LocationsBuilding Technical Capacity of West Sumatera Province - a Road to Municipal Sukuk Issuance
July 5, 2024
Nila Murti, UNDP's National Project Manager, on her remarks applauding the government of West Sumatra's province on tapping into alternative financing sources for development.
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.
UNDP continues its support to West Sumatera province and other prospective local governments in Indonesia to leverage thematic municipal bonds/sukuk.
Nila Murti, National Project Manager of ASSIST JP, welcomed West Sumatera's aspiration, “UNDP greatly appreciates this innovative initiative by the West Sumatra Provincial Government, particularly in financing sustainable development. UNDP will continue to extend support for this initiative, specifically in the area of thematic bonds, which are crucial to channel funds toward sectors that significantly contribute to SDGs. By assisting in the development and issuance of these bonds, we aim to ensure that the funds raised are effectively allocated to projects that promote environmental sustainability, social equity, and economic growth.”
She further highlighted this step's significance in achieving the SDGs at the subnational level. UNDP, through the ASSIST JP, is helping to ensure that subnational development efforts are effective and sustainable. This initiative not only provides West Sumatra with new tools to achieve its development targets but also sets a precedent for other provinces to follow, thereby contributing to the broader goal of sustainable development across Indonesia.
Kuartini Deti Putri, Head of the West Sumatra Province Economic Bureau added in her remarks, “By the Governor's directive to expedite the municipal sukuk issuance process and his announcement three months ago regarding the establishment of a team to accelerate this initiative, we are keenly anticipating the issuance of municipal sukuk as a strategic solution to fund regional infrastructure development. With the support of KNEKS and UNDP, we are engaging experts to provide valuable insights to West Sumatra government personnel, thereby ensuring a successful Sukuk issuance process.”
Moving forward, UNDP, in collaboration with KNEKS, will continue to support West Sumatera and other prospective local governments in Indonesia by providing ongoing technical assistance, facilitating knowledge sharing, and promoting best practices in leveraging thematic municipal bonds/sukuk. By empowering subnational government officials with the tools and knowledge needed to leverage these innovative financing instruments, UNDP is helping to unlock new sources of funding for sustainable development and drive progress towards the SDGs.
Written by Garnadipa Gilang and Jessica Febriana
Edited by Enggi Dewanti
