Improving the SMEs Access to Trade Finance DRAFT
in the OIC Member States
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Similarly, policy measures and overall market context assessments can be undertaken in terms
of analyzing the adequacy and availability to trade finance for SMEs and other parties, based
on the four “views” above.
Certain OIC Member States, for example, will be more concerned about the risk mitigation
dimension than others, where perhaps accelerated payment, or the provision of adequate –
and affordably priced – financing might be more important in meeting the needs of local
companies seeking to engage in international markets.
The sources and providers of trade finance can also serve as a basis for understanding the
nature, scope and options around trade financing. Banks currently provide the majority of
trade finance capacity globally, and within the banking sector, it is estimated anecdotally by
practitioners that the top ten financial institutions control a majority of global market share in
traditional trade finance today. Open account transactions, and financing related to supply
chains, is still very much in development and evolution, with non-banks, including factoring
houses, playing a significant role.
Export credit agencies (ECAs), entities that can be public sector, private sector or hybrid
organizations but are particularly important in supporting trade involving higher-risk
emerging and developing markets, support approximately 10% of global trade flows,
providing over $1.5 trillion in short-term insurance cover alone in 2012 according to the
industry association called the Berne Union (Berne Union Yearbook, 2013). ECAs support
trade through credit and financing as well as through the provision of various forms of
insurance, guarantee and bonding products.
Additionally, various international institutions like the World Bank/International Finance
Corporation, the Asian Development Bank and the International Islamic Trade Finance
Corporation (ITFC) are very active in supporting trade through various forms of financing and
risk mitigation solutions, in both the traditional trade space and in emerging solutions such as
supply chain finance.
1.5. The Importance of Financing to Global Trade
Trade financing is simply essential to the conduct of international trade. As noted earlier, it is
estimated (IMF, WTO and others) that 80-90% of trade flows globally are enabled by some
form of trade finance.
This can be bank-sourced, traditional trade finance such as letters of credit, or it can be trade
finance provided by export credit agencies or international institutions, or it can be other
forms of lending and financing that support trade, without necessarily being easily identified
as trade finance. Even for the types of financing that can be identified as trade finance, the link
is direct and substantial, between trade finance solutions and the ability of companies to
engage in international commerce.