Improving the SMEs Access to Trade Finance DRAFT
in the OIC Member States
64
medium sized enterprises (SMEs), compared with developed country markets. They
might impose fewer requirements and less stringent standards than developed
countries. OIC member countries also share common relationship networks and cultural
norms that can facilitate trade.
Source: Connecting to Global Value Chains, 2013IDB Group
3.2.1. Middle East
The Middle East is unique in its continued favouring of traditional trade finance mechanisms,
particularly documentary letters of credit, as the means of conducting international commerce.
Senior bankers in leading markets describe a persistent affinity for the use and handling of
documents, and a preference for established practice that is also linked to international
standards and guidelines such as the ICC’s Uniform Customs and Practice for Documentary
Credits, and the related counterparts for other trade finance instruments.
Senior bankers have drawn parallels between enduring social practices such as the central role
of the Majlis in Arab society, and the ongoing preference for the use of long-established
mechanisms of trade finance (Cash & Trade Magazine, 2013), noting that he importance of
personal integrity and trust, and an abiding focus on the principles of Islamic Finance and
Islamic Trade Finance are both complementary and highly consistent. Similarly, the attention
to managing reputational risk remains at the core of commercial conduct.
The nature of traditional trade instruments and their linkage to new versus established
commercial relationships is also consistent with this overall view: documentary credits
typically apply in the context of new trading relationships, or ones that require significant
levels of risk mitigation, where documentary collections, involving far less in the way of bank
intervention, reflect a progression of commercial relationships to levels of trust and
confidence, in both cases, surrounded and supported by long-established and internationally
accepted practice, very much in line with the precepts of Islamic Finance and Trade Finance.
Interestingly however, recent developments in trade finance, such as the launch of the new ICC
Rules for Bank Payment Obligations (2013) and a regional launch event in Dubai, garnered
significant interest, and the Dubai Chamber of Commerce is quickly adopting this mechanism
on the basis of enhanced process and financial efficiency for its members (Dubai, September
2013).
The persistent political tensions in parts of the Arab World, and the more serious crises
involving civil war or other military action, including the outcomes so far related to the Arab
Spring present complex challenges on a variety of levels that are beyond the scope of this
analysis, but they also very directly impact the pursuit of commercial activity, and the risk
assessment linked to the markets directly affected, along with immediate neighbouring
economies.