Expansion of the Securities Valuation Framework: Sukuk, Asset-Backed Securities, and Money Market Instruments in Indonesia

Developments in Indonesia’s financial sector regulations indicate an increasingly broad range of instruments that may be subject to valuation under various investment and asset management regimes. Sukuk, asset-backed securities, and money market instruments have been accommodated under a number of provisions concerning investment, asset valuation, and the use of securities as collateral.

The framework not only expands the types of instruments that may be taken into account, but also establishes different valuation methods according to the characteristics of each instrument, including the use of market value, fair value, closing price, selling price, and adjustments or haircuts for specific purposes.

1. Position of Sukuk and Asset-Backed Securities under the Indonesian Legal Framework

Sukuk are sharia securities with specific characteristics based on Sharia Principles.

Under OJK Regulation No. 18/POJK.04/2015 on the Issuance and Requirements of Sukuk, sukuk are defined as sharia securities in the form of certificates or proof of ownership of equal value representing an undivided ownership interest in the underlying assets.

Accordingly, sukuk remain classified as securities, but have characteristics that distinguish them from conventional debt securities, particularly because their structure is based on sharia contracts and underlying assets.

Sukuk must also use assets that do not contravene Sharia Principles in the Capital Market. These requirements cover the activities and assets underlying the sukuk as regulated under OJK Regulation No. 18/POJK.04/2015.

Meanwhile, asset-backed securities (Efek Beragun Aset) are securities whose value is based on a pool of underlying financial assets. Under various financial sector regulations, asset-backed securities have been recognized as instruments that may be subject to investment and valuation based on market value or fair value.

2. Valuation of Asset-Backed Securities in the Insurance and Reinsurance Industry

One example of a regulation that expressly covers asset-backed securities is the framework governing the basis for asset valuation by insurance and reinsurance companies.

Under OJK Circular Letter No. 22/SEOJK.05/2017, asset-backed securities listed on the Indonesia Stock Exchange are valued based on market value using the latest closing price.

Where no market value is available, valuation is based on fair value determined by a securities pricing agency licensed by OJK or an internationally recognized securities pricing agency.

This provision places asset-backed securities within a valuation framework that also applies to various other securities.

For other instruments, the Circular Letter also provides for the use of fair value or market value depending on the characteristics of the relevant instrument. Shares, corporate bonds, medium term notes (MTN), government securities, foreign government securities, Bank Indonesia securities, and securities issued by multilateral institutions are among the instruments subject to the valuation methods specified under the regulation.

Meanwhile, repurchase agreement (repo) transactions involving securities are valued based on amortized cost using the effective interest rate method.

Accordingly, valuation in the insurance sector depends not only on the type of security, but also on the availability of a market price or the need to use fair value determined by a securities pricing agency.

3. Sukuk in Government Investment

Sukuk are also expressly recognized under the regulations governing government investment.

Minister of Finance Regulation No. 53/PMK.05/2020 on Procedures for Government Investment provides that debt securities eligible for government investment may take the form of debt securities and/or sukuk.

Such instruments may be issued by the central government, regional governments, corporations or other legal entities, foreign governments, and foreign corporations or legal entities, subject to certain requirements.

For debt securities or sukuk issued by corporations or other legal entities, the issuer must satisfy investment-grade rating requirements from a rating agency recognized by OJK. Similar requirements apply to foreign issuers as provided under the regulation.

From a valuation perspective, Minister of Finance Regulation No. 53/PMK.05/2020 provides that government investment in shares, debt securities, and securities-related instruments must be carried out based on the fair value of the securities.

For shares and/or debt securities traded on a stock exchange, implementation must comply with the prevailing laws and regulations in the capital markets sector.

4. Sukuk and Asset-Backed Securities as Investment Instruments for Guarantee Institutions

OJK Regulation No. 11 of 2025 on the Operation of Guarantee Institutions also specifically regulates the types of securities that may be used as investments by guarantee institutions.

Investments in corporate bonds and corporate sukuk must, among other requirements, involve securities listed on the Indonesia Stock Exchange and having an investment-grade rating from a rating agency licensed by OJK for the period specified under the regulation.

For regional government bonds and regional sukuk, the regulation requires an effective registration statement as well as an investment-grade rating from a rating agency licensed by OJK.

Meanwhile, asset-backed securities and sharia asset-backed securities may be used as investment instruments if they satisfy certain requirements, including:

1. being listed on the Indonesia Stock Exchange;
2. having an investment-grade rating from a rating agency licensed by OJK; and
3. being issued through a public offering in accordance with capital market regulations.

OJK Regulation No. 11 of 2025 also regulates MTN and sharia MTN as investment instruments subject to certain requirements, including registration with the Indonesian Central Securities Depository, the existence of a monitoring agent registered as a trustee with OJK, and an investment-grade rating.

These provisions indicate that the eligibility of an instrument for inclusion in a guarantee institution’s investment portfolio depends not only on the type of security, but also on its listing status, rating, custody arrangements, and monitoring.

5. Sukuk in Sharia Mutual Funds

The regulations governing sharia mutual funds impose specific requirements on the composition of investments involving sukuk.

Under OJK Regulation No. 33/POJK.04/2019 on the Issuance and Requirements of Sharia Mutual Funds, a sharia mutual fund based on sukuk must invest at least 85% of its Net Asset Value (NAV) in sukuk.

Such investments may consist of sukuk offered through public offerings in Indonesia, sharia government securities, and/or sukuk offered without a public offering.

