Improving the SMEs Access to Trade Finance DRAFT
in the OIC Member States
82
"We engage those companies that are already banked but whose credit lines are limited
- we are complementing their financing," said Sulaiman Alireza, executive director of
Asiya's investment management arm in Hong Kong. Despite strong growth in Islamic
finance globally over the last few years, the industry has neglected merchandise trade,
leaving trade finance for conventional banks to dominate. But conventional banks are
retreating because of the world financial crisis and higher capital requirements under
upcoming Basel III regulations, which could open up about 20 percent of the business to
non-bank institutions, Alireza said.
Source: Reuters, 2013
Overall, the criticality of trade, and hence of trade finance, is mirrored in OIC Member States,
just as it has come to the forefront on a global basis, as a direct outcome of the global crisis. OIC
Members States do however represent the full spectrum of national political and economic
conditions, from the most wealthy, stable and advanced, to the most challenging, in terms of
political instability, economic hardship and poverty. In either extreme, it is widely understood
that robust trade flows are important to on-going economic health, and to long-term,
sustainable growth.
Additionally, the role of trade in international development and in poverty reduction is highly
relevant in the context of numerous OIC Member States, and certainly in the context of the
partnership and collaboration model being developed by OIC Member States.
Trade finance is clearly an important input in the overall enablement of trade flows; however,
the realization of this importance and priority is relatively recent at least at the level it has
reached in a post-crisis environment. What has been missing, and what is now urgently
necessary is well-considered, strategic and proactive action to create the context necessary for
provision of adequate trade finance for SMEs.
The proactive approach is even more important in the context of a multi-country alliance like
that supported by the COMCEC, and it is clear that there have been vital positive steps in that
direction. It remains true however, that there are opportunities to create a more supportive
environment at the national and regional levels and across OIC Member States.
Ernst & Young have estimated that a “turnaround” and evolution of global Islamic Finance is
likely to take 2-3 years, even on the basis of a purposeful, focused approach to the enablement
of that evolution. Similarly, the challenge of facilitating SME access to finance, across OIC
Member States, is not a matter to be resolved in the very short term, but important progress
can be made quickly.
It is equally clear that there are numerous issues and opportunities in comparing the state of
trade finance in OIC Member States, with the state of the market globally, including with
reference to conventional trade finance. The issues encountered by stakeholders in the OIC
Member States are consistent – if not largely identical – to the issues encountered by others
seeking to better leverage trade finance in pursuit of economic recovery and growth, or in
support of trade aimed at international development and poverty reduction.
Even taking into account the unique characteristics of OIC Member States, the common
realities around trade and supply chain finance, particularly SME access to trade finance –
almost globally – will lead to comparable conclusions and recommendations aimed at
accomplishing some strikingly similar objectives.