DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
53
Figure 19: IFC Supply Chain Finance Program
Source: IFC Short Term Trade Finance
2.8. Risk Mitigation as a Core Element of Trade Finance
The global crisis has refocused attention on risk mitigation as a fundamental element of the
value proposition of trade finance, both in the traditional sphere, and in relation to open
account and supply chain-related financing.
Emerging solutions such as the Bank Payment Obligation have ensured the incorporation of
risk mitigation solutions in their capabilities. Relatedly, there are efforts notably through IFI
programs, to assist SMEs in better positioning themselves in their interactions with providers
of trade finance. SMEs are perceived as relatively risky by traditional bankers, partly due to the
limited technical knowledge of SMEs around credit, financing and trade finance specifically.
Technical assistance and support activities include initiatives aimed at helping SMEs to more
clearly and effectively communicate and engage with trade financiers, perhaps reducing the
perception of risk associated to those SMEs by the banks.
Risk mitigation considerations have taken sufficient priority in emerging solutions in trade
finance, that there is a view that the lessons – and features – of traditional mechanisms will
ultimately be incorporated into the characteristics and capabilities of these emerging solutions
to trade finance. The option to provide a confirmation to a Bank Payment Obligation, which
parallels confirmations available under letters of credit, is one illustration of this probable
trend in trade finance.