CAPITAL MARKET STRATEGY TO ENHANCE INFRASTRUCTURE FINANCING AND FINANCIAL INCLUSION: THE CASE OF INDONESIA SARJITO Deputy Commissioner of Capital Market Supervisory I 1st Annual Islamic Finance Conference JCC, May 17th, 2016 1
OUTLINE 1 MILESTONES OF SUKUK DEVELOPMENT 2 SUKUK STATISTICS 3 PROSPECTS AND CHALLENGES IN SUKUK DEVELOPMENT IN INDONESIA 4 REGULATORY FRAMEWORK 5 UPCOMING INITIATIVES 2
1 MILESTONES OF SUKUK DEVELOPMENT 3
MILESTONES 2014-2015 2012 First Sukuk Issuance: Mudharabah Indosat Fatwa regarding Mudharaba Islamic Bonds 2003 2004 Fatwa regarding Guidance for Islamic Principles Implementation in Capital Market Fatwa regarding Ijara Islamic Bonds 2006-2007 Rule regarding Issuance of Islamic Securities Rule regarding Akad Used in Issuance of Islamic Securities Fatwa regarding Convertible Mudharaba Islamic Bonds 2008-2009 Law No. 19/2008 regarding Islamic Government Securities First Government Sukuk Issuance First Government Retail Sukuk Issuance Announcing 2015 as The Year of Sharia Capital Market Launching Sharia Capital Market Roadmap, Logo and Tagline Launching of OJK Regulation on Islamic Securities (Sukuk) 4
2 SUKUK STATISTICS 5
CORPORATE SUKUK IN INDONESIA (Million USD) As per 4th May 2016 18.000 16.000 14.000 290 million USD Mudharabah Aqad 428 million USD Ijarah Aqad 718 Million USD Of Outstanding Value 1.200 87 100 90 80 12.000 10.000 8.000 6.000 718 45 70 60 50 40 30 4.000 20 2.000 10 0 2010 2011 2012 2013 2014 2015 4th May 2016 0 Outstanding Value Accumulation Value Outstanding Number Accumulation on Issuance 6
Outstanding Corporate Sukuk (USD Billion) 0,45 0,52 0,57 0,54 0,75 0,72 2011 2012 2013 2014 2015 4th May 2016 Outstanding Sukuk 2011 2012 2013 2014 2015 4th May 2016 Outstanding Sukuk Outstanding Bonds Market Share of Outstanding Sukuk 0,45 0,52 0,57 0,54 0,75 0,72 17,24 13,61 16,46 17,51 19,03 19,64 2.59% 3.84% 3.49% 3.08% 3.95% 3.68% 7
OUTSTANDING CORPORATE SUKUK BY INDUSTRY Industry Consumer Goods Finance Industry Outstanding Value (USD) 41.521.969 229.880.718 Outstanding Sukuk as of 4th May 2016 11% 6% 2% 32% Infrastructure, Utility and Transportation 352.634.757 Mining 15.098.897 Property, Real Estate and Contstruction 79.269.213 Total 718.405.555 49% Consumer Goods Finance Industry Infrastructure, Utility and Transportation Mining Property, Real Estate and Contstruction 8
OUTSTANDING CORPORATE SUKUK HOLDERS Investor Type Value (Million USD) Foreign 16.306.809 Mutual Fund 227.680.054 Insurance 138.271.931 Financial Institution 130.303.488 Pension Fund 125.796.467 Corporate 61.988.525 Foundation 12.343.349 Individual 4.340.933 Securities Company 1.223.011 Others 150.989 TOTAL 718.405.556 Corporate 8,63% Corporate Sukuk Holder by Investor Type as of May 4th, 2016 Foundation 1,72% Pension Fund 17,51% Financial Institution 18,14% Individual 0,60% Others 0,02% Insurance 19,25% Mutual Fund 31,69% Foreign 2,27% Securities Company 0,17% 9
3 PROSPECTS AND CHALLENGES IN SUKUK DEVELOPMENT IN INDONESIA 10
PROSPECTS Indonesia Infrastructure Financing Needs 2015-2019 11
PROSPECTS Relatively stable economic growth Indonesia economy experience ± 6% annual growth rate In 2013-2015, middle income people increased significantly from 37,7% to 70% of population Large number of SOEs and their subsidiaries Number of SOEs: about 119 companies Number of SOE subsidiaries: about 600 companies Financing needs for infrastructure developmet The projected financing needs of National Mid-Term Development Plan: Government 47% Private 33% SOEs 20% Momentum for development Increased government support on Islamic economy Trend of positive growth in Islamic finance Low utility rate of capital market products (national survey 2013) 12
