Monday, August 25, 2008

First Indonesian sovereign sukuk

The first Indonesian government sukuk, denominated in Indonesia Rupiah, was slightly undersubscribed with IDR 4.7 trillion ($514.2 million), short of the target of IDR 5 trillion. Despite having the largest Muslim population in the world, Islamic finance has been slow to develop in Indonesia, in large part because of the lack of a government sukuk to benchmark returns, in addition to an unfavorable tax and regulatory environment. The government plans a dollar-denominated sukuk later this year, probably in October. The seven- and ten-year sukuk were priced slightly lower than conventional Indonesian government bonds (11.8% versus 11.93% and 11.95% versus 12.02% for seven- and ten-year maturities, respectively).

Egypt, despite having the first Islamic bank in the 1970s, has not become very important in Islamic finance. The government has not been as accomodative to the industry as in many other GCC countries, Malaysia and even the U.K.

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