In his opening remarks at the Islamic Finance
news roadshow in Singapore in March earlier this year Tai Boon Leong, the executive director of the Monetary Authority of Singapore, suggested that banks with Islamic operations in Singapore could and should look to Islamic trade finance as a source of growth. He cited the funding pressures faced by European banks, which have traditionally been strong in the trade finance sector, as being one of the factors creating this opportunity.
As cited by Tai, in 2011 bilateral trade flows between Singapore and the GCC grew by over 40% and reached SG$62 billion (US$ 48.6 billion). Considering the volatile nature of 2011, where the European debt crisis, geopolitical tensions in the MENA region and the Japan nuclear disaster threatened to derail the momentum of global economic recovery, there appears to be much cause for optimism for the continued and resilient growth of the trade finance sector in Singapore.
Singapore has for some time now enjoyed significant success in the area of trade finance. Its geographical location as a well-connected global city in Asia and its status as a major finance hub have enabled it to capitalize on both regional and global trade flows, supported by a diverse community of key market players. This opportunity for growth is one that banks with Islamic finance operations would do well to exploit, since trade finance is an area which is naturally suited to Shariah compliance: as it is based on the actual flow of commodities, in line with the emphasis under Shariah of supporting tangible assets and real economic activities.
The combination of significant and resilient trade flows through Singapore, the presence of strong industry players and Singapore’s existing expertise in conventional trade finance suggests that there is potential for Islamic trade finance to flourish in Singapore and to complement its existing strengths in the Islamic capital markets, contributing to a more wholesome Islamic finance eco-system.
Yeo Wico is a partner at Allen & Gledhill. He can be contacted at
[email protected]
.