Islamic Banks Keen to Get Behind Government Infrastructure Projects
Indonesia’s Shariah-compliant banks are teaming up to take advantage of the government’s $40 billion annual budget for development projects, the biggest in five years. Bank Muamalat Indonesia, the country’s second-largest Islamic bank, wants to boost syndicated loans five-fold this year to $250 million by funding two power plants. Banks in Indonesia must limit loans for a single customer to 20 percent of their capital, putting Islamic lenders at a disadvantage because of their relatively small size. Opportunities to invest deposits are limited, as four local companies sold sukuk bonds that comply with Islam’s ban on interest last year, compared with 37 in Malaysia, the world’s biggest market for such bonds. Lenders had total paid-up capital of Rp 5.97 trillion ($684 million) as of December 2010, compared with Rp 105.52 trillion at non-Islamic banks, according to data from the central bank.
There is a shortage of corporate Islamic bond sales in Indonesia because of a lack of understanding of the taxes applied to different types of structures. Total sales of Islamic bonds in Indonesia rose 56 percent to Rp 26.2 trillion last year. The capital-market regulator is working on recommendations for two new types of Islamic bonds this year, which will bring the total number of sukuk structures to six in an effort to give companies more options. The new regulations may boost sales to at least six, from four in 2010.
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