Trade Finance Institutions for Trade and Small and Medium Size Enterprises Development in South Caucasus and Central Asia by Yann Duval and Urmi Sengupta1 Table of Content Introduction ........................................................................................................................................................ 2 A simple model of national trade finance institutional structure (TFIS) ............................................................ 5 The Proposed National TFIS Model............................................................................................................... 5 Level I institutions.......................................................................................................................................... 5 Central Banks and Monetary Authorities ................................................................................................... 5 Other Level I institutions............................................................................................................................ 8 Level II institutions ........................................................................................................................................ 9 Export Credit Insurance and Guarantee Institutions................................................................................... 9 Export-Imports Banks (EXIM Banks)...................................................................................................... 10 Level III institutions ..................................................................................................................................... 12 Commercial Banks ................................................................................................................................... 12 Non-Banking Financial Institutions (NBFI) ............................................................................................. 13 Is the model adapted to Central Asian and South Caucasus countries?............................................................ 14 Selected experiences from UNECE Member countries in transition............................................................ 14 Financial sector dynamics in NIS countries since independence ................................................................. 16 A favourable macroeconomic environment as a pre-requisite to TFIS implementation .............................. 18 Toward a Step-by-step Implementation of the TFIS Model......................................................................... 20 Conclusions and Recommendations ................................................................................................................. 21 References ........................................................................................................................................................ 24
Abstract A generic model of a national trade finance institutional structure is presented for possible adoption and implementation in the newly independent states of Central Asia and the Caucasus. The importance of specialized state-supported trade finance institutions for the development of trade and SMEs is highlighted. However, these institutions may not be effective unless a stable macroeconomic environment is established, characterized by increasing domestic and foreign trust in the public sector and the banks. Given the limited resources of governments in the region, a staged implementation of the model is suggested. -------
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Yann Duval [email:
[email protected]] and Urmi Sengupta are Economic Affairs Officer and former Intern, respectively, both in the Trade Efficiency and Facilitation Section, Trade and Investment Division, UNESCAP. The author acknowledges valuable inputs and research assistance from Mr. Lee Yow Jinn, Senior Associate, International Trade Institute of Singapore, and Ms. Neravan Rojchaichaninthorn, former Intern, UNESCAP. The opinions, figures and estimates set forth in this publication are the responsibility of the authors and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. This publication has been issued without formal editing.
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Trade Finance Institutions for Trade and Small and Medium Size Enterprises Development in South Caucasus and Central Asia Introduction Cross-border exchanges of goods and services are widely acknowledged as an important engine of growth for most developing and transition economies. The recent WTO ministerial meeting in Cancun has further demonstrated the importance of international trade and investment flows, with many developing economies joining hands to vigorously defend their interests in this area. While countries need to actively engage in negotiations with others to create a favourable foreign environment, each must first insure that its domestic environment is favourable to trade development. Whether the domestic environment is favourable can ultimately be measured by the economic cost of importing or exporting specific goods and services into or from the domestic market. In most economies, major transaction cost factors would include transportation costs and financing costs (including insurance), as well as costs associated with red tape. Unpredictable and/or uncompetitive transportation, financing, or procedurals and documentation costs can all be formidable barriers to trade for small and medium size enterprises. Financing of trade and investment has long been identified as one of the most challenging issues faced by new and small and medium enterprises (SMEs) in developing or transition economies (Dhungana, 2003; Das 2003; USDC, 2002; Suhir and Kovach, 2003; UNCTAD, 2002; among others). The issue of financing is particularly important, as financing is needed not only during the export process itself, but also for the production of the goods and services to be exported, which may include imports of raw material or intermediate goods. Lack of financing at any time during the production and/or the export process will result in a failed transaction. South Caucasus and Central Asian (SCCA) economies in transition, all members of both UNESCAP and the Commonwealth of Independent States (CIS), include the following countries: Armenia, Azerbaijan, and Georgia (South Caucasus); Kazakhstan, Kyrgyztan, Tajikistan, Turkmenistan, and Uzbekistan (Central Asia). These countries are are all newly independent states (NIS) in transition from the central planning system of the former Soviet Union to a market-based system. The transition process started for most of these countries in the early 1990s and involved large scale reforms, including a complete revamping of their financial sector infrastructure. As part of the transition process, many SCCA countries have privatised their entire financial sector. The new capital requirements imposed on existing banks and the inexistence of deposit insurance mechanisms resulted in many bank failures and a loss of confidence of the population in banks, such that the deposit base of many of the countries, as a % of GDP, is often extremely low (less than 10%). The financial sectors remain extremely weak in many of the SCCA countries, and generally provide, if at all, very limited support to SMEs. While some of the development banks and other international institutions or foreign aid agencies, especially EBRD, are now providing lines of credits to SMEs through domestic banks, much remain to be done to develop a trade finance infrastructure able to effectively support the export potential of these young enterprises.
