Islamic banks are priming themselves to capture a larger share of the global trade and project financing market, as European banks pull back funds to mend balance sheets back home.
The Monetary Authority of Singapore's (MAS) managing director Ravi Menon noted on Tuesday that trade and infrastructure development is naturally compatible with Islamic finance, which has a focus on supporting real productive activities.
At the World Islamic Banking Conference: Asia Summit in Singapore, he urged Islamic bankers to diversify into this space.
And many of those bankers are already heeding his call.
Cross-border lending by European banks to clients worldwide fell by US$799 billion, or 2.5 percent, in the last quarter of last year.
In the Middle East, local players are already filling in the funding gap and capturing a larger market share in the process, said Hussain Al Qemzi, the chief executive of Dubai-based Noor Islamic Bank.
Project financing in the Middle East and Turkey makes up most of Noor Islamic's business.
Now, it hopes to form partnerships with other Islamic banks in South-east Asia so that it can also fund projects in this region.
“Between the Middle East and South-east Asia, there are a lot of future infrastructure projects coming up. The Islamic finance industry is always interested in secure long-term income that is asset backed, so it is a natural fit,” he said.
“But how to do it and how to link the two markets together? We don't see much cooperation to open these markets up.”
Bigger players such as Standard Chartered Saadiq, the Islamic banking unit of Standard Chartered, are raring to go.
“We have more or less completed the trade finance product suite so we can offer end-to-end solutions to our clients, from hedging to pre-export, post-export, pre-import and post-import,” said chief executive Afaq Khan.
Saadiq operates in markets such as the Middle East, Pakistan, Bangladesh and Indonesia, and demand is rapidly growing for Islamic finance, he added.
‘'The underlying strength of Islamic banking is based on the fact that we have demand from clients, a product suite, better awareness and distribution capabilities, and less to do with the fact that some pocket of liquidity is going.”