Developments in Islamic trade and export finance

Transcription

1. IFN SECTOR CORRESPONDENT Developments in Islamic trade and export ϐinance LAW By Dr Nicolas Bremer The Islamic finance industry remains underrepresented in the export and trade finance market — a growth market with significant potential. This sector is still firmly in the hands of conventional lenders, even with respect to lending for trade activities in Muslim-majority countries. According to figures published by the Bahrain-based General Council for Islamic Banks and Financial Institutions, trade finance transactions in Muslimmajority countries are worth US$4.4 trillion, with Islamic trade finance estimated at US$186 billion. Some Islamic financial institutions, however, seek to expand their trade finance business by overhauling their products and combining them with new offerings to grab a larger slice of the pie in a market that is seeing conventional lenders retreat due to increasingly burdensome regulatory constraints. Traditionally, Islamic lenders have relied on four Islamic structures for trade and export financing. Musharakah, Mudarabah and Murabahah models are typically used to finance the purchase of existing goods while Istisnah financing is employed where the production of the goods to be exported or sold domestically is to be financed. To offer more comprehensive financing options, some Islamic lenders are now introducing digital tools such as Islamic trade finance platforms and combining traditional Islamic finance models with additional products such as bank payment obligations, trust receipts, shipping guarantees and acceptance bills. Furthermore, Islamic finance institutions entering the trade and export finance market profit from the growing transparency and reliability of Islamic financing due to the further standardization of Islamic finance practices. In some jurisdictions, we have seen initiatives to expand regulation and © standardization of the industry as a whole, such as in the UAE which recently issued a new banking law including dedicated provisions on Islamic banking and finance (for an overview, see IFN Vol 16, Issue 24, page 20). While Islamic trade and export finance benefits from such general reforms, there have been standardization initiatives specifically targeting Islamic export and trade financing. In an effort to raise contractual standards for Islamic export and trade finance transactions, both the Bahrainbased International Islamic Financial Market (IIFM) and the US-based Bankers Association for Finance and Trade (BAFT) have developed standard documentation for Shariah compliant trade and export finance. Initiatives to increase the share of Islamic lenders in export finance are, however, not limited to lenders and banking associations. Export credit agencies from Muslim-majority countries have also taken steps to promote Islamic export finance. Most notably the UAE’s export credit agency, Etihad Export Credit Insurance (ECI), and the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), a member of the IDB Group, signed an MoU that seeks to promote Shariah compliant export credit instruments. IFN Sector Correspondents CROWDFUNDING: Craig Moore CEO, Beehive DEBT CAPITAL MARKETS: Imran Mufti partner, Hogan Lovells EDUCATION: Dr Kamola Bayram, project director for training and research at the International Council of Islamic Finance Educators HALAL INDUSTRY: Dr Sutan Emir Hidayat director, Islamic Financial Education and Research, National Islamic Finance Committee ISLAMIC LEASING: Shoeb Sharieff president, ijara CDC, ijara Community Development Corp LAW: Dr Nicolas Bremer partner, Alexander & Partner LIQUIDITY MANAGEMENT: Raghu Mandagolathur managing director, Marmore MENA Intelligence MERGERS & ACQUISITIONS: Burak Gencoglu partner, Gencoglu & Ergun Law Firm MICROFINANCE: Mohammed R Kroessin head of Islamic microfinance, Islamic Relief Worldwide PRIVATE EQUITY & VENTURE CAPITAL: James R Stull, partner, King & Spalding REAL ESTATE: Philip Churchill founder partner, 90 North Real Estate Partners RETAIL ASSET MANAGEMENT: Muzzammil Dhedhy, chief operating officer, Hejaz Financial Services RISK MANAGEMENT: Ali Khokha senior manager PwC Luxembourg SHARIAH & CORPORATE GOVERNANCE: Prof Dr Mohamad Akram Laldin executive director, International Shariah Research Academy for Islamic Finance SRI ETHICAL & GREEN: Dr Mohamed Wail Aaminou, general manager, Al Maali Consulting Group In recent months, we have seen considerable efforts to increase the market share of Shariah compliant trade and export finance from private and public stakeholders. TAKAFUL & RE-TAKAFUL (ASIA): Marcel Omar Papp head of Retakaful, Swiss Re Retakaful Still, while some Islamic finance institutions have expanded their activities in the market, conventional finance institutions have been reluctant to offer Shariah compliant trade and export finance products. This is in large part due to the different risk exposure of lenders in Shariah compliant transactions in comparison to conventional lending and the resulting commercial implication. TAX: Dhana Pillai head, real estate, tax and project finance, Al Hashmi Law Firm The efforts of institutions such as the IIFM and the BAFT to create standard 20 TAKAFUL & RE-TAKAFUL (EUROPE): Ezzedine Ghlamallah director, Solutions Insurance and Islamic Finance (SAAFI) IFN Correspondents are experts in their respective fields and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact sasikala. thiagaraja@redmoneygroup.com lending documentation should help dispel these concerns. Dr Nicolas Bremer is a partner at Alexander & Partner. He can be contacted at nb@ alexander-partner.com. 21st August 2019