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Exports of goods and services from CIS countries have increased by an average of 6% a year from 1994 to 20012. Taking into account the impact of the 1998 Russian financial crisis on the CIS countries, the moderate growth rate of trade shown in Figure 1 remain encouraging, although significant differences exist across countries. This positive growth in trade has been accompanied in the 1990s by a shift from intra-CIS trade to nonCIS trade. Newly independent states as well as Russia preferred to sell to non-CIS countries for political reasons but also because these countries could offer hard currencies, higher prices and less risks than their neighbouring economies in transition. Figure 1 - Trade of CIS except Russian Federation, 1994-2001 (in Million $US) 45000 40000 35000 30000 25000 20000 15000 10000 5000 0
CIS-11 exports CIS-11 imports
1994 1995 1996 1997 1998 1999 2000 2001
Source: UNECE (a), 2003
The sluggish growth in intra-CIS trade can be partly attributed to an underdeveloped trade finance infrastructure within the CIS region, including inadequate exchange rate and payment systems and an unreliable and inefficient financial system, resulting in limited payment options and ability to mitigate the risks associated with cross-border transactions (UNECE (a), 2003)3. While much progress has been made since the early 1990s, most CIS countries need to further develop their financial systems to adequately encourage and support the growth of trade, both within and outside of the CIS. This is particularly important given the very high correlation between trade volume and government revenue in many transition economies with weak tax collection systems. Most of CIS exports consist of oil (Turkmenistan, Russian Federation, Azerbaijan, Kazakhstan) and primary commodities. Trade in oil and, to a lesser extent, primary commodities, has long been facilitated by governments and/or large international trading companies. However, the growing number of entrepreneurs and SMEs in SCCA countries 2
In addition to the already mentioned SCCA countries, CIS countries also include Belarus, the Republic of Moldova, the Russian Federation, and Ukraine (often referred to as European CIS countries). 3 Note that it is not argued here that these are the only, or most important, factors explaining the sluggish trade growth. Some other factors affecting the official trade data reported in some of those countries include internal conflicts (e.g. Georgia), red tape and corruption, lack of transparency, inadequate transportation and other basic infrastructures, and national standards not compatible with international ones. Many of these issues need to be addressed in a holistic manner, based on a comprehensive trade development strategy. 3
face significant obstacles to financing trade and related investments. Because of the lack of track record (many companies are new since the private sector began to develop only after independence) and the lack of (enforced) auditing and accounting standards, among others, collateral requirements often reach 150% of the amount of the loan. High collateral requirements are indeed considered by businesses in transition economies to be the most important obstacle to trade and investment financing, followed by the cost of a loan (i.e., cost of borrowing) and weak or unreliable financial statements (see table 1). Other obstacles include the fact that many banks do not loan below a certain amount, which makes it difficult for small companies to get financing when they need it (e.g., Kartu Bank, one of the 4 biggest banks in Georgia does not make any loan below $20,000). Poor management skills and poor business proposals, comes fourth and fifth, respectively, as the most important obstacles to trade and investment financing. In countries where foreign banks are allowed to operate, many businesses are unable to benefit from their credit lines, as these banks remain very weary of the risks (commercial and political). Other barriers to trade-related financing not listed in table 1 include lack of effective bankruptcy laws and the fact that most lending rarely exceeds 12 months. Table 1 - Obstacles to Trade Financing or Investment Financing (most important: 1; least important: 11) Lack of collateral Cost of a loan Balance sheet weakness (e.g., lack of capital; unreliable accounting) Minimum amount needed Management weakness Poor business proposal Lack of credit lines from foreign banks Unacceptable terms of foreign vendors
