Improving the SMEs Access to Trade Finance DRAFT
in the OIC Member States
2
INTRODUCTION
The business of trade finance is well-established, using processes and instruments that have
evolved over a period of hundreds of years, perhaps longer. Paradoxically, despite the long
history and the globally accepted practices, trade finance is very poorly understood, and has,
until the eruption of the global crisis, generally been in the background of international
commerce.
The crisis did however, place a great deal of focus on trade as an engine of recovery and
economic growth, with business and political leaders seeing robust trade as one of the only
viable mechanisms to support and enable a reversal of the crisis.
The post-crisis environment is characterized by a substantial reshaping of international
sourcing patterns and trade flows, including greater focus on regional trade, with the United
States and Europe both continuing to battle the effects of the crisis, and exporters throughout
the world forced to seek alternate markets as a result of ongoing issues in the world’s two
largest consumer economies.
Trade finance, particularly in its traditional form aligns very well with certain key principles of
Islamic finance, including Sharia compliant trade financing structures, and the moment is
particularly well selected the COMCEC to undertake focused analysis on trade finance in OIC
Member States, with particular focus on enabling SME access to such financing.
Trade finance is a low-risk and low loss business, linked directly and demonstrably to “real
economy” activity involving the flow of goods and services, creating substantive value, and
devoid of speculative mechanisms. In traditional structures such as documentary letter of
credit transactions, the parties involved are easily identifiable, and the financial structure, no
matter how complex or comprehensive, involves sufficient visibility and transparency to be
easily understandable.
Given that the vast majority of global trade flows are supported by some form of trade finance
(including the relatively newer form of supply chain finance), it becomes increasingly
appropriate to bring financing sharply into focus, in the context of broader initiatives related
to trade, trade promotion and international development. In most economies, Small and
Medium-sized Enterprises (SMEs) and even Micro-enterprises (together, referred to as
MSMEs), play a critical role in the creation of economic value, while facing the greatest
challenges in accessing liquidity and financing.
These factors, together with prevailing macro-conditions in the global economy, underpin the
need to focus on access to trade finance as a core element of a broader strategy aimed at
encouraging greater collaboration among OIC Member States in numerous areas, including
trade and development. It is worth noting explicitly that OIC Member States collectively,
represent the full range of experiences currently observable across the globe:
 Jurisdictions still wrestling with the consequences of the global crisis
 Countries in recovery and rebound mode, exhibiting growth and some level of return
to normalcy