COMCEC Trade Outlook 2016
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Trade finance opportunities in many OIC Member States are underdeveloped. Firms, in
particular the SMEs face difficulty in accessing trade finance opportunities in competitive terms.
For the Middle East and North African Countries (MENA), AMCML (2012) cites the reasons for
the unwillingness of the Banks to engage in trade finance business as low revenue margins and
identifies the factors leading to lower profit margins as the following:
- Shift of global trade from traditional trade finance products, such as L/Cs and guarantees,
to open accounts that require less banking intervention.
- Reduction in the average value of trade finance transactions due to increased activity of
small- and medium-sized enterprises (SMEs) in the international trade.
In many OIC Member States, the SMEs play an important role in total exports. However, they
face more difficulties than larger firms to get finance. Firms have not traditionally relied too
much on traditional trade finance instruments for export finance because either the local
banking sector and institutions are poorly developed to start with, or banks find it difficult to
find creditworthy customers (Malouche 2009: 19). This Situation is similar in most of the
Member States inMENA. MENA banks quote the lack of SME transparency and the weak financial
infrastructure (weak credit information, weak creditor rights and collateral infrastructure), as
the main obstacles for further engagement in SME finance (Rocka, Farazi, Khouri and Pearce
2011:3).
Out of 57, only 23 OIC Member States have established national export-import banks to provide
trade finance for their firms. On the other hand, for even these countries, due to inadequate
financial resources, shorter maturity and limited types of products, many firms still face
difficulties in exporting and competing in the foreign markets. The COMCEC Trade Working
Group, in its fifth meeting held on March 26 th, 2015, evaluated the present situation in the
Member Countries with respect to Export Credit Agencies (ECAs). After detailed deliberations,
the Working Group came up with the following policy recommendations in order to improve the
role of ECAs in the Member Countries;
- Member States are encouraged to examine and assess the financing needs of their
exporters
- Member States are invited to enhance transactional cooperation among their ECAs
- Member States are encouraged to review the soundness of their ECAs with the aim of
improving the overall performance of the ECA
- Member states are called on to promote public-private dialogue within the ECA context
- Member states are encouraged to initiate capacity building activities for strengthening
institutional and human capacities of their ECAs
Despite all odds, especially for SMEs, trade finance promises prospects in future. The analytical
study titled “Improving the SMEs Access to Trade Finance in the OIC Member States”
(COMCEC,2013b) commissioned by the COMCEC Coordination Office for the 2nd Meeting of the
COMCEC Trade Working Group envisages that through appropriate policy and regulatory
treatment of trade finance, coupled with recent innovations like supply chain finance and the
key role of ECAs and IFIs in supporting access to trade finance, a far more positive view of the
immediate future in terms of SMEs access to finance and trade finance is possible. Moreover
developments in Islamic Finance and adaptation of Islamic Finance Tools would offer great
opportunities for COMCEC Countries.