TRADE FINANCE, THE ISLAMIC WAY

Islamic lenders need to improve their efficiency and increase penetration in predominantly Muslim markets to be big players in global trade finance.

LOCATED AT THE CROSSROADS OF Asia and Europe while at a favourable proximity to Africa, Dubai and the UAE have been well positioned to capitalise on the large trading volumes that pass through the region.

In line with the growing volumes, trade financing, which is a specialised area of finance dealing with short term funding of import and export transactions, too has grown over the last few years. The global trade finance market is forecast to be worth $38 billion by 2015, according to a report by the UAE-based investment firm Al Masah Capital that quoted management consultant Oliver Wyman.

Meanwhile, trade in the MENA region is expected to surge by 131 per cent by 2026, a previous HSBC study forecast, widening the potential for trade finance in the regional market.

This has drawn the interest of Islamic banks and financial institutions, which are now looking to take a cut from the lucrative pie, after failing to tap into the sector previously.

Islamic trade finance has strong growth potential, especially in the emerging rapid growth markets (RGMs) that include Turkey, Indonesia, Malaysia, Qatar, Saudi Arabia and the UAE, according to a report by advisory firm EY.

“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,” said Ashar Nazim, partner, Global Islamic Banking Centre of Excellence at EY.

Local Islamic lenders in the GCC are among those taking note of this shift, readying to cash in.

“There is a significant increase in trade movement within the Middle East and the emerging economies as well as in Islamic growth markets such as Turkey, Malaysia, Indonesia, the UAE, Saudi and Qatar. For three or four years, Islamic finance was less receptive to trade finance. However that is fast dissipating,” said Hussain Al Qemzi, board member of the Dubai