Issues and challenges of Islamic trade finance faced by Islamic banks in Malaysia

• Main Authors: Ismail, Siti Aqilah, Hassan, Rusni
• Format: Book Chapter
• Language: English; English
• Published: Springer Nature 2020
• Subjects: HB126.4 Islamic Economics; HG3368 Islamic Banking and Finance
• Online Access: http://irep.iium.edu.my/84793/1/84793_Issues%20in%20Islamic%20Trade%20Finance.pdf; http://irep.iium.edu.my/84793/2/84793_Acceptance%20Letter.pdf; http://irep.iium.edu.my/84793/

Islamic trade finance (ITF) is one of the facilities offered by Islamic banks in Malaysia to finance trade activities. It is one of the biggest areas in the industry which contributes to economic development. The practices of ITF in Islamic banks differ from conventional practices. Despite the difference in its operations process, ITF is not exceptional from facing its own issues and challenges which comes from various aspects. Thus, this research aims to highlight the issues and challenges of ITF faced by Islamic banks in Malaysia. Most of the literature studies and reports basically mentioned on the general issues and challenges such as no standard written guideline, political risk, legal risk, currency and foreign exchange risk, financial crisis, and the most common issues which is Shariah issues pertaining to the operations and contracts used in ITF. However, all the mentioned issues and challenges are basically defined generally for all countries. The question is how does all the issues and challenges mentioned relevant in the context of the Malaysian ITF industry? This research adopts the qualitative method as the main research methodology. The data collection method was done through questionnaires interview given to three selected Islamic bank’s practitioners who were directly involved in the operation of ITF. The response gained from the questionnaire discovers that there are various issues related to ITF faced by Islamic banks in Malaysia. This research analyzes those issues accordingly considering some limitations in gaining data and information. Hence, some recommendations are proposed for the regulators, Islamic banks and practitioners to mitigate the issues and challenges of ITF faced by Islamic banks in Malaysia.