The Jeddah-based Islamic Development Bank (IDB) Group) is boosting its ties with Indonesia, the world's most populous Muslim country, under its Member Country Partnership Strategy (MCPS), a new initiative launched by the IDB in 2010 to identify, target, allocate, implement and evaluate its financing more efficiently in member countries. Thus far, already $3.5 billion have been allocated under this program to Indonesia for 2011-2014.
The latest initiatives under the MCPS include a Strategic Partnership Agreement (SPA) signed during the IDB Group/Indonesia meeting held in Jakarta on in May 2011 by the Islamic Cooperation for the Development of the Private Sector (ICD), the private sector financing arm of the IDB Group, and the Lembaga Pembiayaan Ekspor Indonesia (Indonesia Eximbank), to jointly explore investment opportunities in Indonesia and other IDB member countries. (full story - arab news)
Under the SPA, both parties agreed to undertake joint strategic collaboration in the co-financing of selected Indonesia projects as well as syndication and other related areas that benefits the private sector as well as the country. This will also pave the way for Indonesia's private sector in expanding their business to new and emerging markets especially to OIC countries
Indonesia Eximbank is unusual in that its primary function is not confined to export credit, guarantees and investment insurance, but it can also under its mandate extend lines of credit for exports out of Indonesia. Normally the tie-up in the Islamic finance space would be between and export credit agency and another IDB entity, the Islamic Corporation for the Insurance of Export Credit and Investment (ICIEC). In fact, the board of ICIEC is due to meet in Jeddah in June 2011 to approve an increase in the capital of the corporation from ID150 million ($240 million) to ID400 million ($640 million).
Abdel Rahman El-tayeb Taha, the CEO of ICIEC, is confident that "the increase in the capital resources of ICIEC will significantly enhance the insurance capacity of the Corporation and enable it to meet the huge demand ICIEC's credit and country risk insurance services from exports and investors in member countries." ICIEC's latest financial report, which will be unveiled in Jeddah in June 2011, will show a remarkable 91 percent increase in business insured which reached an encouraging $1.97 billion and a 52 percent increase in new insurance commitments which reached $3.25 billion. Significantly, during the last fiscal year ending February 2011, ICIEC did not pay out a single claim.
ICD and ICIEC do cooperate closely. According to Khalid Al-Aboodi, CEO of ICD, this SPA strengthens the relationship between ICD and its key member country, Indonesia. It also provides a good platform for both parties to initiate more investment activities within Indonesia, OIC member countries and beyond.
The ICD also signed an agreement with Sritex Group in Indonesia whereby ICD was appointed the mandated lead arranger (MLA) for a $140 million syndicated Islamic facility. ICD itself will commit a significant participation in the transaction together with local and regional banks.
The funds will be used to construct a state-of-the-art Rayon Fibre (RF) plant in Central Java Province with an estimated annual production capacity of 80,000 tons. The project, according to ICD, will be a downstream industry in a chain of backward linkage units in the textile industry. The Sritex Group is already operating a number of textile production, weaving and spinning units. Therefore, the project will help in reducing the importation cost of Rayon Fibre, making the whole group gain a competitive edge.
Another IDB Group entity, the Islamic Trade Finance Corporation (ITFC), similarly signed two Murabaha agreements - one with CV Arvis Sanada and the other with CV Ujang Jaya for purchase of coffee beans for exports as part of IDB role to develop agriculture and rural development. The ITFC has also signed a memorundum of understanding (MoU) with Bank Muamalat to collaborate on Islamic trade finance.
Source : http://arabnews.com/economy/islamicfinance/article422357.ece - May 22, 2011
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