Retail Sukuk (Sukuk Ritel):Indonesia Experience

Ministry of FinanceThe Republic of Indonesia

1st Annual Islamic Finance Conference:Sukuk for Infrastructure Financing and Financial Inclusion Strategy

Jakarta Convention Centre, May 17, 2016

Dr. Robert PakpahanDirector General of Budget Financing and Risk Management

Ministry of Finance of the Republic of Indonesia

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1. Introduction

Sukuk Negara’s role in financing Indonesia’s budget

What is Sukuk Negara?

State Budget Financing Instruments

Government Securities Loans

Government Debt Securities Domestic Loans Foreign Loans

Domestic International

SPN-SIslamic Treasury Bills

For Islamic money market development and cash managementAuctioned since August2011Tenor: 6-monthsProfit Rate: discounted basis Underlying assets: fixed assets

IFRIslamic Fixed Rate

Introduced in August 2008Tenor:medium to longProfit Rate:semi-annual distribution paymentUnderlying assets: fixed assets

PBSProject Based Sukuk

Auctioned since 2012Tenor: medium to longProfit Rate: semi-annual distribution paymentUnderlying assets: state budget projects and fixed assets

SRSukuk Negara Retail

For retail sale to indvidualsTenor: 3 to 3.5-yearsIssued through bookbuildingMaximum purchase of Rp5bn, with a minimum of Rp5mnProfit Rate: monthlyUnderlying assets: state budget projects and fixed assets

SNISukuk Negara IndonesiaIssued in the international US Dollar marketEnables diversification of investor base (Islamic and Middle East)Tenor: 5 to 10-yearsProfit Rate: semi-annual distribution payment

Sukuk Negara

Sukuk Negara is sovereign securities issued based on the principles of Sharia (Islamic Law), as evidence of the participation in Sukuk Negara assets, either in Indonesian Rupiah or in foreign currencies (Law Number 19 of 2008 on Sovereign Sharia Securities).Sukuk Negara plays an integral role in financing Indonesia’s budget, and comprises of 6 core instruments across a wide range of tenors, sizes, coupons, and investor bases This strategy enables maximum investor coverage, as well as the greatest possible diversification. Indonesia has been active in Sukuk markets since it laid the groundwork for Sukuk issuances in 2008 and this year has already issued IDR 110.9 trillion of Sukuk Negara in the domestic and international markets (as of April 29, 2016).As of 29 April 2016, Sukuk Negara forms 15% of the Total Outstanding Government Securities.

SDHIHajj Sukuk

First issued in 2009Tenor: medium to longIssued through privateplacementProfit Rate: semi-annual distribution paymentUnderlying assets: Hajj services

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Sukuk Negara Profile

Composition of Outstanding by Currency

Composition of Outstanding by Tenor

Consistent growth in Sukuk Negara Issuance IDR 250.99tn66.68%

IDR 125.44tn33.32%

0 100 200 300

IDR

USD

(IDR tn)

IDR 227.91tn60.55%IDR

100.57tn26.72%

IDR 47.94tn12.74%

0 50 100 150 200 250

0 – 5 years

6 – 10 years

> 10years

(IDR tn)

4,7

110.9118.5

75.5

53.257.1

33.327.0

16.6

0

20

40

60

80

100

120

140

Apr-1620152014201320122011201020092008

Issu

ance

vol

ume

(IDR

tn)

IFR SR (Retail) SNI (USD) SDHI (non-tradable) SPN-S SPN-S NT PBS

Sukuk Negara first issuance : 2008 (IFR0001 & IFR0002)Total issuance IDR 496.73 trillion (as of 29 April 2016)Total outstanding IDR 376.43 trillion (as of 29 April 2016)Denomination : IDR and USDIssuance method: auction, book building, and private placement

Data as of April 29, 2016

Data as of April 29, 2016

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Global Sukuk

As of April 29, 2016, total sovereign sukuk issuance in International market (USDdenominated) has reached USD43.56 billion.Indonesia contributed 23.3% (USD10.15 billion) of total international sovereignsukuk issuance.Currently, Indonesia has the largest outstanding of international sovereign sukuk(USD denominated) at the amount of USD9.5 billion.

Total Issuance of Int’l (USD) Sovereign Sukuk Total Outstanding of Int’l (USD) Sovereign Sukuk

500

1.600

2.000

3.388

3.750

4.700

6.850

10.150

10.619

- 2.000 4.000 6.000 8.000 10.000 12.000

South Africa

Pakistan

Hong Kong

Bahrain

Turkey

Qatar

Malaysia

Indonesia

UAE

Million USD 500

750

1.000

2.000

3.750

4.000

5.000

7.569

9.500

- 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000

South Africa

Bahrain

Pakistan

Hong Kong

Turkey

Qatar

Malaysia

UAE

Indonesia

Million USD

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Sukuk Negara Investor Type

IDR Sukuk Negara Ownership Profile

Notes:• Data as of 29 April

2016• Excludes ownership

of Conventional Government Debt Securities

• Others consist of Companies, Leasing Co, Securities Co., Foundations.

