Improving the SMEs Access to Trade Finance DRAFT
in the OIC Member States
20
exporting companies of all sizes need to understand, increasingly quickly, the details about
payment due dates, expected maturity dates of future payments, impact of transaction
processing delays on their respective financial situations and the impact of foreign currency
fluctuations on financial positions. Both buyers and sellers are concerned about cash positions
and the effect of trade transactions (and their typically longer timeframes) on liquidity and
working capital.
These needs and expectations linked to liquidity and financial management are especially
critical in the context of ongoing global liquidity constraints and in times where borrowing
remains relatively difficult and expensive.
Relatedly, banks and financiers also seek greater visibility on the state of the financial aspect of
a trade transaction, while concurrently looking to better track the status of the movement of
the physical goods, which may at times serve as collateral against loans or facilities extended
to the buyer or seller by the banks.
Bank systems that provide increasingly rich and granular reporting and tracking functionality
related to trade finance transactions are complemented by evolutions in logistics and shipping
technology, including the increasingly common use of Radio Frequency Identification (RFID)
Technology to track the movement of ships and specific containers of goods aboard ships.
The level of detail and the speed with which information – financial and physical – is provided
has been improving dramatically over the last decade, and the information provision element
of trade finance has direct implications on the ability of financiers to provide additional
financing or to gain additional comfort from a risk management perspective, through enhanced
and accelerated visibility.
1.3. Islamic Finance and Trade Finance
Islamic Finance, including Islamic Trade Finance, has been an area of growth, not only within
Shari’ah compliant and focused institutions in the Islamic world, but more broadly, attracting
the interest of European, American and Canadian banks and institutions over the last several
years in particular. At the highest level, the requirements around direct linkage between
financing and identifiable, real economy flows, together with the conservative and non-
speculative character of the sector has been very attractive under global crisis and post-crisis
conditions.
There are certainly distinctions and differences in approach and principle between
conventional and Islamic Finance and trade finance, however, there are also sufficient parallel
elements to allow for the (duly adjusted) transfer of experiences from one discipline to the
other, and thus far, no fundamental obstacles or differences of a nature to prevent the
application of insights, recommendations and practices between Shari’ah-compliant and
conventional trade finance.
It has been suggested that Islamic Trade Finance has an opportunity to become the preferred
financing option in so-called “Rapid Growth Markets” (RGMs) such as Turkey, Indonesia,
Malaysia, Qatar, Saudi Arabia and the UAE among others, as a result of the growing influence