Avg. Ranking 1 2 2 4 4 5 6 7
Arm enia 1 2 3
5 4
Azerb aijan 1 2 3
Geo rgia 1 8 2
Kazak hstan 1 2 4
Kyrgy zstan 1 2 4
6 4 5 9 10
9 3 4 6 7
3 5 8 6 7
5 6 3 7 8
Source: Modified from BISNIS Finance Survey 2003, WWW.BISNIS.DOC.GOV
With real interest rates on short-term loans of over 30% per year in some SCCA countries4, it is easily understood that the financial environment does not provide SMEs with trade and investment financing options that would allow them to be competitive in servicing foreign markets. Most entrepreneurs in these countries are likely to be denied the benefits of international trade unless a favourable trade finance infrastructure, including specialized trade finance institutions, are developed to assist them in overcoming the above-mentioned obstacles. Based on a review of trade finance related institutions in Asian countries, a generic model of a national trade finance institutional structure (TFIS) is developed for possible adoption and implementation in SCCA countries.
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The real interest rate in Armenia reported in the World Bank Development Indicators Database (data for the year 2000), was 33%. The real interest rate for the same year in Czech Republic was only 6%. 4
A simple model of national trade finance institutional structure (TFIS) The national trade finance institutional structure of a country is part of its overall financial sector structure. Developing countries with fairly well-developed financial sectors appear to have adopted a two-tier banking system, where one Central Bank or Monetary Authority conducts monetary policy and regulates the banking system. Most of these countries also feature financial market institutions at difference stages of development, such as stock markets, foreign exchange and derivative markets, as well as non-banking financial institutions and domestic credit rating agencies. More importantly, at least from a trade finance perspective, these countries also feature a number of specialized institutions, among which trade finance institutions (see figure 2). The TFIS model proposed below is mainly based on this last observation. The Proposed National TFIS Model While many developing countries have increasingly left commercial banking to the private sector, they have retained ownership in special-purpose banks, such as development and industrial banking institutions, and including trade-related financial institutions such as export credit insurance and guarantee companies, or Export-Import Banks (EXIMs). This is also true in most developed countries, including the United-States of America (USA), with its government-owned US EXIM Bank. While recent trends have shown a willingness to make these organizations more independent (self-financed), most countries have been reluctant to privatize them as they provide governments with some tools to address perceived market failures in the financial and trading sectors5. The suggested TFIS model is presented in Figure 3. In this model, the institutions are grouped in three categories based on the level of government ownership and control. While the level of government control over trade finance related organizations vary significantly across countries, the model presented here is arguably representative of the basic TFIS of many middle and high income countries. Note that the financial markets institutions, (e.g., bond markets, stock markets, securities markets, among others) and other institutions indirectly linked to trade finance, are not included in the model, given the limited scope of this paper. The role of each of the institutions in the model, as well as the relationship between these institutions, is discussed in more details below. Level I institutions Central Banks and Monetary Authorities
Most countries now have a Central Bank or a Monetary Authority. These institutions are typically responsible for managing the money supply, as well as the regulation and oversight of the financial system, particularly the banking system. They also often act as the banker to and the financial agent of the Government.
