COMCEC Trade Outlook 2019
51
Figure 59: OIC Countries Receiving the Lowest FDI Inflows in 2018
Source: UNCTADSTAT
Trade Finance:
Trade finance is a general term used for financing of the international trade. Some 80 to 90
percent of the world trade relies on trade finance (trade credit and insurance/guarantees),
mostly of a short-term nature.32
Exporters usually get payments after delivering the goods to the importers. During this period,
which may take several months, the exporter may need financing for delivering the orders on a
timely manner. Therefore, financing is needed not only for the import-export process itself, but
also for the production of the goods and services to be exported, which often includes imports
of machinery, raw material and intermediate goods33.
Available trade financing within a country increases the competitiveness of firms to compete in
international markets and encourages the firms especially the SMEs to export. Thus, it helps to
diversify the exports of the country. UNESCAP 34 classified the trade finance methods and
instruments into the following three categories:
1) Methods and Instruments to raise capital,
2) Methods and Instruments to mitigate risk,
3) Methods and instruments to effect payment.
With regards to raising capital, firms need financing to
ensure adequate production to meet the orders of the
commercial transactions on time. They may need to
import inputs, hire more workers and etc. In this context
pre-shipment and post-shipment financings provide the
32 WTO 2013
33 UNCTAD 2012
34 UNESCAP 2005
-
50
100
150
200
250
Million USD
“Firms face difficulties in
financing trade in many
developing countries”