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.’
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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.
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