Globally, the socioeconomic impact of COVID-19 has been devastating. Some of the world’s strongest economic powerhouses have been astonished with just how quickly the pandemic has crushed their once-robust SME sectors, blocked trade and enterprise activities and accelerated global recession. For development institutions such as multilateral banks and financial institutions, the focus continues to be largely around vulnerable countries in the developing regions. Although the impact of the pandemic on these regions has been varying, concerns remain around the potential socioeconomic fallout stemming from interrupted access to healthcare and medical supplies, food staples and energy, among others. The SME sectors in developing regions have also been hit, with trade and export activities disrupted.
Review of 2020
Repurposing trade financing to meet critical interim needs
When the pandemic hit, the International Islamic Trade Finance Corporation (ITFC) swiftly repurposed its financing engagements to focus on the critical needs of member countries of the OIC. The ITFC’s initial ‘Rapid Response Initiative’ pledged US$300 million toward helping OIC member countries purchase emergency medical equipment and supplies, as well as strategic commodities, such as staple food and energy supplies. Additionally, as part of its ‘Recovery Response Initiative’, a second, longer-term crisis effort, the ITFC has allocated a further US$550 million to support strategic sectors over the next two years.
Beneficiary member countries of the ITFC’s rapid response measures have ranged from all corners of the developing world from the Middle East and Africa to Asia and CIS countries, where to date since the outbreak of the pandemic, the ITFC has provided more than US$600 million of financing. Examples include Egypt, where the ITFC repurposed a US$200 million financing package for the government in favor of the General Authority for Supply Commodities for the purchase of around 774,000 metric tons of wheat, and 100,000 metric tons of sugar.
In the Maldives, the ITFC extended US$15 million for the State Trading Organization (STO) for the procurement of staple foods, medicines and emergency medical equipment. In Uzbekistan, an US$8 million Murabahah-structured line of trade finance with private joint stock bank Trustbank was extended to support the import and pre-export financing needs of SMEs in the country. Other countries include Palestine, Senegal, Sudan, Kyrgyzstan and Tajikistan among others, where special emergency grants were extended.
Additionally, as a development partner to the Arab–Africa Trade Bridges Program, a coalition of nine strategic government, multilateral and development partners, the ITFC has also been working to ensure trade continuity between the two regions, focusing initially on pharmaceuticals and healthcare.
One of the key initiatives implemented in partnership with the IsDB involves supporting Institut Pasteur de Dakar based in Senegal, with medical equipment and biomedical research in the fight against COVID-19 across a network of laboratories in several sub-Saharan African countries including Benin, Burkina Faso, Cameroon, Chad, the Ivory Coast, Guinea, Mali, Mauritania, Niger and Togo.
Preview of 2021
COVID-19 and the role ahead for Islamic trade finance
With the global market expected to remain in a period of constant volatility, development institutions will need to remain focused on where the needs are and intervene accordingly.
Fortunately, ITFC financing is largely aligned with the critical sectors of most of the economies of its member countries. These sectors include energy, agriculture and SMEs. There are already established relationship structures with key state organizations as well as with financial institutions and other private sector enablers.
Leveraging these strategic partnerships, the ITFC will continue to extend trade development financing over the near term to help least-developed and developing economies buy food staples, medical supplies, energy products and basic commodities. The focus will remain on enabling high-growth, high-employment industry sectors like agri-food, pharmaceuticals, textiles and technologies to prosper through the enhancement of global value chains.
The strengthening of SMEs will also remain an ongoing priority, with increased collaboration with financial institutions and governments in member countries to channel capital toward SMEs and to provide capacity development to boost inter- and intra-regional trade flows.
Although the road ahead remains challenging, what is clear is that Islamic trade finance has played an important part so far in helping to reduce the immediate and near-term economic impact of the pandemic. Its role and importance will continue to expand as the crisis plays out. Despite the unexpected hurdles, global trade finance stakeholders must move forward and drive funds and operational support to those parts of the OIC regions that are most in need.