Islamic banks sign syndicated loan deal

JAKARTA (JP): Bank Muamalat, Bank Syariah Mandiri, both of which operate under Islamic banking principles, and Bank IFI inked a Rp 70 billion (US$8.2 million) syndicated loan deal on Tuesday with a local private hospital for financing the latter's purchase of healthcare equipment.

Bank Muamalat president A. Riawan Amin said that with the deal, the banks in the syndicate would purchase healthcare equipment for the hospital, and the hospital would make repayment by installments over the next six years.

"The repayment installments are to fully cover the purchase price of the equipment and other overhead expenses such as bank employees' salaries," he said

According to Raiwan, the syndicated loan extended to the hospital was based on a profit sharing scheme rather than on interest payments as is normally the case with conventional banks.

"What they are paying are the expenses that we, the banks, have to cover," he said here on the sidelines of a conference on Islamic financial services.

The conference, held on Tuesday and Wednesday, was attended by financial consultants from other Islamic countries as well as local financial consultants.

Speakers at the conference on Tuesday included senior government officials, representatives from the Federation of Consultants from Islamic Countries, the National Association of Indonesian Consultants and the Islamic Development Bank (IDB).

Riawan said that the Islamic banks -- which adhere to Syariah principles -- did not operate based on the charging of interest, but rather based on either a profit-sharing system or on a purchase and sale system.

This particular deal was based on the purchase and sale system, he said, explaining that the total amount of the loan was determined by adding the value of the item purchased to all the related overhead expenses of the banks.

An official of the IDB said during the conference that the IDB is committed to further increasing the awareness of the Indonesian people about Syariah banking principles.

He said that the IDB had extended, since 1998, a total of US$350 million of Syariah-based loans for the importation of rice, medicine and fertilizer.

For local exporters, he added, the IDB also provided import- financing facilities for the purchase of essential capital equipment with a tenor of between six months and ten years.

"The IDB -- using Syariah principles -- gives competitive terms and conditions, like other conventional banks," he said, adding that there were no stipulations that the recipient of a loan should only be from the Muslim business community.

There are only a very few commercial banks in Indonesia operating under Islamic Syariah principles, though the number of rural banks offering services based on such principles has risen to over 50.(udi)