Indonesia has successfully raised 12 trillion rupiah through an Islamic bond (sukuk) auction, equivalent to approximately $734 million in U.S. currency. The Indonesian Ministry of Finance provided this update on Tuesday, stating that the initial target was to collect 10 trillion rupiah, which was surpassed. The auction received total bids worth 19.91 trillion rupiah, lower than the 30.26 trillion rupiah bids recorded in the previous auction on February 11.
Before Indonesia, Pakistan also utilized Islamic bonds to tackle its financial crisis. Pakistan secured $1 billion at a record return rate of 7.95%. Now, let’s understand what Islamic bonds, or Sukuk, actually are.
What is an Islamic Bond (Sukuk)?
Sukuk is a type of financial instrument issued under Islamic law (Sharia). Unlike conventional bonds, which are interest-based, Sukuk is linked to real assets and allows investors to share in the income generated from those assets.
Key Features of Sukuk:
- Interest-Free: Since Islam prohibits interest (riba), Sukuk does not provide fixed interest returns.
- Asset-Backed: Sukuk is linked to tangible assets such as land, buildings, or infrastructure.
- Profit and Loss Sharing: Investors share in the profits generated by the project but also bear the risk of potential losses.
- Sharia Supervision: An Islamic scholar committee reviews and approves Sukuk issuance to ensure compliance with Islamic principles.
Sukuk is a significant part of the Islamic financial system, offering investors a Sharia-compliant way to participate in economic growth while sharing both risks and rewards.