Dubai may soon be home to the world’s first sharia-compliant trade bank (1). In a push to make the city the center of the Islamic financial world, the Dubai Islamic Economy Development Centre (DIEDC) is negotiating with the United Arab Emirates (UAE) Central Bank to establish the Emirates Trade Bank. According to the DIEDC, the bank is close to obtaining necessary regulatory approval (2).
According to the DIEDC, the bank will focus on financing international trade and commodities: “Emirates Trade Bank will exclusively offer integrated trade and international commodity financing solutions, through leveraging and mobilizing the infrastructure and logistics systems of the UAE” (3). The UAE, and Dubai specifically, is already renowned for its advanced infrastructure and regulatory environment that makes it a major business hub of the region. For 2017, the World Bank ranks the UAE 26 of 190 economies on its ease of doing business index with a 77/100 rating, by far the best in the region (4). The Emirates Trade Bank represents the UAE’s strategic goal taking its business-friendly reputation one step further to become a major financial hub. Due its strategic advantages, Dubai is positioned to redirect international trade and commodity flows in the region through the UAE (5). Showing how this can be accomplished, a UAE-sponsored Forbes article on economic development points out growing global interest in investing in Africa and the Middle East and presents Dubai a gateway to these markets (6). As such, the UAE hopes that the trade bank will help double the country’s trade flows by 2020 by offering a gateway for trade and finance into the region. It is also worth noting that the Emirates Trade Bank would be fully compliant with sharia law, following Islamic law as it relates to the financial sector. The UAE is already a leader in the Islamic finance world, having established the first Islamic bank in the world in the 1970s (7). The new trade bank, then, would further solidify the UAE’s status as the “Capital of the Islamic Economy,” in the words of a major UAE newspaper (8). The establishment of an Emirates Trade Bank also shows the growing relevance of Islamic finance. Crucially, the bank would not merely service regional trade and investment but seeks to attract international clientele looking to trade with the region, especially in commodities. Of course, oil stands out as the region’s main commodity demanded internationally. Originally, sharia-compliant finance was formalized in the 1960s as the discovery of oil wealth fueled global interest in the Middle East’s trade and finance institutions. Today, oil continues to drive Middle Eastern trade with the rest of the world, which could be part of the reason the UAE is looking to establish an investment bank that deals specifically in trade and commodities. However, the Emirates Trade Bank has the potential to facilitate expansion of connectivity between the region and the rest of the world by providing a stable and easy-to-access framework for investment. In this way, the Emirates Trade Bank could help advance not just UAE financial interests but also promote investment and growth in the entire region. (1) Sharia law refers to the moral and practical guidelines of Islam as dictated by the Quran and the life of the Prophet Mohammed. As it relates to finance, Sharia law emphasizes risk sharing in raising capital, avoiding usury (charging interest) and preventing risk and uncertainty. Ross, Marc. “Working With Islamic Finance.” Investopedia, n.d. http://www.investopedia.com/articles/07/islamic_investing.asp. Accessed 26 October 2016. (2) Mena. “Dubai lines up first sharia trade bank.” Global Trade Review, 19 Oct. 2016. http://www.gtreview.com/news/mena/dubai-lines-up-first-sharia-trade-bank/. (3) Ibid. (4) Everington, John. “UAE improves standing in World Bank’s Ease of Doing Business Survey.” The National, 26 October 2016. http://www.thenational.ae/business/economy/uae-improves-standing-in-world-banks-ease-of-doing-business-survey (5) Staff. “Establishment of Emirates trade bank in Dubai.” Emirates 24/7, 13 October 2016. http://www.emirates247.com/business/establishment-of-emirates-trade-bank-in-dubai-2016-10-13-1.641917 (6) “Dubai: World-Class Infrastructure and a Global Hub for Trade, Transport and Tourism.” Forbes Custom, n.d. http://www.forbescustom.com/EconomicDevelopmentPgs/DubaiWorldClass.html. Accessed 26 October 2016. (7) Emirates 24/7. Ibid. (8) Forbes Custom. Ibid. Image: © Akhilesh Sharma | Dreamstime.com - United arab emirates currency coins
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