HSBC has signed a Memorandum of Understanding (MoU) with Islamic Development Bank’s International Islamic Trade Finance Corporation (ITFC) to implement its Shariah-compliant trade financing and provide help on various treasury activities such as joint trade financing and investment of liquidity.
The MoU, the first of its kind in the industry, means ITFC customers “can enjoy a simpler and cost-effective way to trade in a Shariah-compliant manner”. They benefit as HSBC will facilitate the issuance of letters of credit on behalf of ITFC for those who either import or export.
HSBC has been selected “because of its leading capabilities in both Islamic finance and trade and its unrivalled geographical footprint across the Muslim world”. The bank’s strength in trade finance dates back to its beginnings in 1865, when it was set up to fund the growing trade between Europe, India and China.
Now it has an unrivalled global network of dedicated trade specialists in more than 60 countries and HSBC Amanah, its global Islamic finance business, is present in seven countries, four of which contribute more than 50 per cent to the GDP of Organisation of Islamic Conference (OIC) member countries. This partnership will thus, help ITFC achieve its objective of increasing trade among OIC’s 57 member countries.
“This is a significant moment for Islamic finance because with the combined expertise of HSBC and ITFC, Islamic trade financing is set to become the next pillar of growth for the industry,” said Razi Fakih, deputy CEO of HSBC Amanah. “HSBC believes that trade and capital flows between the emerging countries of the world are likely to increase significantly over the next few decades. Given HSBC’s footprint in the emerging markets of Middle East and Asia, a partnership between ITFC and HSBC will play an important part in increasing intra-OIC trade.”
Dr Waleed Al-Wohaib, CEO of ITFC, said, “Since 2008, we have approved more than US$2bn of trade financing every year. In 2011, ITFC is expected to continue disbursing more than US$2bn of trade financing to companies in Asia, the Commonwealth of Independent States, MENA and Africa.”
Besides facilitating trade, HSBC will co-operate with ITFC in joint trade financing through syndication and co-financing. ITFC is also expected to invest its liquidity in attractive Shariah-compliant investment assets such as HSBC’s “Overnight Commodity Murabaha Investment” product. HSBC was the first bank to launch this product in 2009 and remains one of the few that offer customers this convenience.