The Developing Markets of Islamic Finance : Policies, Regulations and Market Practices

1. ISLAMIC FINANCE
TO SUPPORT THE GLOBAL TRADE
OF DEVELOPING MARKETS
Mahmoud-Sami NABI
Professor of Economics
University of Carthage
The Developing Markets of Islamic Finance:
Policies, regulations and market practices
28 et 29 September 2016
Tunis, Tunisia

2. 1. OUTLINE
1. INTRODUCTION
2. TRENDS IN GLOBAL AND INTRA-OIC TRADE
3. IMPORTANCE OF TRADE FINANCE FOR INTRA-OIC TRADE
4. IMPORTANCE OF TRADE FINANCE FOR SMEs
5. ISLAMIC TRADE FINANCE
6. RECOMMENDATIONS
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3. © 2008 Deloitte Touche Tohmatsu
June 2013
Launch of the Islamic Finance Country Report
(IRTI-IDB, CIBAFI & TR)
3
1. INTRODUCTION

4. Developing the Islamic finance…
…with its distinguish features
Risk
sharing
Ethical
(charity,
solidarity)
Connection
to the real
economy
Sustainability
Financial
inclusion,
Social
cohesion
Innovation,
entrepreneurship
and PSD
Investment
and Trade
Health,
Education,
Transport,
Housing
Food
security,
Renewable
energy,
Green
economy,
4

5. Developing the Islamic finance inline with the economic
development priorities
• Enhancing access to finance to
SMEs and poor population
• Supporting entrepreneurship
• Supporting Private Public
Partnership (Education, Health,
Infrastructure, Transport, etc.)
• Supporting R&D and innovation in
line with the development problems
• Enhancing intra-trade and
regional integration
• Unemployment (Youth)
• Poverty
• Housing
• Health, Education, R&D, Transport
• Access to Water and food security
vibrant business environment
+ Adequate ecosystem for the IFSD 5

6. GROWTH IN VOLUME OF EXPORTS OF GOODS AND SERVICES (annual % change)
2. TRENDS IN GLOBAL AND INTRA-OIC TRADE Average Exports
Growth = 4.28%
Average GDP
Growth = 3.73%
Source: World Economic Outlook Database, April 2016
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7. SHARE OF INTRA-REGIONAL TRADE IN GLOBAL TRADE (%)
AND GLOBAL TRADE (TRILLION USD)
Sources: ICDT Report on intra-OIC Trade (2014-2015) & WTO Database 7

8. GEOGRAPHICAL DISTRIBUTION OF INTRA-OIC TRADE
(% in 2013)
STRUCTURE OF INTRA-OIC TRADE
(Average 2009-2013)
Sources: ICDT Report on intra-OIC Trade (2014-2015)
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9. 9
• Meeting on the role of the private sector to improve the
implementation of the « Road Map for enhancing intra-OIC trade »,
(Jeddah, June 2011) recommended multiple actions. Trade finance :
- Develop and introduce new mechanisms/tools aimed at increasing
financing for SMEs ( Enable SMEs to access financing better and
more easily) (Financing of imports, pre-exports, pre-shipment and
the domestic purchase of commodities and goods…)
• The 5th OIC Consultative Group Meeting on enhancing intra-OIC trade
(February 2013, Casablanca, Morocco) recommended the
establishment of Trade Finance Support Schemes, as one of the
driving factors, to accelerate the dynamic of the intra-OIC trade.
3. IMPORTANCE OF TRADE FINANCE FOR INTRA-OIC TRADE

10. Results of the questionnaire about the constraints on intra- OIC trade
and way forward according to the participants to the "OIC High Level
Forum on Trade Facilitation“ ? – Morocco, February, 2013. (Nabi, M.S.
and Chachi, A. mimeo, IRTI-IDB, 2013)
17 countries 22 respondents
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11. Source: Nabi, M.S. and Chachi, A. mimeo, IRTI-IDB, 2013.
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12. • Tun Dr. Mahathir Mohamad (Doha, November 2000 OIC Summit): called
on the Islamic world to embrace the use of the Gold Dinar for
international trade.
• Tan Sri Nor Mohamed Yakcop (Kuala Lumpur, August, 2002 in a
conference “Stable and Just Global Monetary Systems”) : use of gold
dinar to settle net trade balances among the participating countries.
• In 2002, researchers from the OIC Countries constituted a Task Force on
the Feasibility of Using Islamic Gold Dinar as a Currency for International
Trade.
Islamic Dinar as settlement currency for intra-OIC trade
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13. 13
• Meeting on the role of the private sector to improve the
implementation of the « Road Map for enhancing intra-OIC trade »,
(Jeddah, June 2011) recommended multiple actions. Trade finance :
- Develop and introduce new mechanisms/tools aimed at increasing
financing for SMEs ( Enable SMEs to access financing better and
more easily) (Financing of imports, pre-exports, pre-shipment and
the domestic purchase of commodities and goods…)
• The 5th OIC Consultative Group Meeting on enhancing intra-OIC trade
(February 2013, Casablanca, Morocco) recommended the
establishment of Trade Finance Support Schemes, as one of the
driving factors, to accelerate the dynamic of the intra-OIC trade.
4. IMPORTANCE OF TRADE FINANCE FOR SMEs

