Business Strategies of Islamic Trade Finance Products for SME

Abstract

The purpose of this study is to explore and pinpoint some business strategies applied by other financial organizations for promoting their Islamic trade financing products, which can be helpful for new investors and old stakeholders in the sector of Islamic banking in Malaysia to penetrate the trade finance market. This study also highlights on what are the suitable and effective marketing strategies for promoting and increasing the awareness on Islamic trade financing products in Malaysia. Islamic financial organizations have developed different type of products which are Shariah-compliant as alternatives to conventional options. However, Islamic financing does not receive satisfactory support and participation from the public due to poor awareness of its products and services as well as misconception about Islamic values in the financial system. Some studies on product awareness show that people in Malaysia are aware of Islamic financing but were not aware of the products. For example, in the banking industry, 80% of the banking customers in Malaysia are aware of Islamic banking but were not aware of Islamic banking products such as Wakalah, Murabahah, and Musyarakah. Even though the Islamic trade sector is growing, the lack of awareness factor becomes a huge challenge for Islamic products to contest with the conventional methods which are adopted predominantly by most traders. This conceptual paper provides a comprehensive comparative review of the literature on marketing strategies of Islamic trade financing products led by other Islamic financial organizations or merging Islamic financial systems. The findings indicate that the potential for future growth of Islamic financing in trade market is highly dependent on promotional strategies and initiatives led by government bodies and their willingness to play their part in supporting the product development based on Shariah law. The result shows that financial organizations should focus into SMEs in which the rising of entrepreneurship and participation in the halal economy has prospective growth in Islamic trade finance. Most of the SMEs are still not aware of the Islamic products offered by the banks, due to lack of coordination between SMEs and banks. This paper also provides recommendations in the term of measures to be adopted in order to improve the marketing effectiveness of the Islamic trade finance products.