CHALLENGES Financial Literacy Survey Banking Insurance Financing Company Pension Funds Capital market Pawnshop Well Literate 21,80% 17,84% 9,80% 7,13% 3,79% 14,85% Sufficient Literate 75,44% 41,69% 17,89% 11,74% 2,40% 38,89% Less Literate 2,04% 0,68% 0,21% 0,11% 0,03% 0,83% Not Literate 0,73% 39,80% 72,10% 81,03% 93,79% 45,44% Source: Strategi Nasional Literasi Keuangan Indonesia, Otoritas Jasa Keuangan 2013 http://sikapiuangmu.ojk.go.id/public/content/files/snlki.pdf 13
CHALLENGES Awareness Lack of understanding Few market players understand well about concept of sukuk. Most investors especially individual investors are not familiar with sukuk. Market Players Perception Issuing sukuk needs extra efforts and costs. Sukuk only can be issued by sharia-compliant companies. 14
Legal Issues (Taxation) CHALLENGES Market players doubt about taxation policy due to no explicit regulations about tax neutrality for sukuk, even though in practice sukuk is not charged double taxes. Liquidity Issues Sukuk in secondary market is illiquid, because : Investors tend to hold to maturity No sukuk market makers The central bank is only willing to buy sukuk repo issued by government rather than corporate sukuk 15
4 REGULATORY FRAMEWORK 16
REGULATION RELATED ISSUANCE SUKUK Rule No. 18/POJK.04/2015 regarding Issuance and Requirements of Sukuk Requirements for issuance of sukuk The obligation to have Sharia Expert s Opinion Trust deed of sukuk 17
5 UPCOMING INITIATIVES 18
Market Infrastructure 1. Coping with corporate sukuk liquidity problem: To encourage the establishment of a sukuk market maker To develop sukuk based sharia mutual funds To develop sharia repurchase agreement and sharia hedging 2. Developing the standardized methodology of sukuk rating 19
Incentives Providing OJK fees discount to make sukuk more attractive Registration fees Sukuk 0.05% of issuance value and maximum of IDR150 million (USD11,324.17)* Bonds 0.05% of issuance value and maximum of IDR750 million (USD56,753.69)* * 4th May 2016 rate USD1=IDR13,246 20
Promotion and Education Encouraging SOEs to issue sukuk for infrastructure financing. Number of SOEs: about 119 companies Number of SOEs on infrastructure: about 53 companies Capacity Building for market players involved in sukuk issuance (e.g. Issuer, underwriter, and trustee) 21
Strong Governmental Support Ministry of Finance Directorate General of Taxes Specific rule or amendments of Law to make tax regulation crystal clear to sukuk issuers Directorate General of Budget Financing & Risk Management Specific regulations that will allow Investment Managers to invest in Sovereign Sukuk for Sukuk-based Islamic Mutual Fund Ministry of State Owned Enterprises Top-down policy approach to encourage State-Owned Enterprises to issue Sukuk 22
Enlarging investor base by encouraging institutional and individual investors to invest in sukuk, eg.: Workshop for institutional investors Public lecturing in universities Seminar and socialization for high school students, journalist, and other communities. Providing investment facilities, eg.: Broader access of investment for public in rural area 23
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