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See Stiglitz, 1994 for a discussion of the role for the government in financial markets. 5
Figure 2 . Institutional Structure of Financial Sectors in Selected Asian Countries
Source: Peralta, ADFIAP, 2003 (www.adfiap.org)
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Figure 3 – The Proposed National Trade Finance Institutional Structure Model
Level I Institutions Direct Governmental Role
Level II Institutions Full or partial Government ownership but limited direct management role
Level III Institutions Market Driven - No or very limited Government ownership -
Central Bank / Monetary Authority
Export Credit Insurance and Guarantee Agency
Commercial banks
Ministry of Finance
National Export-Import Bank (EXIM)
Other privately owned non-banking financial institutions (leasing companies, factoring houses…)
Ministry in charge of trade
Other trade-related specialized financial institutions/agencies (SME banks, Industrial or development banks…)
Other financial and insurance sector regulatory bodies
PROVIDING A stable and favourable macroeconomic, legal, and financial environment A vision and strategy for trade development Financial and trade policies and regulations supportive of trade Trade promotion and SME development schemes (export processing zones, tax incentives, trade promotion programmes/agency,…)
OFFERING Specialized support to new and small and medium enterprises, and other organizations with limited access to the product and services of Consultancy and training services to SMEs Innovative trade-related financing options Tie-ups with International Trade finance firms with expertise in innovative structures & developing markets Access to financing provided by multilateral financial and donor agencies Export risk management tools, such as export credit insurance and guarantees, and hedging products
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Central banks can influence the availability of trade finance through regulations as well as through refinancing schemes. For example, The Reserve Bank of India (RBI) administers interest rates on export credit, specifies the export finance provision requirements for commercial banks, and provides a rediscounting facility to these banks for their lending activities to the private sector. In addition, it also issues directives regarding the implementation of new rules and regulations on trade, and develops procedures regarding the financial aspects of the trade transactions, including requirements for foreign currency dealings and eligibility criteria for financing schemes developed for the promotion of exports (See Box 1 for more details). Box 1 – Reserve Bank of India (RBI) and Trade Finance The Reserve Bank of India, India’s Central Bank, plays an active role in the promotion and support of trade, as shown below. “Trade finance is a crucial element in the design of trade policies. From time to time, the Reserve Bank has undertaken several measures to ensure adequate and timely availability of credit for exports at competitive interest rates. The Reserve Bank’s export credit refinance schemes have played a pivotal role in this area. Commercial banks have been providing credit to exporters at pre-shipment and post-shipment stages, both in rupees as well as foreign currency. The rupee export credit has been generally available at rate of interest linked to the Prime Lending Rate (PLR). The export credit in foreign currency is provided at internationally competitive interest rates linked to London Inter-Bank Offer Rate (LIBOR) or similar interest rates. The reserve Bank has been adjusting interest rates on rupee export credit from time to time taking into account the need to maintain competitiveness by looking at interest rate differentials, as also other factors like inflation and developments in financial markets. The Reserve Bank has also taken measures to support institutional arrangements for export promotion, such as policy initiatives to provide a liberalised environment for the operations of Special Economic Zones (SEZ) units. These measures include: (i) exemption from interest rate surcharge on import finance; (ii) release of foreign exchange to Domestic Tariff Area (DTA) units for buying goods from Export Oriented Units/Export Processing Zones/Special Economic Zones (EOU/EPZ/SEZ) units; (iii) permitting 100 per cent retention of foreign exchange in Exchange Earners Foreign Currency (EEFC) accounts; (iv) permitting overseas investment by SEZ units from the EEFC accounts through the automatic route, write-off of unrealised export bills and (v) permitting SEZ units to enter into a contract in overseas commodity exchanges or markets to hedge the price risk in the commodity on export/import provided that the contract is made on a ‘stand alone’ basis.” Source: Currency & Finance Report, Reserve Bank of India, 2002-03 (www.rbi.org.in)
Other Level I institutions
Ministries of finance can also play an important role in trade development. For example, in Thailand, the Export-Import Bank of Thailand (level II institution) is under the Ministry of Finance, and was established jointly by the Bank of Thailand and the Ministry of Finance. In some countries, Ministries of Finance also play a role in providing tax incentives or tax holidays so as to encourage trade development. Depending on the needs and strategies of the governments, these tax incentives may be limited to specific groups of traders (e.g., SMEs) or/and products (e.g., handicrafts). Finally, Customs Departments,
