Infrastructure Financing through Islamic
Finance in the Islamic Countries
88
Table 4.1. 8: Issues and Policy Recommendations: Indonesia
Issues Recommendations Implemented by
Infrastructure Related Strategies and Policies
 PPP projects and contracts are
novel and complex.
 Indonesia is one of the few
countries that has guarantees
for implementation of PPP
contracts.
 Developing Shariah-compliant contract
templates that can be used for different
types of PPP projects.
 Expand the scope of guarantees and
insurances to cover other risks such as
political risks and partial credit risks in
a Shariah-compliant manner.
 Relevant ministry in
coordination with IDBG
 Relevant public bodies
 Private sector
insurance/takaful
companies
Legal and Regulatory Regimes
 While Indonesia has Islamic
banking and capital
markets/sukuk law, the takaful
industry operates under single
insurance law.
 The regulatory framework for
capital requirements
discourages banks from
investing in long-term projects
as these would require higher
capital charges.
 Since Islamic banks are relatively
small, their contribution to
infrastructure development can
be enhanced by jointly funding
the projects with other banks
through syndicated financing.
 Introduce specific takaful law to help
promote the industry further.
 Balance between financial stability
objectives and lowering the capital
requirements for investments in long-
term projects to encourage more
involvement of Islamic banks in
infrastructure financing.
 Develop a sound legal framework and
contracts for syndication to increase the
participation of Islamic banks in
infrastructure projects along with other
banks
 Relevant government
ministry
 Banking regulatory
bodies (OJK and Bank
Indonesia)
 Relevant government
ministry
Government and Public Bodies
 Government-linked financial
institution PT SMI provides
financing for infrastructure
projects
 Strengthen PT SMI to further encourage
pooling of funds from different sources
for investments in infrastructure
projects in a Shariah-compliant manner.
 PT SMI can also provide information
and advisory services on Islamic project
financing and the potential
infrastructure projects that other
financial institutions can invest in.
 Board and Senior
management of PT SMI
Islamic Financial Institutions
 One key factor that limits the
involvement of Islamic banks in
long-term infrastructure projects
is liquidity risks arising from
their short-term and liquid
liabilities.
 One way in which liquidity risk
of Islamic banks (that can arise
 Separate deposits and (restricted)
investment accounts in Islamic banks.
Since the investors in the latter are
expected to have long-term perspectives
and also bear the risks of the
investments, Islamic banks would be
able to use these funds for investment in
the infrastructure sector and will not be
required to hold much capital for
investment.
 Improve the efficiency and depth of
Islamic money markets to create
 Relevant ministry and
regulators
 Islamic banks
 Central bank
 Other stakeholders such