JAKARTA - Indonesia has sold more than 850 million dollars (S$1.2 billion) worth of Islamic bonds to domestic retail investors, three-times more than its target, officials said Monday.

The bonds, or sukuk, will mature in three years and pay 8.7 per cent, finance ministry director for debt Rahmat Waluyanto told reporters.

"The government earlier targeted to sell three trillion rupiah worth, as we're conservative. But we managed to sell 8.033 trillion rupiah," he added.

A total of 17,231 investors took part, he said.

"About 9,055 investors bought up to 100 million rupiah worth of sukuk. The top investor bought 25 billion rupiah worth. It seems that our investors are quite prosperous," Waluyanto said.

As Islamic law forbids interest payments, sukuk generate returns by other means such as lease payments on securitised underlying assets.

Indonesia is the world's most populous Muslim-majority country with around 90 percent of its 234 million people following the Islamic faith.

But it has lagged other countries such as Malaysia and Persian Gulf nations in developing an Islamic finance sector.

Islamic bonds comprise only about five percent of outstanding corporate bonds issued in Indonesia, whereas in Malaysia sukuk account for around a third or more.

Jakarta sold its first sukuk in 2008 in a local-currency deal, and launched a 650-million-dollar global sukuk last year.

Waluyanto said the government planned to sell its second global sukuk later this year.