DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
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finance, the latter on the basis of buyer-centric supply chain finance programs designed
specifically for this purpose. As noted earlier, many of the core issues and opportunities
around trade finance are common across a wide range of jurisdictions, despite some local
nuances.
It is worth noting that the impact of the global crisis of 2007/2008 was projected to have
significant adverse impact on numerous OIC Member States, particularly those in the LDC
category and already suffering from significant levels of poverty. Analysis at the peak of the
crisis projected lasting adverse consequences for developing economies, with particularly
harsh impact in certain markets in Asia.
Recent estimates suggest that the food crisis has caused 130-155 million people to fall
back into poverty and global financial and economic crisis will trap 53 million more
people in poverty in developing countries, which will need an additional $38 billion to
lift the incomes of the poor to the poverty line. The sharp slowdown in economic growth
in 2009 will substantially expand the resource requirements to put hard hit member
countries back on track. According to the latest estimates by the UN (May 2009),
between 73 and 103 million more people would fall into poverty due to financial crisis.
Source: Impact of the Global Economic and Financial Crisis on OIC Member Countries,
2009
While the observations are now dated, several of the underlying concerns identified by the
Islamic Development Bank in the above-quoted analysis remain relevant today and merit
further consideration in the context of SME access to finance and trade finance.
The IDB study points to internal factors (within OIC Member States) that were expected to
exacerbate the adverse consequences of the externally-originated global crisis. Among these
factors, IDB lists “weak linkage” between the financial sector and the real sector, and weak
corporate governance in the financial sector.
These observations clearly apply to different degrees in different OIC Member States, however,
they are mentioned here due to direct relevance to SME access to finance and trade finance,
and as a matter of contrast to the widely held view that Islamic financial institutions did well in
weathering the global crisis, precisely due to the close connection between Shari’ah-compliant
(trade) financial structures and the underlying flow of goods: real economy activity.
IDB indicated in 2009 that inclusiveness in terms of economic recovery and growth needed to
be a priority, and identified “re-regulation” of the financial sector to assure its stability and
responsiveness to priority sectors.
The urgency of providing access to financing and trade finance to LDC Member States is well-
recognized and acknowledged.
Although some Member Countries are better positioned with regards to liquidity and
access to funding, lack of access to trade finance still remains a major hindrance in
many Member Countries, particularly the least developed member countries (LDMCs).
As such, it remains one of ITFC’s priority areas to continue its efforts to increase direct
operations and enhance implementation of 2-Step Murabaha Lines for Banks in LDMCs.