The Islamic Corporation for the Development of the Private Sector is a multilateral affiliate of the Islamic Development Bank Group. Established in Jeddah in 1999, it has a mandate to support the economic development of its member countries by financing private sector projects in accordance with Shariah principles.
The Jakarta Globe recently talked to Khaled M. Al-Aboodi, the ICD’s chief executive, about Indonesia’s prospects for greater Islamic financing, the ease of doing business in the country and the main stumbling blocks to greater investment.
How much is the ICD investment commitment in Indonesia?
We committed $50 million last year as a line of global finance for SMEs through domestic banks and multifinance companies. The sector is very important given the size of its contribution to GDP. We are also working with Bank Negara Indonesia to establish an Islamic bank, which we hope can be established this year.
Is the $50 million investment for this year also?
It is ongoing from last year, we have to take time to qualify banks and make sure they understand the way we do business because this line is Shariah compliance.
What are the challenges to investment here?
The private sector environment has improved a lot in the last 20 years. We are also very happy that laws like sukuk and the Islamic banking law have been passed. We are willing to invest more. This is the opportunity for Indonesian companies to request finance and investment. They can access our Web site to know how to deal with us, they can even apply online.
How do you compare Indonesia’s competitiveness with other emerging countries?
The environment is improving fast. We were seeing investment coming, although the crisis has stopped or slowed investment everywhere. The economy is huge and the opportunity is huge in terms of natural resources. Indonesia has also fisheries and tourism, which is now on a very small scale but it can be expanded. One thing we would like to see is to allow foreigners to own property.
Is land ownership a big issue for Middle East investors?
For investors who want to invest in property, it is important. They want to do projects that can be presented to international investors. If I want to do a huge development, all I count on is demand from the Indonesian side. If this is resolved demand will be much stronger and developers will be encouraged to do bigger projects.
What other policies should be made to increase Middle Eastern investors’ appetites?
This is a global crisis that affects everybody and there is no quick fix. But it’s better to be prepared so that when investor confidence comes back, Indonesia will be more attractive. The other problem is that investors don’t know much about Indonesia. I am encouraging Indonesian road shows in the Middle East to establish relationships. We are ready to assess road shows, particularly involving big and mega projects. I am not in a position to suggest policy reforms, the government is fully aware what needs to be done to make the economy more attractive.
How do you see the Shariah banking prospects here?
Shariah banking is very small, about 2 percent. The government is aiming at 10 percent. Islamic finance is needed to enhance development, both for financing and investment. We see a very big role for Islamic finance here.