JAKARTA • Indonesia is taking aim at one of the biggest weaknesses of the global Islamic finance industry - the lack of an ample, reliable supply of syariah-compliant bonds - with one of the most ambitious schemes to boost issuance so far.
Although sukuk are a common funding tool across the Middle East and South-east Asia, with sovereign and quasi-sovereign issues representing around two-thirds of total sales, supply is irregular, in particular for US dollar-denominated deals.
Year to date, global sukuk issuance in all currencies totals US$39.5 billion (S$54 billion), Thomson Reuters data shows, down from US$47.5 billion in 2015.
Shrinking issuance can put Islamic banks at a disadvantage, limiting instruments needed to manage their money profitably and meet liquidity requirements.
The International Monetary Fund has urged governments to ensure regular issuance by incorporating sukuk into national debt management strategies.
Indonesia is doing just that with an industry master plan, unveiled last month, that envisages sovereign sukuk issuance rising to around 50 per cent of total debt issuance over the next 10 years from around 13 per cent last year.
Sovereign sukuk issuance would increase by around 5 per cent year on year, with government agencies encouraged to use sukuk to fund infrastructure, agriculture and educational projects.
Ms Anita Yadav, head of fixed income research at Emirates NBD in Dubai, said Jakarta's target is ambitious but there would be a natural incentive among issuers to meet domestic banks' appetite for Basel III instruments.
"The growth in domestic market may be easy to achieve but the growth in the international market will likely be slower."
Indonesia is an established issuer of dollar-denominated sukuk; it raised US$2.5 billion in February in a dual-tranche deal that was three times oversubscribed. Jakarta is also expanding the investor base. Last week it sold 2.6 trillion rupiah (S$268.7 million), more than targeted, using a new non-tradable savings sukuk aimed at retail investors.