Banker S.A. June 2013 | Page 70

BANKING NEWS INTERNATIONAL Islamic finance to grow emerging markets L ondon Islamic trade finance could provide new opportunities and become the preferred choice for emerging rapid growth markets (RGMs) such as Turkey, Indonesia, Malaysia, Qatar, Saudi Arabia and the UAE, according to Ernst & Young’s Global Islamic Banking Center. RGMs are emerging as hot spots for global business and they promise to permanently alter global trade over the next decade. 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,’ says Ashar Nazim, Partner at Global Islamic Banking Center of Excellence at Ernst & Young. ‘A constant challenge for business leaders is to anticipate and interpret how global trade is changing, while understanding the opportunities and risks it creates. Boards and management of Islamic banks must take note. Trade, technology, culture, labour and capital will integrate at different rates across these markets and need to be anticipated when transforming the financial institution’s trade finance operations. ‘Trade will grow between these markets, creating a wide range of new opportunities for them and advanced economies will also benefit as exports to emerging markets become a rising source of growth,’ says Gordon Bennie, Ernst & Young’s MENA Financial Services Industry Leader. ‘Middle Eastern countries are trading increasingly with other RGMs, reflecting the faster growth in demand from these countries. Banking, insurance and other financial services sectors in these countries will grow as the economies mature and the middle classes expand, offering new opportunities for trade. Demand for more sophisticated financial services is already growing rapidly as wealth levels rise.’ 68 BANKER SA The degree of change in both the scale and direction of trade will have an impact on the competitive environment for companies around the world. Trade will also be increasingly focused around Asia, the Middle East and Africa, suggesting that the key geographical locations for companies may change. CHALLENGES AHEAD To compete in the market effectively, Islamic institutions will need to align their trade finance operations with global common practices. There has to be a clear understanding of how Islamic financial institutions can add value to businesses in their trade functions. Despite the high percentage of Muslim populations in emerging markets, conversion to Islamic trade finance will not be successful without a clear framework that gives businesses a good reason to switch. 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. There is currently a shortage of staff with extensive experience in Islamic markets and this issue needs to be addressed. 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 localised nature of most Islamic banks. ‘The road to Islamic trade finance is not one without obstacles. However, if the correct framework is used and awareness about Shari’a-compliant initiatives continues to grow, Middle East and North African 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. This is an opportunity that should not be overlooked,’ Ashar says. Edition 6 Subbed Banker 6 Banking News international.indd 68 2013/07/17 3:23 PM