Islamic finance and promotion of trade finance in the African continental free trade area (AFCFTA): An exploratory study

Aliyu Shehu Usman Rano

MPRA Paper from University Library of Munich, Germany

Abstract: Despite the significance of finance as a major trade lubricant, evidence in the literature alludes to its scarcity and increasing cost, especially in developing countries where small and medium-scale enterprises are worst affected. The creation of the African Continental Free Trade Area (AFCFTA) in 2018, an organ of the African Union (AU), was meant to serve as a beacon for deepening economic integration through the removal of trade barriers inhibiting intra-African trade and movement of persons, among others. Hence, this research explores the role Islamic finance (IF) could play in promoting trade finance in the AfCFTA. The study involves six countries: Egypt, Kenya, Malaysia, Morocco, Nigeria, and Saudi Arabia, and employs survey research methodology, a total of 430 sample data, and SmartPLS Structural Equation Modelling (SEM) techniques in its analyses. Findings reveal strong evidence that Shari'ah, legal and regulatory compliance issues of IF institutions rhythm with the internal, national, and international compliance requirements equally as the unique instruments applied in IF. In addition, IF was found to be largely driven by global economic and political stability, socially responsible finance, ethical and moral considerations, risk-sharing, and resilience of the global Islamic finance industry. Furthermore, SMEs, governments, and importers are the major beneficiary sectors. SmartPLS results show that AFCFTA's protocols are in tune with the principles of IF and are therefore suited for the spread of Islamic finance institutions on the continent. And, while AML/KYC and BASEL requirements are crucial, compliance with the AAOIFI and IFSB standards, paucity of Shari'ah experts, threats to global security, and increasing global economic uncertainty pose as major impediments. The study calls for the licensing of more IF institutions in the continent, participation of multilateral institutions in Islamic trade finance (ITF), and harmonization of Shariah standards.

Keywords: AfCFTA; Islamic Trade Finance (ITF); Murabaha; letter of credit; and forwarding (search for similar items in EconPapers)
JEL-codes: C12 C35 F13 P45 (search for similar items in EconPapers)
Date: 2024-04-30, Revised 2025-05-16
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/126475/1/MPRA_paper_126475.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:126475

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().