Improving the SMEs Access to Trade Finance DRAFT
in the OIC Member States
40
$1.6 trillion per year, about 25% of which is in the Asia Pacific region. It bears repeating here
that industry estimates, supported by the WTO and others, suggest that 80-90% of global trade
flows are supported by some form of financing. With these numbers in mind, it is not
surprising that small businesses, especially those in developing markets, would be adversely
impacted in terms of both access to, and cost of, trade finance.
International development specialists focusing on trade, development and trade finance (ITC,
ADB and others) have noted that part of the “access to finance” challenge relates to the nature
of the SMEs themselves, and the difficulty of conventional financiers in engaging with SMEs
due to the SMEs own approach and practices (How to Access Trade Finance, ITC 2009).
Factors noted include:
 An entrepreneurial mind-set and related distrust of banks and large institutions
 Hesitancy in providing visibility around business operations, strategic direction and
financial status
 Limited technical competence in finance which prevents small businesses from
“speaking the language of the lender” and appreciating the critical importance to
timely and adequate disclosure
 Opacity relative to the purposes and planned use of borrowed funds, and a related
perception of heightened risk
 Inability to prepare credible loan or financing requests
 Limited collateral or other forms of security
 Perceptions of non-bankability especially in developing markets
Numerous challenges on the SME side appear to be attitudinal in nature, and efforts have been
made by bankers and by international financial institutions, to provide various forms of
training and other resources, to assist SMEs in engaging effectively with potential financiers,
including bankers and others.
Markets in the Middle East and North Africa have shown an enduring affinity for traditional
trade finance products and for long-established commercial practice in trade, however, there is
a broad issue with transparency related to companies based in the region. International banks
have tightened their requirements around the need for basic information such as audited
financial statements, visibility relative to income sources and flows at the operating and the
holding company level, and a general alignment of practices to international standards, as
opposed to the historical relationship and reputation based “name lending’ approach.
This is an issue that extends beyond SMEs but one that has gained significant attention post-
2008. Recent reports from industry sources suggest that there is momentum among local
banks and businesses, to better align with international practices including accounting and
reporting standards among others. Banks also, it must be said, face challenges in providing
adequate levels of support to SME clients. These include:
 Perceived high risk of SME finance and trade finance
 High level of coaching and resource intensive nature of SME relationships
 Internal competition for limited capital, meant to be deployed in support of secure,
profitable business
 Lack of technical competence around trade finance among credit and risk analysts