Home Affairs Ministry Explains Differences Between Sukuk and Regional Bonds

The Director General of Regional Finance at the Ministry of Home Affairs, Dr Agus Fathoni, has outlined the differences between various sources of regional finance. He noted that regional loans are debt financing instruments bound by a loan agreement and are not in the form of securities. “Regional loans are bound by an agreement and are not in the form of securities. Regional bonds are securities in the form of debt acknowledgement issued by the local government,” Agus Fathoni stated. Meanwhile, regional sukuk are securities based on sharia principles, serving as evidence of a share in the ownership of regional sukuk assets, also issued by the local government. He made these remarks during a national symposium held by the People’s Consultative Assembly (MPR) in Pekanbaru, which discussed ‘Regional Bonds as an Alternative for Regional Financing and Public Investment Instruments’. The advantages and benefits of regional bonds include the fact that principal payments do not have to be in instalments, there is flexibility in determining yields, and the maturity period can be arranged flexibly. Furthermore, regional bonds can be used to accelerate regional development. “These funds can be used to finance several projects at once,” he said. The procedure requires approval from the Ministry of Home Affairs, the Ministry of Finance, the National Development Planning Agency (Bappenas), and the Coordinating Ministry for Economic Affairs. He added that stronger regulations are needed so that regional bonds can be more beneficial. Regional development currently requires sustainable financing to ensure various strategic programmes can continue. Amid this need, regional bonds are considered an instrument with the potential to support development financing while opening up space for public participation through investment. Through regional bonds, local governments have an alternative source of financing beyond the regional budget (APBD) to support infrastructure development, improve public services, and develop the economic sector. Meanwhile, the public also has the opportunity to participate in development through investment instruments managed in accordance with applicable regulations.