DRAFT
Improving the SMEs Access to Trade Finance
in the OIC Member States
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In the end, measures aimed at supporting and enabling greater access to trade finance will
have their effect within a broader context: at one level, within the trade and supply chain
activities of OIC Member State-based SMEs, and on another level, within the wider
macroeconomic context, the broader capital markets and within the context of public policy
that extends beyond focus on trade-related priorities. In this respect, the decisions and actions
related to the provision of adequate levels of trade finance will be more effective if they are
linked and aligned with other priorities and streams of activity, including efforts around
capital market development and trade promotion.
The true state of the Islamic trade finance sector as such is difficult to gauge because of
a lack of reliable statistics and data; and poor reporting and disclosure cultures. This is
true for both the multilateral development banks (MDBs) such as the IDB Group and for
the commercial and specialised Islamic banks.
Yet the few reliable statistics that are available suggest that the potential for Islamic
trade finance is huge given that the 56 IDB member countries are some of the world’s
largest exporters of strategic commodities such as oil, gas, petrochemicals, palm oil,
phosphates, timber, cotton, selected manufactured products and electronics. They are
also some of the world’s largest importers and consumers of products such as foodstuffs,
livestock, wheat and other soft commodities, white goods and a host of electronic,
transport, IT and other machinery and equipment.
Source: Cash & Trade Magazine, 2011
As noted earlier, key issues and challenges facing OIC Member States as related to trade
finance, are very consistent with and similar to systemic issues encountered globally by
stakeholders and experts monitoring the state of trade and supply chain financing.
Risk aversion (perceived or objective), insufficient support of SMEs, credit and resource
capacity constraints and the apparent need for, but absence of, innovation are all identified as
relevant in the context of OIC Member States, just as they are relevant, and have been
discussed earlier, in the broader global context. The demands for collateral in support of SME
finance and trade finance, likewise, has been identified as disadvantageous and impractical
given the limited assets typically available to SMEs. For some specialists, the requirement for
collateral is seen as nearly pointless, given the difficulty of converting assets taken as
collateral, in times when the SME borrower encounters difficulty in meeting its financial
obligations.
Similarly, the absence of useful data, metrics and benchmarking has been observed in OIC
Member States and their supporting institutions, just as it is a reality within the wider trade
finance community. Just as there are systemic issues in accessing or deploying financial
resources in support of trade, globally, there are several observable challenges in doing so
within and between OIC Member States. These include:
Limited payment and settlement infrastructure in OIC Member States, forcing the use
of (expensive) international centres of finance
Limited availability and uptake of ECA support and risk insurance
Limited trade finance product innovation beyond basic structures
Systemic risk aversion