islamic finance for trade development
TRANSCRIPT
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
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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© 2008 Deloitte Touche Tohmatsu
June 2013
Launch of the Islamic Finance Country Report (IRTI-IDB, CIBAFI & TR)
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1. INTRODUCTION
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,
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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
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 6
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
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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• 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
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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Source: Nabi, M.S. and Chachi, A. mimeo, IRTI-IDB, 2013.
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• 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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• 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
• 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
• 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.
15 Source : "2016 Trade Finance Gaps, Growth, and Jobs Survey," ADB briefs No 64 - August 2016.
• 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
• 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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• 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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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
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© 2008 Deloitte Touche Tohmatsu
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Tax and regulatory incentives to develop Islamic trade finance solutions by Islamic banks
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6. RECOMMENDATIONS FOR THE DEVELOPMENT OF ISLAMIC TRADE FINANCE
Innovate in Islamic Trade Finance Solutions >Example ITFC
Source : ITFC Annual Report 2014-2015 22
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• 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
