Islamic financial institutions have not had rapid growth:
A. Lack of Human Resources and knowledge in Islamic financial institution. Our Islamic Financial Institutions today only focused on standard and simple Islamic products such as time deposit, financing and Rahn. We still can not make an Islamic product with some of derivative component (financial engineering) to attract the attention of investors and bankers.
B. Regulation issues eg. double taxation issue that requires customers to pay tax twice in Islamic financial transaction. This issue was just solved by enactment of Islamic Bank Law in 2008.
C. Even though most populations in Indonesia are Muslims, the Islamic financial market is still small. It has only roughly 5% market share of the whole financial market. It therefore limits the growth of Sukuk in Indonesia.
IQPC: How can the Islamic finance market grow without over-relying on the repackaging of conventional products?
Rizqullah:
We need to learn and focus on the fundamental of Islamic principles to develop our products. Islamic finance of today is positioned as a repackaging of conventional products or in the other hand as a substitute conventional products which than deter the growth of Islamic Finance.
To create new opportunities in Islamic financial market we need to focus deeply on basic Islamic principles with good human resources as explained above to create new financial products without relying on the repackaging of conventional products.
IQPC: Where are some of the trends that you are seeing in the sukuk market in Asia ?
Rizqullah:
Today, Malaysia has the most attractive and stable market in Islamic finance world. With experience for more than 20 years in developing their market, they have a competitive advantage to compete with conventional financial products such as Sukuk / Bond.
From historical view, Sukuk market in Malaysia began in 1990 with the name of Islamic Private Debt Securities (IPDS), for other South East Asia Countries such as Indonesia the Islamic Bond market started in 2001, Negara Brunei Darussalam 2006 and Singapore in 2009. The Malaysia experience in Islamic Finance makes the country famous in Islamic world and can compete with other financial market in the world.
From Islamic financial perspective, Malaysia now focuses on developing a new Islamic product and financial instrument to match the amazing growth of conventional financial products. Some scholars did not agree with the development of products of Islamic finance in Malaysia because of non-compliance with shari’a principle.
Indonesia, as the biggest Muslim country in the world also tries to develop new Islamic products and financial instruments in banking industry. One example is Hasanah Credit Card that is developed by BNI Syariah. It makes a breakthrough in Indonesian Islamic Finance as it gives Muslim customers as well as others a new Islamic Credit Card with Akads of Kafalah, Wardh and Ijarah basis. It also proves that in several years to come Indonesia will be a leader in the Islamic Financial world.
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