Structured products and Islamic issues are regulated by the Capital Market and Financial Institution Supervisory Board (BAPEPAM-LK) and Bank Indonesia. Details of the rules and regulations governing these specialized products are discussed in this section.

In December 1997, the Capital Market and Financial Institution Supervisory Board (BAPEPAM-LK) issued five regulations for issuing domestic mortgages and other asset-backed securities (ABS). BAPEPAM-LK Rule Number IX.K.1 allows receivables to be repackaged as instruments for the issuance of ABS.

BAPEPAM-LK makes use of collective investment contracts to bind participating unit-holders within an ABS deal instead of through special purpose vehicles. An investment manager represents note holders of the collective investment contract and will act as the ABS issuer. The bank custodian is the safe-keeper of securitized loan documents and the depository of funds and assets. The originators—defined as the creditors to the ultimate borrowers being financed—sell their receivables to the collective investment contract. Proceeds from the securitization are paid to the originators as the purchase price of the receivables. Complete BAPEPAM-LK rules on securitization can be found by following the link provided below.

In 2005, Bank Indonesia (BI) issued Regulation 7/4/PBI/2005 to specify the asset securitization principles for commercial banks. The principles are based on BAPEPAM-LK rules for operating a collective investment contract. An unofficial translation of the relevant BI regulation is linked below.

Indonesia issued its first securitization in 1994. Eight other securitization deals followed between 1994 and 1997. These primarily involved securitization of automobile and credit card receivables. The 1997 Asian financial crisis led to the cancellation of six scheduled securitization deals. All securitization deals completed since the 1997 crisis have been conducted offshore. As a result, Indonesia’s rules on domestic securitization remain untested.

There are no specific market regulations covering issuance of securities under shari’a principles in Indonesia. However, Bank Indonesia (BI), as the banking regulatory authority, established a consultative forum in 2002 to create a comprehensive blueprint for banking under shari’a principles. The blueprint is being implemented over a ten-year period and recognizes a shari'a-specific supervisory role, which is currently being filled by the National Shari'a Board, to oversee relevant financial products, institutions, and standards.

In response to the growing interest in shari'a banking operations, BI issued the following regulations to promote transparency and prudential banking:

• Guidelines for Shari'a Bank Accounting in Indonesia
• Shari'a Commercial Bank Monthly Reports
• Earning Assets Quality
• Allowance for Earning Assets Losses for Shari'a Banks
• Short-term Financing Facility for Shari'a Banks

Commercial banks and rural banks operating on shari’a principles are required to have a shari’a supervisory board based at the bank's head office to ensure compliance with shari’a principles in the bank’s operations. The requirements for membership in a shari'a supervisory board are stipulated by the National Shari'a Council of Indonesia’s Council of Ulama.

The Capital Market Law allows regional governments to tap capital markets for funding through the issuance of municipal bonds. However, no regional government has issued municipal bonds yet because of the absence of a comprehensive legal framework.