Govt to support community forests through sharia financing

The Jakarta Post, Jakarta | Sat, 10/17/2009 1:10 PM

The forestry ministry is working with Bank Muamalat to provide sharia bank revolving funds to back development of community forests, a senior government official said.

Speaking in a seminar on Thursday, Deny Kustiawan, head of the ministry's center for forest development financing, said the sharia funding would be partly supported by government funds.

Deny said regular banks still considered investing in community forest development but since it involved a high risk then government intervention was needed.

The government has decided to develop a total of 1,550 million hectares of community forest during the next five years. But every hectare to be developed needs an investment of Rp 11.7 million.

The support for developing community forests emerges in response to the declining output of logs from natural forests operated under government concessions due to massive deforestation. The government said developing community forests would allow a period of rehabilitation for degraded natural forests.

Deny said the government had allocated Rp 1.4 trillion (US$148 million) this year to help finance development of community forests via three possible financing schemes: conventional financing, sharia funding and a special financing scheme with regional development banks (BPRs).

"We expect to get an additional Rp 625 billion next year," Deny said

He said the government would not make any specific allocation of on the proportion of funds for each of the financing schemes.

"Let the market decide. If the public prefer the conventional one let them do so. If they choose the sharia scheme then let them do it. We'll help them do the financing through whichever way they choose," he said.

The sharia scheme will be the last to roll out among the government's initiatives to support development of community forests.

Deny said the ministry was in the process of assessing two loan proposals from local cooperatives: Madina Cooperative in North Sumatra and the North Maluku Cooperative.

"We are still working on the formulas for financing that adhere to sharia principles," he said.

Analysts have expressed reservation on the effectiveness of financial support as the key problems in developing community forests still rest on the conflicts arising from uncertain or overlapping land ownership.