DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
41
Non-bank providers face similar issues, in addition to even tighter constraints on the amount
of capital and financial resources that can be deployed in support of SMEs.
While the importance of financing and liquidity to SMEs is clearly recognized, particularly in
the context of international commercial transactions, the challenges to accessing/providing
the necessary capital are not insurmountable, and in numerous cases, appear to be primarily a
matter of training, education and adequate information flow.
The experience of Grameen Bank with microfinance (low loan losses even among the highest
risk borrowers as described by Muhammad Yunus, SWIFT Conference, Osaka, 2012) suggests
that perceptions of financial risk are not fully accurate, and that there is perhaps a need and an
opportunity for a change in paradigm around the financing of micro and small business
ventures. Likewise, it has been suggested (Asia Pacific Trade Facilitation Forum, Trade Finance
Panel, 2013) that the value of collateral to banks is negligible in cases of default by an SME, and
that non-collateralized finance will better meet the needs of small companies without
significantly increasing the lending risk to financial institutions.
Relatedly, while the majority of trade financing capacity rests with banks today, the role of
international institutions such as export credit agencies and international financial institutions
is clearly growing, and such entities are very much disposed to supporting SMEs in developing
markets.
Such institutions, especially international financial institutions, supported by a donor/member
community, are less concerned with commercial profitability, and more concerned with social
and economic benefit, though also clearly driven to preserve the safety and security of capital.
These institutions support local financial institutions and enable international banks to
undertake transactions that would otherwise be deemed commercially unacceptable, by
providing various forms of guarantee against risks of non-payment, for example. Some such
programs have been described as involving onerous restrictions and loan covenants, and in
some cases, as being unaffordable due to excessive risk premiums. In the latter instance, public
policy initiatives at the national or supra-national level can be effective in balancing the need
for appropriate risk pricing and mitigation, with the need to provide affordable financing to
SMEs.
There are alternative sources of financing, and there may be opportunity to develop greater
trade finance capacity among community banks and credit unions in markets where these
institutions exist, for example. Such organizations are typically closer to the SME segment and
have a better and more intimate understanding of the business practices and needs of SMEs. In
most markets however, such entities are not particularly active in international banking and
trade finance.
The experience of international jurisdictions in providing alternate, non-bank sources of trade
finance may be instructive, even to the extent of suggesting program characteristics that can be
incorporated into bank offerings in OIC Member States.