Trade is a key ally in the fight against
poverty, especially if additional measures
are taken to improve education levels,
strengthen governance and deepen
the financial sector.
border trade transactions. The letter
of credit is one of the oldest and most
common trade finance instruments used
by the banks to reduce payment risk.
According to WTO (2015), nearly 80%
of world trade relies on trade finance
and credit insurance. Although there is
no official data on the total size of global
trade finance, existing studies estimate
that some US$6.5–8 trillion of trade
finance was provided in 2011. The Asia-
Pacific region accounted for more than
50% of the total, while Europe accounted
for nearly 25%.
With the ongoing economic slowdown
and increasing uncertainty at the global
level, access to international trade
finance has deteriorated considerably
and financial institutions are finding it
hard to meet existing demand. Small and
medium-sized enterprises have become
especially constrained.
According to the recent WTO report,
the estimated size of the trade finance
gap ranges between US$ 110 and 120
billion in Africa and over US$ 1 trillion
in Asia. By filling the trade finance gap,
millions of people and thousands of
businesses across the world could
unleash their economic potential.
Against this backdrop, it is incumbent
upon the multilateral development
banks (MDBs) to keep the supply chains
financed. With increased pressure on
the global financial markets, demand
for MDB support is likely to increase
further. This is why the MDBs need to
look beyond their traditional methods
of mobilizing resources, and explore
alternative financing mechanisms such
as Islamic finance in order to support
trade and achieve higher economic
growth results.
Islamic Finance: High potential
Considered as one of the fastest growing
segments of the global financial industry,
Islamic finance industry has recorded
an impressive growth rate of around
15% during the past two decades. The
current size of the Islamic finance market
is estimated at $1.8 trillion, and expected
to reach $3.4 trillion by the end of 2018.
About 73% of the Islamic finance assets
are held by Islamic banks.
Most of the Islamic finance assets are
located within the 57 member countries
of the Islamic Development Bank (IsDB).
Among them, Malaysia, Qatar, Saudi
Arabia, Iran, Kuwait, Pakistan, UAE,
Bahrain, Indonesia, and Jordan account
for the major share of the Islamic finance
market, but the industry’s geographical
presence has now grown to include new
players in Europe, Africa, East Asia and
the Americas.
With preferences among the Muslim
populations shifting towards more
Shariah-compliant banking, Islamic
finance has grown and developed to
include a number of new trade finance
products, listed in Table 1.
With a combined GDP of US$ 6.7 trillion
and a population of 1.7 billion, the IsDB
member countries have the potential to
become an engine of global trade. Many
of the 57 IsDB member countries are
among the world’s largest exporters of
strategic commodities, such as oil, natural
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