DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
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 Short-term in nature
 Self-liquidating as a liability or financial obligation
 Exhibits very low loan loss experience globally
Trade finance is critical to the conduct of international commerce, supporting some 80-90% of
global trade flows according to IMF, WTO and other estimates, linking directly to the creation
of economic value and to international development initiatives linked to trade activity.
The financing of trade activity can be achieved in a variety of ways, and can involve a variety of
service providers, from banks to government and international agencies, hedge funds and
other capital pools to specialist boutique firms focused on selected industry sectors or
international markets. Small businesses might even finance their initial international activity
through credit cards or by using existing commercial credit or operating lines; however, these
latter options are not captured in the pure definition of trade finance.
While trade finance in some form or other has been in existence for hundreds or years at least,
there have been recent developments and innovations aimed at responding to changing needs
and expectations of importers and exporters, notably in seeking to better leverage technology
and data (as opposed to paper documents), and in seeking to extend financing options within
international supply chains. These developments have caused some difficulty with definitions
and consistent use of language. For purposes of this paper, we will refer to trade finance as the
overall realm of activity related to the financing of international commerce, and within this
broad term, will refer to “traditional trade finance” and “supply chain finance” as two
complementary (sometimes overlapping) aspects of trade finance.
Traditional trade finance will encompass a series of long-established, well understood and
widely adopted instruments such as Documentary Collections and Documentary Letters of
Credit, together with a range of specialist products like factoring, invoice financing, warehouse
and trust receipt financing and numerous others.
Supply chain finance will refer to trade-related financing solutions, including individual
products or comprehensive programs, aimed at supporting trade in the context of
international and global supply chains. This form of trade finance also utilizes some of the
same mechanisms or individual products linked to traditional trade finance, such as factoring
and invoice discounting, but does so in the context of supply chains, and does so as a means of
providing financing solutions to companies trading on what is referred to as “open account”
terms, where an importer sends payment to an exporter after shipment of the goods.
1.2. A Framework for Understanding Trade Finance
Irrespective of its source, or of the complexity of a particular transaction, trade finance in its
many forms is fundamentally about four things:
 The facilitation of secure and timely payment across borders
 The effective mitigation of risk
 The provision of financing and liquidity and
 The enablement of information flow about both the physical transaction and the
movement of monies across borders.