International trade has historically grown much faster than global GDP, nearly doubling in the 20 years prior to the pandemic and representing 60 percent of global GDP. Although the pandemic led to a decline in the global trade of 9.2 percent in 2020, the setback is expected to be temporary, with continued growth forecasted for 2021 and beyond (WTO). It is estimated that 47 percent of global trade relies on bank-intermediated trade finance. As global trade expands, trade finance is of central importance. In 2019, the global trade finance market amounted to US$8.94 trillion. Due to Covid-19, the global trade finance market dropped by 14.83 percent in 2020 to US$7.62 trillion but is expected to recover and reach US$10.43 trillion by the end of 2026, growing at a rate of 5.37 percent annually from 2020-2026. The global size of the Islamic Trade Finance (ITF) has reached US$186 billion, less than 5 percent of total estimated trade finance activities by OIC member countries and a small fraction of global figures. ITF is, however, growing both in scale and in relevance as Islamic finance plays a larger role in OIC countries. The Islamic Trade Finance Corporation (ITFC) has approved US$5.8 billion of financing in 2019.
The World Bank’s Islamic Trade Finance – An Opportunity for Malaysia report highlights the substantial role ITF can play to support trade, foster growth, and accelerate post-pandemic recovery. In addition to its impact on the domestic economy, enhancing ITF can bring benefits to other OIC-member countries and for the global Islamic finance industry in which Malaysia is an established leader.