DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
43
the global crisis, however, the longer-term patterns in this respect suggest that it is important
to ensure adequate non-bank participation in the provision of liquidity to SMEs.
Recent developments in the financing of international trade suggest that there are evolving
opportunities to support SMEs and enable their involvement in international commerce.
International financial institutions and banks alike have devised or refined solutions under the
umbrella of supply chain finance, aimed at providing financing to small suppliers (even those
located in higher-risk developing markets) on the basis of the borrowing capacity of large
global buyers. This type of program may be particularly promising in addressing some key
needs in OIC Member States, as it touches upon trade, development and the imperative to be
responsive to the needs of SMEs.
Relatedly, there is significant pricing and margin compression currently in the business of
trade finance, particularly at the top end of the market, where large corporate clients are able
to access low-cost financing and are able to apply pressure to their bankers in demanding
lower pricing for various kinds of financing, including trade finance. In this context, middle-
market clients including larger SMEs are now seen as more attractive to financiers, because
pricing can be more profitable. This may be a temporary situation, however, it is clearly the
reality of the moment, and combines well with the fact that economic and trade growth rates
are stagnant in most OECD economies, and dynamic in emerging and developing markets.
SMEs have long expressed frustration about the difficulty in accessing affordable financing;
perhaps evolving conditions will create the circumstance where SMEs need their bankers, but
finally also where bankers will need their SME and microfinance client base: an advantageous
scenario to which OIC Member States are perhaps closer than other jurisdictions today, and
one which could provide the basis for economic development and growth driven by the SME
sector.
The impact of inadequate trade financing has observable and quantifiable consequences for
businesses – particularly SMEs and businesses engaged at the low end of global value chains,
as observed by the IMF in 2009.
“…firms lower in the supply chain are more affected as a result of reduced access to
credit by final suppliers/customers:
 In Indonesia where most firms in the sample produce consumer products and are
assemblers of different semi-finished products to be final products, the impact has been
large. Exporters were experiencing an increase of up to 37 days in their cash flow cycle.
 In India, 60 percent of firms’ cash-to-cash cycle time has increased from 15 to 90 days
post September 2008; and 80 percent of firms reported overdue payment ranging from
5 to 70 percent of their sales.
 Firms in Turkey also complained about overdue payment, in particular when using a
direct method of payment rather than safer method of payments such as Letters of
Credit (LCs). This may lead some firms to prefer safer methods of payments, provided
that banks are willing to work with them.”
Source: Trade and Trade Finance in 14 Developing Countries Post 2008, World Bank,
2009