More institutions are expected to participate later this year. In this space, there are continuing ample and growing opportunities for Islamic finance to tap on as we ramp up in high value-added sub-sectors such as halal pharmaceutical and cosmetics, as highlighted in HDC’s sectoral development roadmap. Islamic finance also is primed to support initiatives under the National Investment Aspiration (NIA). As the new national investment policy strategy, the NIAs aim to increase Malaysia’s capacity to produce more complex and high-value products and create more high-skilled jobs5. This, in turn, will result in Malaysia producing new lines of goods and services beyond the traditional and upstream products, which will require support including in trade financing in developing businesses across these new product supply chains and penetrating new markets. The different nature of these needs, however calls for more well designed solutions that extend beyond readily available products. Conclusion Before I end my remarks, I would like to touch on the importance of calibrating trade finance processes with digitalisation. The World Bank’s Islamic Trade Finance Report recognises this as a priority area and calls for enhancements to online Islamic trade finance supply chain financing, and the use of blockchain technology. Such technological advancements that leverage distributed ledger technology and API-enabled trade finance platform can address long-standing issues in trade finance operations that mainly arise from the voluminous and manual nature of trade finance processes.
Companies can obtain short-term liquidity via the sale of current assets such as receivables and inventories to financial institutions without increasing their indebtedness. The structuring of such solutions however, entails new sets of risks to financial institutions. In contrast to debt financing, the financier is exposed to risks beyond credit, such as inventory and market risk, which calls for additional safeguards for risk mitigation, different approaches to risk management, infrastructure and practices. Given the nature of the exposures, this warrants Islamic financial institutions (IFIs) to take an exploratory approach to new trade-based offerings. This allows for a better understanding of the risks and their dynamics thus enabling IFIs to put in place the appropriate framework and policies. As an example, four Islamic banks have commenced a pilot programme with four government ministries in March 2021 to provide liquidity facilities for SMEs via the purchase of outstanding invoices from Government vendors. This is an example where non-traditional Islamic trade finance solutions can help satisfy the financial needs of businesses. Another important thrust is for us and in particular Islamic finance to help businesses embrace sustainability and build resilience to climate change. The urgent need for an inclusive and greener recovery is undeniable. This is a point driven home by the recent publication of the Intergovernmental Panel on Climate Change report that spelt out code red for humanity. On the current trajectory, climate change is estimated to cost the world USD1.7 trillion a year by 2050, with potential escalation to approximately USD30 trillion by 20753.