Since the introduction of fiscal autonomy for subnational governments in 2004, there has yet to be any issuance of municipal bonds and/ or municipal sukuk. Over the years, several provinces have initiated preparations for issuances. Still, they are met with a multitude of challenges: regulatory, awareness, and capacity, as well as the lack of political commitment—to name a few. West Sumatra recently emerged as a prospective sukuk issuer, when in January 2024, Governor Mahyeldi Ansharullah expressed his plans to explore sukuk to bolster the province’s development targets.
Municipal Sukuk is one of the innovative financing instruments that provide alternative financing sources for subnational governments to help expand their limited budget. By tapping into sukuk, subnational governments can mobilize capital to drive development projects that align with the Sustainable Development Goals (SDGs), thus fostering economic growth and social progress. UNDP Indonesia has been at the forefront of pioneering innovative financing instruments. Through the UN Joint Programme Accelerating SDGs Investments in Indonesia (ASSIST), UNDP aims to leverage the innovative use of debt instruments to align development priorities with the SDGs targets, including at the subnational level.
One such initiative in this area is the support to the West Sumatera Province through a technical workshop focused on municipal sukuk. This workshop, organized in collaboration with the National Islamic Finance Committee (Komite Nasional Ekonomi dan Keuangan Syariah/KNEKS), marked a significant step towards enabling subnational governments to tap into alternative financing sources for development, thereby fostering sustainable growth in the region. This initiative is part of a broader strategy to enhance subnational government financing options, improve fiscal independence and sustainability, and accelerate the achievement of sustainable development.
The two-day workshop, delivered in Padang on 12-13th June 2024, equipped over 40 West Sumatera Provincial Government officials with the necessary technical knowledge and skills to prepare, issue, and manage municipal sukuk. Representatives of stakeholders within the municipal bond/sukuk ecosystem, including the Ministry of Finance, the Ministry of Home Affairs, the Financial Services Authority (Otoritas Jasa Keuangan/OJK), the Indonesian Ulema Council (Majelis Ulama Indonesia), Pefindo, and INA Sekuritas participated as speakers in the workshop, which covered a range of topics, including legal and regulatory frameworks, case studies and best practices, technical and practical steps, as well as introducing the principles of sustainable development and financing.