Indonesian exporters benefit from Islamic alliances

The Islamic Development Bank is to provide loans to struggling Bank Mandiri for the benefit of Indonesian exporters.

Indonesia's Bank Mandiri is to receive loans from the Islamic Development Bank (IDB) to finance Indonesian exporters. IDB president Ahmad Mohamed Ali announced this on Monday at a celebration of the bank's 25th anniversary in Indonesia.

The undisclosed sum of loans will be used to finance Indonesian exporters trading with the IDB nations and members of the Organization of Economic Cooperation and Development (OECD). Ali said that the loans from IDB for export credit purposes were at the request of Indonesian president Abdurrahman Wahid.

"This facility is to improve trade among IDB members and enhance Indonesia's exports, which have become the main source of Indonesia's foreign exchange," says Ali. More details on the export credit loans are expected to emerge when Indonesia's finance minister, Bambang Sudibyo, pays a visit to Saudi Arabia in early July.

Four into one

Bank Mandiri is the result of a merger of four state-owned banks in August 1999: PT Bank Ekspor Impor Indonesia, PT Bank Dagan Negara, PT Bank Bumi Daya and PT Bank Pembangunan Indonesia. Those banks were crippled by non-performing loans, and Bank Mandiri is still struggling to integrate the four institutions, analysts say.

Established in 1973, IDB aims to foster economic development and social progress of member countries and Muslim communities in accordance with the principles of Shari'ah, or Islamic law. The 53 member countries, which are also members of the Organization of the Islamic Conference, must contribute to the capital of the bank, and be willing to accept terms and conditions set out by the IDB board of governors. Islamic banking as a whole is estimated to be managing funds to the tune of $100 billion.

The Shari'ah prohibits the earning or payment of interest on all financial transactions. Instead, the bank charges a service fee to cover administrative expenses. The maximum amount of service fees charged in any one year is 2.5% of the financing amount by the IDB. In addition to service fees, the Islamic bank may also take up to one-third of the equity capital of existing or new companies. At this stage, it is still unclear as to the loan arrangements between IDB, Bank Mandiri and the exporters.