DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
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 Enhanced competitiveness, with attractive financing terms being central to the
competitive strategies of exporters seeking to close export deals
In the end, liquidity and financing can be critical to firms of all sizes, be they small and
medium-sized suppliers in developing economies, or large multinational buyers located in an
OECD economy, and trade finance provides liquidity solutions linked directly to an identifiable
flow of goods, eliminating the need for companies to use existing general credit facilities and
operating lines of credit in support of their international activities.
1.2.2.1. Illustrative Financing Options
There are numerous financing options under the umbrella of trade and supply chain finance,
including:
a. Documentary letter of credit
A long-established, traditional mechanism of trade finance, where the buyer asks a credible
bank to issue a letter of credit – in effect, a promise to pay (with legal force) provided the
exporter demonstrates having fully met the terms and conditions of the credit, which once
issued, his a separate undertaking and payment promise of the Issuing Bank, A documentary
letter of credit provides (arguably) balanced safety to both the importer and exporter, and
involves the banks as active participants at minimum, as they ensure compliance by the
exporter by verifying documents related to the shipment.
b. Documentary collection, including documents against payment and documents
against acceptance
Also a long-established instrument of traditional trade finance, but one where the banks are far
less engaged in the transaction, and have no responsibility to verify documents as they do
under documentary letters of credit.
c. Export credit
Financing and/or risk mitigation provided through organizations that were historically public
sector entities with a trade and export development remit.
d. Various forms of guarantees, including standby letters of credit
Various instruments and mechanisms which can be used to enable trade or the fulfillment of
commercial activity and obligations, or that can be used directly to enable trade flows.
Guarantees (and related mechanisms such as bid bonds, performance bonds and standby
credit) are legally binding instruments that protect commercial partners by assuring the
beneficiary of the instrument that they can obtain redress – in the form of a payment under
such an instrument – if the entity that requested the instrument to be issued somehow fails to
meet their commercial or financial commitment.
e. Warehouse and Trust Receipt Financing
A form of financing that requires the goods being financed be in a secure warehouse for some
agreed period of time, allowing a bank or financier to provide financing on the basis that such