The relatively low share of Sukuk ownership by Sharia banks vs Conventional banks is largely attributed to the relative asset size of both groups. According to the latest Bank Indonesia publication in 2016 to date, Conventional banks’ asset size amounts to IDR 5,909 Tn vs Sharia banks’ IDR 211 Tn. Therefore, although Shariabanks’ holding proportion is lower at 7.8%, this already represents 9% of total assets compared to 34.6% for Conventional banks which represents 1.5% of their total assetsIndividuals have seen positive trajectory in Sukuk ownership on the back of recent retail bond issuances by the Government of the Republic of Indonesia. Recently, the Government issued Retail Sukuk series (SR-008) in 2016 which registered total investor demand of around IDR 43 Tn.Sukuk holdings by Insurance, Pension Funds and Mutual Funds have increased in 2016 and are expected to rise further given the recent implementation of OJK regulation No 1/POJK.05/2016 which requires the aforementioned to have at least 20-30% of their total investments in Government Debt Securities (including Sukuk) by 2017.Offshore holdings on Sukuk continues to increase reflecting relative value of Sukuk, confidence in the strengths of the Indonesia credit story and improved awareness of Sukuk securities issued by the Government of the Republic of Indonesia.

Dec-09 Dec-12 Dec-15 Apr-16Institutions IDR billion % IDR billion % IDR billion % IDR billion %

Tradable Sukuks 11,533 81.1 63,035 63.8 159,236 79.2 214,292 85.4Banks Total 2,196 15.4 25,254 25.6 85,424 42.5 106,498 42.4Conventional Banks 422 3.0 20,419 20.7 70,262 35.0 86,790 34.6Sharia Banks 1,774 12.5 4,835 4.9 15,162 7.5 19,708 7.8

Bank Indonesia – – 1,960 1.0 712 0.3Insurance 3,182 22.4 12,281 12.4 29,694 14.8 37,996 15.1Pension Fund 788 5.5 4,845 4.9 5,270 2.6 7,016 2.8Individuals 2,212 15.6 9,055 9.2 11,534 5.7 23,436 9.3Mutual Funds 1,896 13.3 3,189 3.2 5,042 2.5 6,622 2.6Offshore Investors 81 0.6 5,213 5.3 8,138 4.0 15,593 6.2Others 1,178 8.3 3,199 3.2 12,175 6.1 16,420 6.5

Non Tradable 2,686 18.9 35,783 36.2 41,781 20.8 36,697 14.6Govt. Institution 2,686 18.9 35,783 36.2 41,781 20.8 36,697 14.6Total 14,219 100.0 98,818 100.0 201,017 100.0 250,989 100.0

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2. Sukuk Ritel

ROI regularly issues Sukuk Ritel for promoting financial inclusion

Since 2009 the RoI offered Sukuk Ritel through Selling Agents for Indonesian citizens in the primary market. The issuance is aimed at investor diversification, domestic market deepening and supporting financial inclusion.Sukuk Ritel Selling Agents consist of Banks and Securities Companies who is appointed by the GoI to sell Sukuk Ritel to individual investors of Indonesian citizen.

Investor Selling Agent

Ministry of Finance

Investor (holder of Indonesian ID card)- Completes forms and attaches ID card copy- Opens a cash and fixed income account with

the Selling Agent- Deposits funds- Awaits allocation

Selling Agent- Compiles and relays their

orderbook to the Ministry of Finance for the allocation process

Selling Agent- Carries out Settlements based on actual

allocated amount- Returns funds to investors based on their

actual allocation- Provides investors with their proof of

ownership of the Sukuk Ritel allocated to them

Ministry of Finance- Allocates orders as deemed

appropriate- Relays results to the Selling Agent

How is Sukuk Ritel

ordered and

allocated?

Fixed returnsDistributed on a monthly basisLower income tax compared to a bank deposit accountTradable at market priceCan be used as collateral (subject to Selling Agents facility)

How to issue Sukuk Ritel?

1. Legal base2. Underlying assets3. Sukuk structures4. Fatwa5. Selling agents appointment6. Legal advisor appointment7. Issuance process and settlement

Why are Investors willing to buy Sukuk Ritel?

Why does ROI issue Sukuk Ritel for individual investors?

1. Broadening alternative source of State Budget Funding

2. Providing Islamic instrument for retail investor3. Enhancing Islamic market development4. Promoting financial inclusion5. Transforming investors perspective: savings-

oriented to investment-oriented society

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389466 463

773842

557

739650

SR01 SR02 SR03 SR04 SR05 SR06 SR07 SR08

14,295

17,231

15,847

17,606

17,783

34,69229,706

48,444

SR01 SR02 SR03 SR04 SR05 SR06 SR07 SR08

5,5568,0337,341

13,61314,969

19,32321,965

31,500

SR01 SR02 SR03 SR04 SR05 SR06 SR07 SR08

SR-001 SR-002 SR-003 SR-004 SR-005 SR-006 SR-007 SR-008

Offering Date 30 Jan - 20 Feb 2009

25 Jan - 5 Feb 2010

7 - 18 Feb 2011

5 - 16 Maret 2012

8 - 22 Feb 2013

14 - 28 Feb 2014

23 Feb – 6 Mar 2015

19 Feb - 4 Mar 2016

Issuance date 25 Feb 2009 10 Feb 2010 23 Feb 2011 21 Mar 2012 27 Feb 2013 5 Mar 2014 11 Mar 2015 10 Mar 2016

