Islamic trade finance could 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.
According to the company’s report, RGMs are emerging as hot spots for global business and they promise to permanently alter the global trade scene over the next 10 years.
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RGMs will become an even more dominant force in global trade and as a result, businesses are going to have to adjust their strategies to reflect the increasingly regional pattern of world trade and in this context should now start to consider Islamic trade finance, the report says.
Ashar Nazim, Partner, Global Islamic Banking Center of Excellence at Ernst & Young, said: "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, 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."
The reported added that 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.
Ashar adds: "It makes business sense for global organizations that operate in and trade with many of these rapid growth markets, especially those that are in the Organization of Islamic Cooperation (OIC) or have strong links to the bloc, to seriously look at Islamic trade finance."
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By GlobalDataChallenges ahead
The authors of the report opine that Islamic institutions will need to align their trade finance operations with global common practices to effectively compete in the market.
"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 so this issue needs to be addressed with the industry’s rapid growth," the report further added.
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, the report concluded.
