What Role can Islamic Banks play in Narrowing Trade Finance Gap for SMEs? Is Supply Chain Finance a Potential Solution?

This paper attempts to investigate the reasons driving the global trade finance gap and the role that Islamic Banks can play to narrow this gap using innovative products such as Sharia-compliant Supply Chain Finance (SCF). This qualitative study followed an exploratory research methodology that gathered data and information from multiple sources such as industry reports, companies’ surveys, Sharia scholars' opinions etc. All this data was then analyzed using the content analysis approach to infer and interpret the relevant information. The summarized results were then utilized to design the proposed Sharia compliant SCF solution that addresses the issues identified in the research. This methodology helped identify key issues banks and SMEs face in trade finance and bring to light key emerging themes currently prevailing in the industry, which have been incorporated in the proposed solution to achieve maximum gains. The proposed Sharia-compliant SCF solution enhanced by i) adopting emerging technologies either in-house or in collaboration with fintechs and ii) linking it with sustainability initiatives can assist Islamic banks to play a significant role in closing the trade finance gap in the markets they operate and across the OIC member states. This study is a small addition to the extant literature on trade finance and issues banks and SMEs face that lead to the trade finance gap. The solution proposed in this study for Islamic Banks to play a role in closing this gap using Digital and Sustainable Sharia-compliant SCF is a novel approach in addressing the trade finance gap.