TRADE & FINANCE
THE ROLE
OF ISLAMIC
FINANCE TO
STRENGTHEN
INTERNATIONAL
TRADE
DR. AHMAD MOHAMED ALI
President, Islamic
Development Bank,
Jeddah, Saudi Arabia
24
World trade growth has been sluggish
since the global fi nancial crisis of 2008-
2009. Average annual trade growth
slowed from more than 7% during the
period before the global fi nancial crisis
to less than 3% during 2012-2015. Much
of this disappointing trade performance
can be explained by sluggish global
GDP growth.
But the decline of world trade since
the fi nancial crisis is also related to the
reduced availability of trade fi nance. The
fi nancial crisis hit hard a number of major
fi nancial players and impaired the ability
of banks to lend money. Although the
initial credit crunch eased after the major
central banks rolled out unprecedented
policy measures to boost global liquidity
(including quantitative easing and
negative policy rates), the new, tightened
regulatory regime for the banks will
continue to limit availability of fi nancing
in the foreseeable future. The new
regulatory measures, that have caused
the banks to tighten eligibility criteria,
include higher capital requirements under
the Basel III accord that are scheduled
to come into force by 2019. Other such
measures are the new and tighter
regulations to combat fi nancial crime
such as money laundering and corruption.
The prospects for global trade have
deteriorated even further over the past
three years as a result of an unexpected
decline in oil prices, appreciation of
the US dollar, a growth slowdown in
China, and the start of monetary policy
normalization in the United States. All
these shocks have increased uncertainty
about global economic prospects and
increased reluctance to commit fi nancial
resources. Global trade expanded only
2.8% in 2015 and its growth is expected
to remain below the long-term average
of 5.1% in the next two years.