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BI contributes $5m in equity to IILM
Bank Indonesia (BI) has received an approval from the House of Representatives to contribute US$5 million in equity to the newly established International Islamic Liquidity Management (IILM) to support the country’s growing Islamic banking sector
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ank Indonesia (BI) has received an approval from the House of Representatives to contribute US$5 million in equity to the newly established International Islamic Liquidity Management (IILM) to support the country’s growing Islamic banking sector.
Money talks: Bank Indonesia Governor Darmin Nasution (left) talks with Achsanul Qosasi, the vice chairman of the House of Representatives’ Commission IX overseeing banking and financial affairs, before a meeting at the House on Monday. JP/R. Berto Wedhatama The approval was formally made during a hearing between Bank Indonesia and the legislators on Monday.
During the hearing, BI governor Darmin Nasution said that with the equity participation of $5 million, the central bank would have five shares each worth $1 million in the institution.
Darmin said BI would become a member of the governing board in the institution which it and another 10 central banks and two multinational organizations in Asia established in October last year.
“BI will be able to invest in sukuk [Islamic bonds] and other Sharia instruments issued by the IILM, and the government could also get higher ratings in issuances of sukuk or other Sharia instruments so that costs of financing could be lower,” he told members of the House’s Commission XI at a session in Jakarta.
The IILM would also widen investors’ basis for global debt papers, including global sukuk issuances, and increase Indonesia’s participation in growing the Sharia industry both globally and regionally, Darmin added.
Indonesia has been involved in the IILM as a “conditional party”, and by adding capital to the institution the country would become a member of the governing board.
“If Indonesia becomes a member of the governing board, the country will take a role in determining the strategies and policies to promote IILM as one of the international Islamic financial landmarks, especially in boosting the growth of regional Sharia financing,” he said in a session with the House’s Commission XI in Jakarta.
The IILM is a multinational Islamic finance institution with 12 members including Iran, Malaysia, Kuwait, Luxemburg, Mauritius, Nigeria, Qatar, United Arab Emirates, Sudan, Turkey, Saudi Arabia and the Islamic Cooperation for the Development of the Private Sector (ICD).
Dolfi OFP, a Commission XI member from the PDI-P (Indonesian Democratic Party of Struggle), expressed concern that Indonesia would have to submit to Malaysian law as the host country of the IILM.
“Politically, we could not allow ourselves to bow down to Malaysian law,” he said in the meeting.
However, BI deputy governor Halim Alamsyah cleared the concerns, saying that Indonesia would not submit to Malaysian law but to the organization’s regulations.
The House granted approval under conditions that the central bank must report to Commission XI about the development of its involvement in the IILM.
“Despite high market potential, the role of the Sharia financial industry is still relatively small... The general issue in Sharia banking is liquidity management,” Darmin said, hoping that IILM membership would help ease such liquidity problems.
In Indonesia, assets of Sharia banks only account for 3.2 percent of the total banking industry’s assets, or Rp 100.2 trillion ($11 billion) as of the end of 2010.
“The Sharia financial industry has shown promising potential and prospects. In the last 10 years, assets of Sharia banks increased by more than 50 times and the amount of the third party funds stored at Sharia banks jumped over 70 times,” Darmin said