Structure / underlying Ijarah Sale and Lease Back / Land & building Ijarah Asset to be Leased / Government Projects

Tenor 3 years 3 years 3 years 3,5 years 3 years 3 years 3 years 3 years

Coupon 12.00% 8.70% 8.15% 6.25% 6.00% 8.75% 8.25% 8.30%

Max. order n.a n.a n.a IDR5 billion IDR5 billion IDR5 billion IDR5 billion IDR5 billion

Selling Agents

13(5 Banks;

8 Securities Companies)

18(10 Banks; 8 Securities Companies)

20(11 Banks; 9 Securities Companies)

24 (13 Banks;

11 Securities Companies)

25 (16 Banks; 9 Securities Companies)

28(19 Banks; 9 Securities Companies)

22(17 Banks; 5 Securities Companies)

26(20 banks; 6 Securities Companies)

Sukuk Ritel Success Story

Total Sukuk Ritel Issuance(IDR Billion)

Total Investor(individual)

Average order per investor(IDR Million)

9

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3. Case Study: Sukuk Ritel SR-008

Sukuk Ritel SR 008: Summary of Issuance

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Total Issuance

IDR 31.5 trillion

SR-007

SR-008

31,500

21,965

Number of Investors

48,444investors

48,444

29,706

Average purchase volume per investor

IDR 650.2million 650.2

739.4

Summary of Terms & ConditionsStructure : Ijarah Asset to be LeasedIssuer : Perusahaan Penerbit

SBSN IndonesiaTenor : 3 YearsSettl. Date : 10 March 2016Maturity Date : 11 March 2019Coupon Rate : 8.30 % p.a. Minimum Order : IDR 5,000,000Maximum Order

: IDR 5,000,000,000

Tradability : Tradable, 1 month Holding Period

Nominal per Unit

: IDR 1,000,000

Sukuk Ritel SR 008: Distribution by Purchase Volume

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IDR1.1 trillion(3.4%) <IDR100 million

IDR100 – 600 million

IDR600 million –2 billion

IDR2-3 billion

IDR3-4 billion

>IDR4 billion

IDR6.8 trillion(21.7%)

IDR12.8 trillion(40.7%)

IDR3.9 trillion(12.4%)

IDR1.5 trillion(4.8%)

IDR5.2 trillion(16.7%)

17,609 investors(36.3%)

18,297 investors(37.7%)

9,824 investors(20.3%)

1,352 investors(2.8%)

383 investors(0.8%)

979 investors(2.02%)

Total Purchase Volume Total Number of Investors

Most Sukuk Ritel SR-008 investors comes from those who purchase below IDR600 million (35,907 investors/ 74.12%) with total purchase volume of IDR7.9 trillion (25.1%)

Sukuk Ritel SR 008: Distribution by Region

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www.frewaremini.com

Sukuk Ritel is reachable to all Indonesia citizen acrossall region.

JakartaBy Volume = 38.53%By Number of Investors = 34.18%

Western Indonesia (excl. Jakarta)By Volume = 50.31%By Number of Investors = 55.42%

Central IndonesiaBy Volume = 9.04%By Number of Investors = 8.76%

Eastern IndonesiaBy Volume = 2.12%By Number of Investors = 1.64%

Sukuk Ritel SR 008: Distribution by Investor Types

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1. Employees (39.35%)2. Entrepreneurs (34.37%)3. Housewifes (12.26%)4. Others (14.02%)

Others 14.02%Civil Servant 3.24%Retiree 1.60%Students 1.35%Army/Police 1.16%Artists 0.02%Other 6.65%

EntrepreneursIDR10.82 Trillion12,465 investors

EmployeesIDR12.39 Trillion19,843 investors

HousewifesIDR3.86 trillion5,440 investors

100.00%

Sukuk Ritel SR 008: Distribution by Investor’s Age

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<25 yearsIDR0.7 trillion

1,022 investors2.43%

>55 yearsIDR13.2 trillion

17,454 investors41.99%

Between 41-55%IDR11.2 trillion

17,338 investors35.51%

Between 25-40 yearsIDR6.3 trillion

12,629 investors20.07%

The largest purchase volume of Sukuk Ritel SR-008 come from investors at the age of >55 Years (IDR13.2 trillion/41.99%)

They consist of 17,454 investors (36.03%) from total 48,444 investors.

Thank You

Wassalamu’alaikum Wr Wb

Inquiries, Information and Suggestions:

Directorate General of Budget Financing and Risk ManagementMinistry of Finance of the Republic of Indonesia

Website: www.djppr.kemenkeu.go.idTelephone. 351-6296, Fax. 351-0728

E-mail: webmaster@djppr.kemenkeu.go.id