According to the World Trade Organization (WTO), trade finance currently supports 90% of the world’s trade. Since the 2008 global financial crisis, emerging economies especially in Asia, Africa and the Middle East, have seen the highest volumes of trade globally and Standard Chartered operates at the heart of these trade flows, with a longstanding on-the-ground presence in key Islamic markets such as Malaysia, Indonesia, Bangladesh and the UAE. The bank established its Islamic banking unit in 2003 and has since developed a comprehensive suite of Shariah compliant trade finance solutions tailored to the growing needs of its clients. GHAZANFAR NAQVI, the global head of Islamic origination and client coverage at Standard Chartered Saadiq, speaks to Islamic Finance
news on the global Islamic trade finance market and Standard Chartered’s role in enhancing the sector.
At present, what Shariah compliant trade finance solutions do Standard Chartered provide to its clients?
Today we provide a broad range of trade financing solutions on both the import and export sides, and also bespoke solutions that the client might require from time to time. We have both vanilla as well as structured solutions – tailored to suit the needs of our clients. The breadth of our trade finance offering provides end-to-end coverage for a client, vis-a-vis their requirements. As a bank, our key footprint markets are in Asia, Africa and the Middle East, and within that, we have established strong Islamic finance capabilities in markets where we see sustainable client demand. This includes Bahrain and the UAE in MENA; Pakistan and Bangladesh in South Asia, and Malaysia and Indonesia (through our affiliate Bank Permata) in Southeast Asia.
The Middle East, with a significant proposition of Islamic wealth concentration, is a core market for Standard Chartered and we are seeing a healthy growth of demand and supply in the market. Similarly in Malaysia, the government has been promoting Islamic banking as a core pillar of the financial system. As a key player in that market, we are well-positioned to respond to the needs of our clients in line with the financial direction of the country. Indonesia, Pakistan and Bangladesh also have hospitable regulatory environments and we believe there is significant potential for Standard Chartered to grow business in these markets.
Looking into frontier markets, we recently expanded our offering into Kenya – a key milestone for us – upon receiving the necessary approvals from the central bank and the relevant authorities. We also have an eye on Tanzania, Uganda and Southern Africa.
Who are your main clients?
We have clients on both the conventional and Islamic side using our Islamic trade finance solutions as a transactional platform. This ranges from middle-market firms to large local corporate/groups, and include multinationals (MNCs) or global corporates. Within this, we see healthy demand from local corporates and middle-market clients, given that they are run by families and individuals, some of which have preference for Islamic services. MNCs who increasingly transact with these local businesses are also tapping our suite of Islamic solutions that are not available on the conventional side.
The last 10 years have seen significant growth in the Islamic space, with observable changes in market trends. The growth rate of Islamic banking is higher than that of the bankable population and the demand for Islamic banking is growing in these markets. We expect this trend to continue as people find it easier and more convenient to use Islamic financial services which are in line with their basic core values. The fear of the unknown is diminishing as the industry matures.
How do you select which markets to serve?
Our Islamic finance strategy is very much aligned to the group’s geographic focus of Asia, Africa and the Middle East. The ability to offer trade finance solutions, especially to clients in these footprint markets, is the backbone of our success. With Ernst & Young reporting an average annual growth rate of 19% for the Islamic banking sector over the past five years, there is a sizable opportunity for the business as we see sustained demand for Islamic solutions both for trade and other working capital requirements.
What are the challenges that you generally encounter when proposing Islamic trade finance solutions?
As with any new product proposition, clients are looking at how convenient and efficient it would be to implement the solutions. Costs related to turnaround and human resources also bear on the assessment of new propositions. As a provider, we are well aware of these. Over the past few years, Islamic banking has made tremendous progress in terms of technology, efficiency of solutions and timing. Another important consideration is Shariah compliance. Clients who are looking for Islamic solutions want to be absolutely sure that these are Shariah compliant. To address this, we have an established Shariah board consisting of well-known and renowned scholars who provide guidance on our solutions to ensure we conform to the prescribed standards.
Will the rise of Islamic trade finance spur other industries within the Islamic financial system, such as Takaful, etc?
Absolutely, the possibilities are numerous. Takaful is directly related to these types of solutions, so as trade financing grows, the Takaful industry will gain traction as more Islamic clients look to Takaful policies. On the capital markets side, we could see further issuances on the back of the growth of Islamic trade and project financing, and as the need for other investment solutions increases.
What separates Standard Chartered’s Islamic trade financing solutions from the rest?
Our key advantage is that we have an established history as a trade finance bank. Combined with our expertise in Islamic finance, we are superbly positioned to offer a comprehensive suite of efficient and Shariah compliant solutions to our clients. Whether in an established market or a new one, we continually strive to meet and exceed the needs of our clients as a one-stop provider of financing solutions.