Danamon Syariah and ITFC to Disburse $200m in Shariah-Based Financing

JANUARY 22, 2015

Jakarta. Bank Danamon Indonesia, the country’s sixth-biggest lender by assets, and its Islamic banking unit, Danamon Syariah, have joined hands with the International Islamic Trade Finance Corporation to disburse $200 million in shariah-based trade financing in Indonesia this year.

“This is the first time the ITFC has collaborated in shariah joint trade financing with an Indonesian bank, and it is with great pride that Danamon was appointed by the ITFC as its agent to arrange the financing for customers as well as provide trade finance services and trade collateral management,” said Henry Ho, president director of Bank Danamon Indonesia, during the signing in Jakarta on Thursday.

The ITFC is a unit of the Islamic Development Bank Group.

The partnership targets to book as much as $1 billion in shariah-based trade financing within the next five years, starting with $200 million this year.

“We are pleased to work with Danamon in this collaboration and with the right and active trade finance partner; this partnership is a milestone to boost the growth of shariah trade finance in Indonesia,” said Eng. Hani Salem Sonbol, a deputy chief executive of the ITFC.

Herry Hykmanto, president director at Danamon Syariah, said that much of the financing was likely to go to local businesses in food and agribusiness, which are export-oriented.

Danamon Syariah disbursed up to Rp 300 billion ($24 million) in shariah-based trade financing last year, making up roughly 3 percent of Danamon’s total trade financing of Rp 10 trillion last year, according to Danamon’s head of trade product management, Margaret Tjahjono.

Outstanding loans at Danamon stood at Rp 139 trillion in the January to September period last year, up 7 percent from the same period in 2013.

Danamon is one of the many commercial banks in Indonesia that offer Islamic banking services. Others include state lender Bank Mandiri and CIMB Niaga. Indonesia’s financial regulator applauded the agreement as a significant boost to spur the growth of the country’s shariah banking industry.

“For shariah banks, trade financing can be a strategy in increasing the banks’ revenue amid the limited number of alternative shariah instruments, especially with the increase in foreign exchange liquidity from hajj funds,” said Mulya Siregar, deputy commissioner in charge of monitoring banks at the Financial Services Authority, or OJK.