DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
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Historically, small business had the luxury of taking the time to establish solid domestic
operations prior to venturing into higher-risk, costly international markets, and were often
advised to ensure legal and operating structures aimed at shielding the domestic business
from any adverse impact originating from the international activities of the company.
The commercial reality today is very different, with companies increasingly seeking
opportunities in international markets, much earlier in their lifecycle – often almost at start-up
– in order to ensure rapid growth, diversification of markets and access to technology or other
inputs that may be required by the company in its own production activity. That is,
international engagement is likely to happen much earlier for small businesses today, and may
very well involve both import and export activity.
While the formal definition of an SME can vary based on number of employees or average
annual turnover, and those variances can be significant even within one country (where sub-
national jurisdictions define their segments differently), it is likely that the majority of
businesses requiring access to trade finance in OIC Member States will fall into the SME
segment, with some likely to be considered micro-enterprises. This will be relevant not only in
domestic terms, but also in terms of international definitions of the SME segment, particularly
in trade and supply chain finance, where the lender may be an international bank or institution
with segmentation definitions that vary from those of domestic institutions.
Finance discussions at a high level will suggest that the primary requirement of a small
business is to assure access to liquidity, cash flow and working capital, without which most
such businesses do not have the wherewithal to survive over the medium term, and indeed
may be unable to sustain any significant delay in collecting receivables, or unexpected cost
related to accessing international markets, or to the resolution of an expensive commercial
dispute, for example. For such businesses, the expression “cash is king” is very much a reality
of daily business, and the urgency is compounded when international activities are involved,
given the extended timeframes involved in international commercial activity.
This is true for several reasons:
 International market development is a time-consuming, resource-intensive and costly
proposition
 Development of local relationships likewise can be a long process requiring multiple
trips to the new market
 Due diligence and risk mitigation related to international ventures can be expensive, as
can any type of dispute resolution
 Payment and settlement timeframes can be significantly longer due to the extended
timeframe in completing a transaction and due to differing practices related to the
settlement of foreign payables by a foreign client
 SME exporters may even be expected to provide attractive terms of sale as a
competitive reality of international sales, perhaps accepting payment terms extending
to 90, 180 or 360 days in order to assure closure of a deal with a new buyer
In addition to the imperatives driving a need for financing among SMEs, there are challenges in
providing such financing, that arise at the client side (with the SMEs) as well as with the lender
side (banks and other institutions). It should be noted that the Asian Development Bank has
estimated a global gap in trade financing (excess of demand over supply) in the range of US