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often under the finance ministries, can greatly affect the cost of trade transactions and the time it will take for goods to reach their final destination. This will in turn affect the financing needs of traders. Ministries in charge of trade are typically in charge of regulating trade as well as of developing and implementing an overall trade development strategy. Most ministries in charge of trade oversee trade promotion organizations (TPOs), such as trade and investment promotion agencies. These agencies provide export support services which may include trade facilitation and trade finance services6. One important role of the agencies in charge of trade development is to correctly assess the needs of the private sector and to coordinate with other ministries, including the finance ministry, to develop policies, regulations, and programmes that will facilitate trade. From that perspective, the Ministry of trade, based on regular interactions with traders and other stakeholders in trading activities, should be proactive in the development and implementation of laws and regulations that affect trade, even if these laws and regulations are not under the direct responsibility of the ministry (as is typically the case for trade finance regulations and many other trade facilitation-related measures). Other government institutions may also play an important role in making trade finance tools and instruments available. Indeed, in some countries, the Central Bank does not oversee all the financial institutions. For example, in Malaysia, securities markets are supervised by the Securities Commission, while the insurance companies in the Philippines are under the supervision of the Insurance Commission. In order to facilitate trade finance infrastructure development, all the regulations and provisions of the financial sector regulatory bodies should be scrutinized to insure that they do not unnecessarily impede trade. Level II institutions Export Credit Insurance and Guarantee Institutions
Credit insurance is an insurance against non-payment of an export contract. Such insurance typically covers the exporter and its bank against the risk of buyers’ fraud or bankruptcy, and sometimes the political risk. An export credit insurance makes it easier for exporters to safely extend credit to buyers (often a key factor in getting an export contract) and obtain needed working capital from their bank, because some of the risk associated with the export transaction is shifted to the insurer. Institutions providing export credit insurance and guarantees can take different forms. Some of the first such institutions established were government-backed organizations (part of the trade or finance ministries) for which export growth was the only priority. Increasingly, however, export credit insurers are government-owned corporations tasked with encouraging exports as well as making a profit. Export credit insurers may also take the form of private partnership of banks, insurance companies and other related organizations. In these organizations, governments take on political risk either through a department or through an appointed agent7. Given the prevailing conditions in CIS economies, a private credit insurer in which the Government 6 7
For more information on the role and structure of TPOs, see UNESCAP, 2001. For more details, see ITC, 1998. 9
only takes on the role of official reinsurer of all political risk on exports, as in Zimbabwe, may be particularly appropriate. Box 2 – Facts about COFACE, EFIC, and ECGC COFACE, the French Export Credit Insurance and Guarantee Company, is one of the leading export credit insurance company in the world, and active in over 91 countries around the world. It started as a state-owned company in 1946, with the goal of supporting exports of French products to a wide range of destinations. COFACE was privatized in 1994, and listed in the stock market in 2000. In 2002, Natexis Banque Populaire, a French bank, took majority ownership of COFACE. While most of COFACE’s business is to provide its own credit insurance and risk management products, it remains in charge of providing public insurance and guarantees to exporters on behalf of the French Government. EFIC, Australia’s Export Finance and Insurance Corporation, is setup as an integrated government-owned corporation. At the end of 1996, it had a paid-in capital of $A 6 million, supported by $A 200 million of callable capital and a comprehensive government guarantee, and acuumulated reserves and profits of $A 177 million. On the basis of this capital structure, EFIC was able to support $A 5 billion of credit insurance annually, as well as $A 1 billion of medium-term lending and guarantees to banks. This represented about 10% of Australia’s exports at the time. ECGC, the Export Credit Guarantee Corporation of India, originated from the Exports Risk Insurance Corporation (ERIC) that had been created by the government of India in 1957. In 1964, ERIC was transformed into the ECGC, a company wholly owned by the Government of India. ECGC functions under the administrative control of the Ministry of Commerce, Government of India. A Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community manages the organization. ECGC is the fifth largest credit insurer in the world in terms of coverage of national exports. However, in the context of the liberalization of the Indian economy and in view of the opening of the insurance sector within the purview of (Insurance Regulatory and Development Authority) IRDA, the role and position of ECGC in the Indian insurance market is going to be challenged and ECGC is repositioning itself as a multi-product organization servicing the export sector of the small-scale industry segment. ECGC’s recent initiatives include insurance cover on losses from discrepancies in documents under Letter of Credits. Sources: www.coface.fr / ITC / ECGC annual report 2001-2 / various other sources
