Islamic trade finance could provide new opportunities and become the preferred choice for emerging rapid growth markets (RGMs), according to Ernst & Young’s Global Islamic Banking Center.
RGMs, such as Turkey, Indonesia Malaysia, Qatar, Saudi Arabia and the UAE, are emerging as hot spots for global business and they promise to permanently alter the global trade scene over the next 10 years, it said.
Many of these markets already have strong trade links with other “core” Islamic finance markets, which offer new opportunities for growth for Islamic trade finance.
“The increase of trade flows to the East and within emerging economies combined with growing interest in Islamic finance, means that Islamic trade finance is now a serious alternative. A constant challenge for business leaders is to anticipate and interpret how global trade is changing, while understanding the opportunities and risks it creates,” said Ashar Nazim, a partner.
“Trade, technology, culture, labor and capital will integrate at different rates across these markets and need to be anticipated when transforming the financial institution’s trade finance operations,” he added.
The degree of change in both the scale and direction of trade will have a profound impact on the competitive environment for all companies wherever they are located around the world. Trade will also be increasingly focused around Asia, the Middle East and Africa, suggesting that the key geographical location for companies will change, said a statement.
Islamic institutions will need to align their trade finance operations with global common practices, to compete in the market effectively.
Islamic institutions also need to maintain the talent pool that serves these emerging markets and ensure that talent management is an integral part of their business strategy.
Islamic banks need to build international connectivity and scalable trade finance platforms that can connect with businesses and financial institutions beyond borders. This could be challenging given the small size and localized nature of most Islamic banks, it added.
“The road to Islamic trade finance is not one without obstacles. But if the correct framework is used and awareness about Shari’a compliant initiatives continues to grow, Mena markets will be able to strengthen their trade focus on the growing Muslim populations in emerging markets. These initiatives have the potential to significantly increase the value and volume of trade of these expanding markets.