Islamic infrastructure bank still on cards, Jakarta ’more logical’ HQ than Istanbul: Indonesia fin min official

NUSA DUA, BALI –Indonesia should be the headquarters of the new Islamic infrastructure bank due to its proximity to a substantial Muslim population in Asia, Isa Rachmatarwata, the ministry of finance’s Assistant Minister for Financial Sector Policy told Salaam Gateway.

According to him, a technical working team from Indonesia, Turkey and the Islamic Development Bank (IDB) met last month in Jeddah to discuss the establishment of the bank. Discussions have moved to concerns over the types of financing schemes the bank will offer.

IDB president Bandar Hajjar confirmed that discussions are ongoing for the establishment of the bank. "The technical working team is still discussing the feasibility of establishing the bank soon, in sha Allah," said Hajjar. 

The bank will provide medium to long-term financing for infrastructure projects and also encourage companies to issue corporate sukuk.

“The idea is to create demand from Organisation of Islamic Cooperation (OIC) countries for medium- to long-term financing,” said Rachmatarwata.

“Most institutions in Islamic finance, including the International Islamic Liquidity Management Corporation (IILM) in Malaysia, have trouble providing medium- to longer-term financing. Islamic financial institutions rely on short-term and insufficient capital. Most of them use customer deposits under trade schemes that more closely resemble riba,” he said.

The technical working team is also still discussing the location for the headquarters of the bank, with Jakarta and Istanbul both keen.

“Our President and Ministry of Finance have informed IDB president Bandar Hajjar that it’s more logical and promising to host the headquarters in Jakarta as Asia is a big potential market compared to other regions such as Europe,” said Rachmatarwata.

Turkey’s Deputy Prime Minister Mehmet Simsek said in May last year that a capital of $300 million to $500 million would be too low, referring to an Indonesian proposal to commit $300 million towards establishing the bank. At the time, Simsek said that Turkey was looking to invest more.

Indonesia’s finance minister at the time, Bambang Brodjonegoro, said Saudi Arabia, Turkey, Indonesia and the IDB could each contribute around $300 million, and called for the establishment of two regional Islamic banks based in Istanbul and Jakarta.

Efforts to create an Islamic bank with a large enough balance sheet to underwrite infrastructure deals dates back at least 10 years, but previous efforts have failed to materialise.

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