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Saudi Arabia to Join Turkey, Indonesia to found Islamic Finance infrastructure bank
b>JAKARTA: Saudi
Arabia has joined Turkey, Indonesia and the Jeddah-based Islamic Development
Bank(IDB) as
a prospective founder member of a new Islamic finance infrastructure bank,
according to Indonesia's finance minister.
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b>On the sidelines of the annual IDB
meeting of governors in Jakarta on Thursday, Bambang Brodjonegoro said the four
could contribute around $300 million each for the project, with plans calling
for the establishment of two regional Islamic banks based in Istanbul and
Jakarta.span style="font-style: normal;">
It will be the effort of not only the four of
us, but also others. But the four will be the founders.
The new entities could be operational as early
as next year, tasked no only with financing via Islamic bonds (sukuk) but also
supporting the secondary market for those financial instruments, Brodjonegoro
added.
In order to make a market for sukuk, the
existence of this bank will be very important.
The IDB held its annual meeting of governors in
Jakarta last week, with 57 member countries represented.
Efforts to create an Islamic bank with the
balance sheet to underwrite large infrastructure deals dates back more than a
decade, but previous efforts have failed to materialize.
The addition of Saudi Arabia, the IDB's largest
shareholder and home to some of the world's largest Islamic banks, could spell
success this time.
Last year, Indonesia, Turkey and the IDB said
they planned to launch an Islamic infrastructure bank, but until last month no
other countries had signaled an interest to join them.
The asset-backed nature of Islamic finance
should in theory make it ideal to build highway networks and ports, with no
shortage of projects across Muslim-majority countries.
But technical, legal and political issues have
traditionally confined Islamic finance to mid-sized deals with shorter tenors.
The IDB has also held discussions with the China-backed
Asian Infrastructure Investment Bank (AIIB) to use Islamic finance in joint
transactions.
The two multilateral lenders could help
co-finance a $1.74 billion national slum upgrading project in Indonesia, which
could be announced as early as next month.
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