JAKARTA/SYDNEY: Indonesia’s central bank hopes to attract a local bank to sign up as primary dealer for short-term sukuk, or Islamic bonds, issued by the International Islamic Liquidity Management Corp (IILM), a body it helped establish in 2010 to address a lack of highly-liquid shariah compliant money market instruments.
Bank Indonesia is one of 10 shareholders in the Malaysia-based institution, but it still lacks a local dealer bank for IILM sukuk, bonds designed to help Islamic banks manage their short-term liquidity — a longstanding industry challenge.
Indonesia is Southeast Asia’s largest economy and the world’s most populous Muslim nation, but that potential has yet to translate into the country’s Islamic banking sector which remains underdeveloped.
Since August last year, the IILM has issued three-month sukuk from a $1.35bn programme but secondary trading for the paper has yet to fully develop, even though there are now nine primary dealers globally to make a secondary market. “IILM sukuk just got issued recently, with limited outstanding, its illiquid and does not have secondary market. Hence, IILM sukuk is not yet well known by Indonesia-based primary dealers,” said Yati Kurniati, director of macroprudential policy at Bank Indonesia.
A domestic primary dealer could help address this problem, even though other dealer banks have an indirect presence in the country, such as CIMB Islamic, Maybank Islamic and Standard Chartered Bank.Reuters
