INSIGHTS ISLAMIC TRADE FINANCE - Malaysia International ...

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INSIGHTS ISLAMIC TRADE FINANCE - Malaysia International ...

InsightsISLAMIC TRADE FINANCEOpportunities in Islamic Trade FinanceIslamic trade finance has benefitted from the shiftingpreferences towards Shariah-compliant banking and couldserve as one of the key growth drivers to help the USD1.6tlnIslamic finance industry double in size.Trade has been recognised as an important tool for economic growth. Trade enhances acountry’s access to goods, services, technology and even knowledge among others. It fostersentrepreneurial activity, thereby creating jobs and demand for credit or trade finance. Accessto trade finance is crucial for every country as it helps in the exchange of goods and services inthe international market. According to World Trade Organisation (WTO), trade finance supportsnearly 90% of global trade, making it vital to economic prosperity.As measured by the International Monetary Fund (IMF), the volume of global trade in goods andservices plummeted in the face of the global financial crisis, dropping by 10.6% y-o-y in 2009. Asof 2010, however, global trade had more than recovered and recorded 12.5% y-o-y higher thanits 2006 peak. Yet the geographic composition of that trade has shifted to reflect the divergentgrowth performance of the developed and emerging economies. In 2008, emerging economiesaccounted for only a third of world trade, but in the subsequent three years they contributedalmost 60% of the growth seen in imports of goods and services and 52% of the growth seenin exports. This rise reinforced a trend already evident prior to the crisis, and that trend isexpected to become even more important in the future. It is clear that global trade is increasinglyconcentrated in and among emerging economies.Global Trade in Goods and ServicesSource: IMF WEO April 2013, KFHRwww.mifc.com1


InsightsISLAMIC TRADE FINANCEBased on the ITFC’s annual report, the Asia/CIS region held the largest share (64.6%) of the totalapprovals in 2011, followed by the MENA region (29.0%) and Sub-Saharan Africa (6.4%). AlthoughITFC approvals increased across regions, Asia/CIS and Sub-Saharan Africa reported the largestgrowth, with 26.9% y-o-y and 21.1% y-o-y respectively. Despite the unprecedented turmoil insome MENA countries, approvals for the region managed to grow by 3.5% y-o-y in 2011. There areincreasing trade and investment flows between countries worldwide, especially between Asia andthe Middle East, which offer substantial opportunities for the Islamic trade finance sector. Tradebetween the two economic blocks has grown from USD804.9bln as at end-2010 to just underUSD1.2tln as at end-2012.Trade between Asian and Middle East Countries (2010-2012)Sources: Direction of Trade Statistics, KFHRwww.mifc.com4


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