This summary covers a US Dollar-denominated loan from financial institutions to Lembaga Pembiayaan Ekspor Indonesia ("Indonesia Eximbank") in Indonesia. The MIGA guarantee will be an amount of up to US$400 million, including principal, interest and premium, for a period of up to 11 years against the risk of Non-Honoring of Financial Obligations by a State-Owned Enterprise (NHSOE).
Indonesia Eximbank is a financial institution owned (100%) by the Government of the Republic of Indonesia, which was established pursuant to Law No. 2 of 2009. Indonesia Eximbank was specifically created to provide National Export Financing in the form of financing, guarantees and insurance, as well as advisory services conventionally and on sharia principle-basis, domestically or overseas. It provides working capital, investment and buyer’s credit, insurance, and coaching and advisory services, and supports the National Interest Account (the national export program) with the aim to improve Indonesian trade competitiveness in the global market. It also supports export-oriented infrastructure projects, and trade by corporations and SMEs in more than 60 countries.
Under this proposed project, the lenders will extend a loan facility denominated in US dollars to Indonesia Eximbank to strengthen and diversify Eximbank’s funding base and support Indonesia Eximbank’s mission to grow exports, diversify export markets, and better match assets and liabilities.
This project is a Category FI-1 project according to MIGA’s Policy on Environmental and Social Sustainability because Indonesia Eximbank’s portfolio includes financial exposure to business activities with potentially significant environmental or social risk.
MIGA analyzed the portfolio of Indonesia Eximbank for types of transactions, tenor, size, and industry sectors. As of May 2018, Indonesia Eximbank portfolio consists of approximately 12% SME financing, and 85% corporate and project finance, out of which the majority (65% of the total portfolio) is long term. The remaining portion of the portfolio is made up of trade finance and employee loans. Indonesia Eximbank does not have exposure to the MIGA Exclusion List.
Corporate finance transactions include, among others, exposure to potentially high risk environmental and social sectors such as mining, manufacturing, and agriculture, including palm oil. The main environmental and social (E&S) risks of this project are associated with the bank’s lending activities in high risk sectors and its capacity to manage these risks. The applicable environmental and social requirements are MIGA’s Exclusion List; applicable national social and environmental laws and regulations; and MIGA’s Performance Standards.
MIGA assessed Indonesia Eximbank existing environmental and social management procedures and labor practices against the requirements of Performance Standards 1 and 2. MIGA also considered the emergency response plan, and fire and life safety procedures of Indonesia Eximbank, as well as human resources and labor practices.
Based on MIGA’s review and applicable performance requirements, an environmental and social action plan (ESAP) will be agreed to with Indonesia Eximbank for implementation within a defined timeframe. The ESAP will include the following items: (1) Develop and implement an Environmental and Social Management System (ESMS) commensurate with the level of E&S risks in the portfolio, and incorporate MIGA’s applicable environmental and social requirements, including the application of the Performance Standards to project finance and corporate loans; (2) nominate an E&S officer to coordinate the development and implementation of the ESMS; (3) Implement a training program to strengthen the E&S capacity of the bank to implement the ESMS; (4) Update the HR and life & fire safety procedures to align with the requirements of Performance Standard 2; (5) Implement a procedure for external communications and the receipt, tracking and management of grievances, accessible to the public.
Indonesia Eximbank will report periodically to MIGA on the update and implementation of the revised ESMS, as well as ongoing compliance with MIGA E&S requirements.
It is anticipated that MIGA’s proposed guarantee will allow Indonesia Eximbank to provide longer tenor funding to Indonesian exporters, increasing its scope and contributing to the diversification of the Indonesian economy by supporting the progressive expansion into new, non-commodities-driven export markets.