G20 Foundation Publications China 2016 | Page 24

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.