DPR Passes Bill on Sukuk

In the world's most populous Muslim nation it makes good sense to put into place a national development program that takes advantage of the value of issuing Syariah based financial instruments such as Islamic Bonds or Sukuk. To this end the House of Representatives (DPR) passed the Bill on State Syariah Bonds (or Sukuk).

The bill contains an extensive list of defined words which is important where there are a considerable number of specialized terms. The Sukuk come in four basic forms; the Ijarah, the Mudarabah, the Musyarakah, and the Istishna. However, the bill also permits other types of cooperative contracts to be entered into provided that the contract is based on

prevailing Syariah financial provisions.

Sukuk are to be issued for the purposes of funding the State budget and this may also include the funding of projects. The Sukuk are to be issued by the government. The government may issue the Sukuk directly or appoint an issuing agency or company to do so on the government's behalf. Even with this authority the bill envisages that the relevant Minister will liaise with Bank Indonesia (BI) prior to the issue of any Sukuk.

The Sukuk must also be approved by the DPR at the time the DPR approves the budget bill. The maximum time that Sukuk assets can be leased is 60 years. Where the government issues the Sukuk it is also required to appoint a 'trustee' through direct appointment. Where the Sukuk are issued by an appointed company then that company acts as the trustee.

Sukuk must include information about the issuer, the date of issue, the date the Sukuk falls due, the amount payable, how payments are to be calculated, the state assets that backed the Sukuk, and provisions regarding the transfer of ownership, among other things.

To ensure that the Sukuk comply with prevailing Syariah standards the Minister is to request a fatwa from the relevant religious authority declaring that the Sukuk is valid.

Criminal sanctions for breach of these provisions range from 5 years in jail to a maximum of 20 years in jail and fines from IDR 10 billion up to IDR 40 billion.

The bill will be in force no longer than 30 days from today.