| 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. |