14. • Access to trade finance is the second most problematic factor for
exporting :
Source : The Global Enabling Trade Report 2012
• In April 2010, I conducted a study in cooperation with CJD Sousse on
“SMEs and Export” (8 years old companies, 60% are using less than 60%
of their production capacity, 100% would like to develop their exports
activities, 40% have more than 5 year-experience in export, 50% are not
exporting due to problems and constraints related to transport,
bureuacracy , finance and insurance…- 80% due to financial problems) 14

15. • A 2016 survey by the ADB covering 337 responding banks from 114
countries :
Estimated global trade finance gap is $1.6 trillion.
 $692 billion of the gap is in developing Asia (including India and the
People’s Republic of China).
 56% of SME trade finance proposals are rejected, while large
corporates face rejection rates of 34% and multinational corporations
are rejected only 10% of the time.
• Firms report that 25% more trade finance would enable them to hire
20% more people.
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Source : "2016 Trade Finance Gaps, Growth, and Jobs Survey," ADB briefs No 64 -
August 2016.

16. • Islamic Trade finance : Using Islamic finance instruments as alternative and
basis of innovative solutions in Trade finance : Used in OIC member countries
especially for intra-OIC trade.
• In 2008 the IDB Group created the International Trade Finance Corporation
(ITFC) to catalyze trade of member countries through providing trade finance
solutions (more than 7.88 billions USD since 2008)
Sovereign
75%
Corporate
2%
Bank
Guaranteed
12%
Structured
Trade
Finance
11%
Energy
74%
Food &
Agriculture
12%
Industry
2%
Financial
Institutions
12%
Source : ITFC Annual Report 2014-2015
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5. ISLAMIC TRADE FINANCE

17. • Trade finance : a segment of finance that relates to the process of financing
certain activities related to commerce and international trade. Trade finance
includes :
Source : Global Trade Review
Issuing letters of credit
Export and agency finance
Export credit agencies provide government-backed loans, guarantees and
insurance to corporates to do business overseas in developing countries and
emerging markets  promoting exports by allowing exporters to provide
buyer’s credit to importers and by insuring transactions that take place in risky
markets.
Export and agency finance
Structured trade and commodity finance
Financing of high-value supply chains (tailor-made loans to client, transaction
and region)
Supply chain finance
Enables the management of corporate’s working capital
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18. • In 2009, the International Trade Centre
published “Islamic Banking : A Guide for Small
and Medium-Sized Enterprises” :
- “The book is intended to serve as a user’s guide
to managers of micro, SMEs in seeking financial
alternatives for their banking needs.”
- “The intention is to describe, explore and
demystify methods to access Islamic finance. The
book also looks at the role Islamic banking can
play in assisting export activities of small firms.”
- “ITC hopes this book will enhance understanding of a banking system that
can offer new perspectives and ways to conduct financial transactions that
will lead to access to new export markets”
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19. 19

20. Sample of Islamic trade finance solutions
Bank Country Trade Finance Products
SME Bank Malaysia SME-Go is a financing program developed to support
Going-Export (Go-Ex) programme under Malaysian External
Trade Development Corporation (MATRADE). It is in-line with
the Government’s initiatives to guide and enhance the growth
of exports for Malaysian SMEs. Compliant to shariah :
Financing of Fixed Asset (Plant / Machinery / Equipment)
Financing of Working Capital (Fixed / Revolving)
Bank Guarantee-i / Kafalah
Meezan Bank Pakistan Islamic Export Refinance : Refinance facilities compliant to
Shariah.
Türkiye
Finans
Turkey Advance Import/Export
Cash Against Goods
Letter of Credit
Acceptance/Aval Credit …
Sources : http://www.smebank.com.my/ www.meezanbank.com www.turkiyefinans.com.tr 20

21. © 2008 Deloitte Touche Tohmatsu
②
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Tax and regulatory incentives to develop Islamic trade finance
solutions by Islamic banks
①
6. RECOMMENDATIONS FOR THE DEVELOPMENT OF ISLAMIC
TRADE FINANCE

22. Innovate in Islamic Trade Finance Solutions >Example ITFC
Source : ITFC Annual Report 2014-2015 22
③

23. 23
• 2014 : Proposal of an innovative
financial mechanism to enhance
intra-OIC Trade based on Sukuk (for
trade, project and infrastructure
financing) and Trade-based Special
Drawing Rights (T-SDRs) issued by
a dedicated regional financial
institution with the participation of
central banks.

- Saving of foreign exchanges,
-Enabling of multilateral payment
settlement of trade transactions,
- Incentivizing countries to enhance
their contribution to the intra- OIC
trade.
Mahmoud Sami Nabi - Rami Abdelkafi
Imed Drine - Sami Al-Suwailem
> Multilateral payment system with sukuk and T-SDRs

24. THANK YOU
msaminabi@gmail.com
www.msnabi.com
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