Individual investors, hungry for high returns on their savings and investments, are rushing to buy the first government sharia-compliant debt papers for retail investors’ savings to offer higher yields than savings accounts and deposits.

The non-tradable instrument, called “savings sukuk”, sold like hot cakes, prompting the government to upsize the issuance from the previous Rp 2 trillion (US152 million) target to Rp 2.58 trillion from 11,338 individual investors, particularly from western Indonesia.

Almost half of the investors purchased savings sukuk with values ranging from Rp 2 million to Rp 50 million, indicating that the government attracted more individual investors to contribute to state budget financing.

“One of the aspects that led to high demand for savings sukuk was its attractive yield compared to time deposit rates or other government debt papers with a similar tenor,” said MNC Securities fixed income analyst I Made Adi Saputra.

The government offers a yield of 6.9 percent annually for the ST-001 serial savings sukuk, higher than the average 6.5 percent on time deposits. Returns will be paid on a monthly basis until the non-tradable debt papers expire in the second year. They can also be redeemed after one year with a minimum holding of Rp 4 million.

With the central bank implementing an easing bias policy stance, interest rates are expected to decline and so investors had an opportunity to lock yields at an attractive level through investing in savings sukuk, Made said.

Mandiri Sekuritas fixed income analyst Handy “Anto” Yunianto said the government had achieved its aim of expanding the retail investor base as savings sukuk were non-tradable and had a lower limit of purchase value.

The minimum purchase for savings sukuk is Rp 2 million, much lower than the usual retail government bonds’ minimum order of Rp 5 million, according to the Finance Ministry. The maximum purchase is Rp 5 billion per identity card.

“Because it is non-tradable yet with a fixed return, investors will not enjoy capital gains whenever the yields decline,” he said.

The high demand for savings sukuk indicates positive prospects in overall bond investment for the next three months amid benign inflation and declining benchmark interest rates, Anto added.

“Global yields are still low, so Indonesia offers more attractive real yields compared to its peers in Asia,” he said.

Robert Pakpahan, the Finance Ministry’s financing and risk management director general, said savings sukuk were introduced based on the government’s expectation that retail investors could play a bigger role in state budget financing.

As part of efforts to increase the number of retail investors, Robert said the ministry would offer a new serial of government retail bond (ORI) between Sept. 29 and Oct. 20.

Finance Minister Sri Mulyani Indrawati said previously the government would continue to diversify its financing sources and investment instrument options to further reach out to the public to help plug the state budget deficit.

The deficit is expected to swell to 2.5 percent of the country’s gross domestic product, from the 2.35 percent targeted in this year’s revised state budget.

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