The Development of Islamic Trade Finance in Malaysia: From the Bankers’ Perspectives

Abstract

The sustainability of productive economy should also be supported by the Islamic banking industry, through the realization of Shariah principles, especially in promoting trade and the halal economy. Trade financing is one of the main banking facilities offered by Islamic banks in Malaysia. However, as of 2016, Islamic trade finance represents only 3.4% of total trade, and less than one third of the overall trade finance of the banking system. Apparently, the Central Bank of Malaysia aspires to increase a 10% growth in Islamic trade finance of the total trade, locally and internationally, in the next three years. Therefore, this study intends to highlight the bankers’ opinion in relation to the roles of the Central Bank of Malaysia, particularly in facilitating the growth of Islamic trade finance in Malaysia. Furthermore, this study also identifies the reason for the slow growth of Islamic trade finance in Malaysia. This study adopted the qualitative method where interviews were conducted with bankers from three main banks that offer Islamic trade finance facility. Consequently, it is suggested that the Central Bank of Malaysia needs to promote the growth of Islamic trade finance by providing more incentives to the banks and customers, predominantly in terms of the pricing, stamp duty remission and rebate, and some other forms of reinforcement. Additionally, the Central Bank of Malaysia has to encourage all the conventional banks which have Islamic banking windows to apply “Islamic first” policy to support the growth of Islamic trade finance.