For sukuk offered without a public offering and falling within the prescribed investment limit, the regulation also requires, among other things, that the sukuk have an investment-grade rating, be rated at least once a year, and be held in collective custody with a central securities depository.

These provisions relate to the portfolio structure of sharia mutual funds and establish specific requirements for instruments that may be included in the portfolio.

For sharia mutual funds based on foreign sharia securities, OJK Regulation No. 33/POJK.04/2019 also provides requirements concerning the issuer’s country of origin, including its membership in the International Organization of Securities Commissions (IOSCO) and its status as a signatory to the IOSCO Multilateral Memorandum of Understanding.

6. Sukuk as Collateral for Short-Term Sharia Liquidity Financing

Bank Indonesia also regulates the valuation of sharia securities used as collateral for short-term liquidity financing based on Sharia Principles.

Under Bank Indonesia Regulation No. 5 of 2023 on Short-Term Liquidity Financing Based on Sharia Principles for Sharia Commercial Banks, the value of sharia securities, financing assets, and fixed assets used as collateral is determined using different methods depending on the type of asset.

For certain instruments:

• Bank Indonesia Sharia Certificates are calculated based on nominal value;
• Bank Indonesia Sukuk are calculated based on selling price;
• State Sharia Securities are calculated based on market value;
• corporate sukuk issued by other legal entities are calculated based on market value;
• financing assets are calculated based on market value; and
• fixed assets are calculated based on market value.

The regulation also applies specific collateral value requirements in relation to the financing ceiling.

For example, collateral in the form of State Sharia Securities must have a value of at least 102% of the financing ceiling based on market value, while corporate sukuk must have a value of at least 120% of the financing ceiling based on market value.

For State Sharia Securities and Bank Indonesia Sukuk, the explanatory provisions link the market value or selling price to the price recorded in Bank Indonesia’s system for the settlement of securities transactions in scripless form.

7. Sukuk Structure and Sukuk Trustee Agreement

In addition to valuation, the legal structure of sukuk contains specific requirements concerning the underlying assets and the rights of sukuk holders.

OJK Regulation No. 18/POJK.04/2015 requires issuers conducting public offerings of sukuk to enter into a sukuk trustee agreement.

The agreement must at least contain provisions concerning:

• the sharia contract underlying the sukuk;
• the assets underlying the sukuk;
• the use of proceeds from the issuance;
• the source of funds for the payment of profit-sharing, margin, or fees;
• the profit-sharing ratio, margin, or fees;
• collateral, if any;
• the schedule and procedures for payment; and
• the obligations of the trustee in relation to the issuer’s compliance with the sharia contract and Sharia Principles.

The agreement also regulates certain circumstances, such as the substitution or replacement of the underlying assets, including where the value of such assets no longer corresponds to the value of the sukuk.

Accordingly, the contractual structure of sukuk specifically addresses the relationship between the sharia contract, underlying assets, the rights of sukuk holders, and the obligations of the issuer.

8. Money Market Instruments and Valuation Convergence

In addition to sukuk and asset-backed securities, various provisions also cover instruments relating to money markets and short-term transactions.

MTN and sharia MTN, for example, are among the instruments that may be used as investments by guarantee institutions under OJK Regulation No. 11 of 2025, subject to requirements concerning registration, monitoring, and investment ratings.

Similarly, repo and sharia repo transactions are regulated as investment instruments subject to certain requirements. These include the transfer of ownership of the securities underlying the transaction, the use of written agreements implementing the Indonesian Global Master Repurchase Agreement recognized by OJK, and restrictions on the types of securities that may be used as collateral.

Such transactions must also comply with requirements concerning registration with the relevant settlement system and limits on the transaction value relative to the market value of the pledged securities.

In the insurance context, Bank Indonesia securities and government securities are also subject to valuation based on market value or fair value as provided under OJK Circular Letter No. 22/SEOJK.05/2017.

Accordingly, various short-term instruments and securities-based transactions have also been incorporated into a valuation framework that takes into account market value or fair value depending on the characteristics of each instrument.

9. An Increasingly Integrated Valuation Framework

Taken as a whole, these provisions indicate that sukuk, asset-backed securities, and money market instruments have been given an increasingly defined position within various investment and valuation regimes in Indonesia’s financial sector.

The key characteristics of this framework include:

• Recognition of sukuk as securities, while maintaining specific requirements based on Sharia Principles and the underlying sharia contract;
• Specific regulation of asset-backed securities, including the use of market value or fair value where market prices are unavailable;
• Use of market value and fair value as valuation bases across various sectors, including insurance, government investment, guarantee institutions, and sharia liquidity financing;
• Use of market infrastructure and securities pricing agencies as valuation references in certain circumstances;
• Investment-grade rating, listing, and custody requirements for certain types of instruments before they may be included in investment portfolios; and
• Application of haircuts or excess collateral requirements where securities are used as financing collateral.

This framework reflects increasingly specific regulation concerning how various types of securities are valued and used in the financial sector. However, the applicable valuation method continues to depend on the type of instrument, its intended use, and the relevant sector-specific regulations.

This alert is part of a series examining legal and regulatory developments affecting Indonesia’s financial services and capital markets sectors. As valuation requirements may differ depending on the type of instrument and its intended use, further developments should be monitored for their potential implications for financial institutions, investors, issuers, and other market participants. Please feel free to contact us should you wish to discuss these developments further.

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