JAKARTA, July 10, 2008 (AFP) - Indonesia will issue its first Sharia-compliant bonds this year in August and October to fund the budget, Finance Minister Sri Mulyani said Thursday.

The government will issue a rupiah-denominated Sharia bond in August and a US dollar-denominated bond in October, Mulyani told reporters.

She said the bonds will have a tenure of seven to 10 years and an ijarah format, under which an asset is leased to the purchaser.

Mulyani said the bonds will have a fixed coupon, without elaborating, although this is likely to refer to a fixed rate of return generated by the leasing arrangement on the backing assets.

She added that the bonds will be backed by 18.37 trillion rupiah (two billion dollars) in assets.

Shariah law forbids the charging of interest, so Shariah bonds generate income from leasing assets or from profit-sharing agreements between the issuer and the buyer.

Issuance will be via a book building, she said.

Indonesia's parliament passed into law last month a bill regulating the establishment and ownership of Sharia-compliant banks.

- Dow Jones Newswires contributed to this article -