IFN Indonesia Forum Report 2018

Indonesia: On the right track

Indonesia, being a top contender in the Islamic finance league, is ramping up efforts to move to the front ahead of regional players like Malaysia and Brunei. With its active regulatory initiatives and the world’s first green sovereign Sukuk this year, the archipelago nation is well on its way to realizing its dreams.

Regulatory environment

Indonesia has in place a robust Islamic finance regulatory ecosystem to rival many of the industry’s fellow key players, and regulators are leaving no stones unturned in establishing new legislative efforts to safeguard the sector. Th is year, the Financial Services Authority (Otoritas Jasa Keuangan or OJK) announced various new regulations, including on Sukuk, fintech, Takaful and asset management, to name a few.

Th e National Shariah Board of the Indonesian Council of Ulama also published two Fatwas on Shariah compliant asset-backed securities. Th e first Fatwa is on asset-backed securities in the form of participation based on Shariah principles, whereas the second Fatwa is on securitization in the form of asset-backed Islamic securities.

Th e National Development Planning Agency’s Shariah economic master plan and the Waqf Core Principle, jointly developed by the Indonesian Waqf Board and Bank Indonesia, are expected to be in operation this year.

Banking and finance

Th ere are 14 fully-fl edged Islamic banks (including Bank NTB Syariah, which became Shariah compliant in July this year), 34 Islamic banking business units/windows and 196 Shariah rural banks in Indonesia as at July 2018, according to the OJK.

Th e Islamic banking network is expected to undergo changes over the next few years as conventional banks are required to spin off their Islamic windows into a separate stand-alone unit by 2023; this would apply to Islamic windows contributing 50% or more to the parent’s assets, or any Islamic window which has been around for 15 years or more since the Islamic Banking Act was enacted. Bank NTB Syariah is the only known bank to have converted to fully Islamic. Bank Permata submitted an alternative proposal to that measure, whereas shareholders of Bank Nagari are pushing for conversion to take place soon.

Waqf banks for micro businesses are also on the rise in Indonesia with six banks established throughout Indonesia with a total financing of IDR6.05 trillion (US$398.48 million) to 5,735 customers as at the 30th June 2018, with the latest one being Bank Wakaf Mikro

Usaha Mandiri Sakinah in collaboration with Universitas Aisyiyah Yogyakarta.

Capital markets

Indonesia is a frontrunner in the sovereign Sukuk race, with a total of IDR140.82 trillion (US$9.28 billion) floated via its short-term papers from January to the 2nd October 2018, as per data collected by IFN. It also issues long-term Sukuk papers on a yearly basis, with a US$3 billion dual-tranche paper in March 2017, following a US$2.5 billion facility in 2016.

In March this year, the nation pipped Malaysia by issuing the world’s first sovereign green Sukuk for US$1.25 billion along with a US$1.75 billion 10-year Sukuk tranche. During the recent IFN Indonesia Forum 2018, Luky Alfi rman, the director-general of budget financing and risk management of the finance ministry, announced that the country is planning to off er its next series of retail Sukuk in November to the public via digital means, allowing investors to subscribe to the papers through their mobile phones.

Unlike the sovereign market, Indonesia’s corporate Sukuk market is still lagging behind. Despite an increase from 13 papers printed in the fi rst eight months of 2017 to 18 papers in the first eight months of 2018, the market is still slow and struggling.

Corporate issuance only accounts for about 25% of the total Sukuk market and, except for Garuda Indonesia’s dollar offering in 2015, all corporate Islamic papers are still denominated in the rupiah. It is learned that Garuda is planning a further fundraising exercise, and global Sukuk is one of the options being considered.

Indonesia has a total of three Islamic indices: the Jakarta Islamic Index (JII) is the first liquid Islamic stock index, the Indonesia Shariah Stock Index (ISSI) is the composite Islamic stock index and the Jakarta Islamic Index 70 (JII70) is a new liquid Islamic stock index launched in June this year.

As at the end of August, market capitalization of the JII stood at IDR2.06 quadrillion (US$135.68 billion), the Indonesian Shariah Equity Index reached IDR3.56 quadrillion (US$234.48 billion), whereas the JII70 made IDR2.54 quadrillion (US$167.3 billion).

Asset management

As at the end of August, 10.51% of the mutual fund industry comprised Islamic mutual funds, up from 10.24% in December 2017. Th e 210 Islamic mutual funds — 28 of which were launched in 2018 – represent a net asset value of IDR31.13 trillion (US$2.05 billion), 6.31% of the total market. Sucorinvest Asset Management is planning to establish the Sucorinvest Sharia Money Market Fund in October this year.

Th e formation of Badan Pengelola Keuangan Haji or Hajj Financial Management Board in 2017 is viewed as a boon for Shariah investments. In fact, the commercial opportunities in the Islamic investment management space are attracting new asset managers, including Aberdeen Asset Management which is considering establishing a dedicated Islamic management unit and another local player which is aiming to be Indonesia’s first fully-fl edged Islamic asset manager.


Th ere are 13 Takaful operators and 50 Takaful windows operating in Indonesia, according to offi cial July statistics. Dominated by Family Takaful, total Islamic insurance assets in the first seven months of 2017 totaled IDR41.87 trillion (US$2.76 billion). Like banks, insurers are also required to separate their Islamic operations by 2024. 

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