DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
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the legitimate alternative to provide SMEs with the required working capital, shrink the
liquidity gap, reduce the risks of insolvency and may help in improving their competitiveness.”
At its core, the paper concludes that the challenges facing SMEs in IDB Member states are
fundamentally similar to those facing SMEs that operate in markets financed through
conventional mechanisms, aligning well with our own view that the issues and challenges
linked to trade finance and to enabling the international engagement of SMEs are consistent
across many jurisdictions.
The view among trade finance practitioners is that the resilience of institutions governed by
Shari’ah Law relates directly to the prudential and conservative nature of the guidelines
followed by these institutions, and that the direct link to “real economy” trade flows helped
Islamic Financial Institutions to avoid the risks and adverse impacts of ill-advised financial
engineering that effectively led to the nationalization of several previously top-tier European
and American financial institutions.
One factor specific to Islamic Finance and Trade Finance (though it does arise to some degree
in the context of conventional finance) is the necessity for efficient and timely movement of
goods and transfer of ownership between parties involved in trade activity. In this respect,
there is a direct link between trade finance, and the imperative for OIC and IDB Member States
to ensure adequate infrastructure and logistics capabilities, as a factor influencing not only the
ultimate conduct of trade, but to a greater degree than in conventional finance, the availability
of trade financing.
The local realities in parts of Africa bring this notion very much to life.
[The time]…it takes for the typical 20-foot container to reach the most accessible port.
In Bangui, Central African Republic, it takes 116 days for such a container to be moved
from a factory in the city to the nearest port in the Gulf of Guinea. It takes 71 days to
move such container from Ouagadougou, Burkina Faso, to the nearest port. On the
contrary it takes 5 days from Copenhagen, 6 days from Berlin and 20 days from
Shanghai, Kuala Lumpur and Santiago de Chile. Same studies find that a delay of one
day reduces trade by more than 1%.
Source: UNECA Aid for Trade Review 2009
The timeframes for the movement of goods calculated above have very direct implications in
the financing sphere. First, SMEs facing these types of timeframes will have very urgent need of
working capital and liquidity support, in a world where finance and treasury executives seek
to extract working capital be shortening transaction cycles by as little as a day or two, the
notion of having to wait up to four months for goods to transit to a port, is striking, and
suggests a reality that is unsustainable for an SME, particularly in the absence of access to
financing and trade finance.
While businesses in developed economies worry about the speed with which goods arrive at
destination – sometimes days ahead of the arrival of documents of title that are sent through
the banking system – SMEs in certain markets clearly have concerns that are much more about
the physical movement of goods, than the related financial flows.