Infrastructure Financing through Islamic
Finance in the Islamic Countries
80
The statuses of the overall procurement regime identified in Chapter 2 for Indonesia relative to
the countries in different income groupings and the East Asia Pacific (EA&P) Region are shown
in Chart 4.1.6. The index shows that the current procurement regime for infrastructure
projects in Indonesia has improved and is significantly better than the average of the EA&P
region and similar to the averages of high-income countries. All the stages of Indonesia’s
procurement regime are better than the averages of OIC member countries.
Chart 4.1. 6: Procurement Regime of PPPs: Indonesia (0-100 Highest)
Source: World Bank (2018f)
IMF and World Bank (2017) identifies that the legal framework for special purpose vehicles
(SPV) that is used for issuing securities needs to be strengthened. Since in common law
countries trust can be used as a legal form for the SPV, Indonesia being a civil law country
needs to develop an appropriate legal framework for establishing SPVs.
4.1.4.1. Legal Environment for Islamic Finance
Banking Act Number 7, 1992 enabled the implementation of conventional and Islamic banking
systems by recognizing the special features of Islamic banking. Act Number 10, 1998 further
allowed conventional banks to establish Islamic banking units (UUS) and the conversion of
conventional banks to Islamic banks. The Islamic Banking Act Number 21, 2008 further
strengthened the legal framework of Islamic banking and provided a comprehensive legal
basis to promote the growth of Islamic banking. Insurance Act Number 40 2014 governs the
entire insurance industry in Indonesia and governs both the conventional insurance and
takaful sectors. Sukuk Act Number 19, 2008 provides the legal foundations for issuing sukuk in
the country.
In order to increase the roles of Islamic finance in infrastructure financing, some policies have
been agreed to be pursued by three authorities, namely Bank Indonesia as the Islamic money
63
49
45
39 40
43
63
77
64
58
54 53 55
74
58 57
52
47 46
51
58
0
10
20
30
40
50
60
70
80
90
High income Upper-middle
income
Lower-middle
income
Low income East Asia &
Pacific
OIC Members
(40)
Indonesia
Index (0-100 Highest)
Preparation Procurement Contract management