While, the cost of establishing an export credit insurance agency needs to be weighted against the export potential of a country, it is important to recognize that domestic traders will likely be at a disadvantage compared to foreign traders whose transactions can readily be insured. Export-Imports Banks (EXIM Banks)
EXIM banks are typically government-owned banks established to facilitate and encourage the development of trade. They are often conceived as a one-stop shop for export-import financing, taking over some of the responsibilities of what may have been distinct units or 10
departments of ministries of trade, finance, or even the Central Bank, as was the case for the Thai EXIM bank (see box 3 for more details). Sometime, the activities of a previously established Export Credit Insurance Agency may be merged into the newly created EXIM bank. Box 3 - The EXIM Bank of Thailand The success of Thailand’s economic development efforts during the second half of the 1980s had prompted many economists to believe that Thailand could further this success by adopting an export-led growth strategy that would provide SMEs with an opportunity to participate in international trading. To support this strategy, Thailand consolidated or/and created a number of institutions specializing in foreign trade, among which EXIM Thailand (EXIMT). EXIMT was established in 1993 by promulgation of the Export-Import Bank of Thailand Act B.E.2536. EXIM Thailand was setup as a 100% government-owned corporation with start-up capital of 2.5 trillion baht (US$ 100 million) provided by the Bank of Thailand (BoT) and the Ministry of Finance. The Board of Director of EXIM Bank comprised highlevel representatives from all the trade-related ministries as well as private sector representatives. The Packing Credit Facilities (subsidized pre-shipment and post-shipment financing facilities provided to exporters mostly through commercial banks) was transferred from the BoT to the newly formed EXIMT. The Bank complemented this facility with a standard pre-shipment (unsubsidized) facility directed at small and new exporters, and started offering Export Insurance and L/C facilities. EXIMT’s purpose was to provide financial services to support imports, exports and foreign investment beneficial to the Thai economy. The Bank was mandated and authorized to provide a wide array of financial services, ranging from export refinancing to export credit insurance. An Amendment to the Export-Import Bank of Thailand Act also promulgated in 1993 further broadened the mandate of EXIM Thailand to allow the bank to support exportrelated domestic investment. As a result, the bank added to its product portfolio, a credit facility for business expansion. EXIM’s number of products and services increased over time and became more sector and SME specific. Foreign investment advisory services as well as export advisory services began to be offered in 1999. In recent years, the Bank developed a SME Financial Service Centre offering streamlined products and services and faster response time. EXIM Thailand has recently discontinued its subsidized packing credit facility to comply with WTO rules, but also because the facility had become unnecessary due to the high level of market liquidity and falling interest rates. After more than 10 years of operations and going through a major financial crisis, a review of EXIM Bank Thailand’s experience indicates that: • An EXIM Bank can be effective in stimulating the development of trade finance, by introducing new products and services (such as export credit insurance) and by disseminating relevant information to potential exporters. Once an EXIM bank has
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• •
• • • •
developed a good experience in evaluating SMEs export potential, the bank may use this experience to offer longer-term business expansion related credit. An EXIM Bank’s credit rating will typically have sovereign credit rating, because it is backed by the Government. Such a rating may make it easier for the bank to access international credit markets as compared to domestic banks. An EXIM Bank should focus on complementing the offerings of commercial banks, and provide credit to small and new exporters as well as to SMEs with export potential, or additional credit lines to large exporters who are unable to secure additional credit from commercial banks. Offering a wide array of products and services makes it easier for the Bank to market its services and satisfy the needs of its clients (and be profitable). An EXIM Bank can help regulate the cost of trade finance services offered by commercial banks, especially when there are few commercial banks offering international banking services. An EXIM Bank, while not expected to finance a large share of exports and foreign investment under normal circumstances, can be an effective backup financing source during a major financial crises (EXIMT’s activities doubled during the Asian crisis). An EXIM Bank should be managed as a self-sustainable organization, with no subsidies of interest rate, but a modern and creative risk assessment and management program to support small and new enterprises with export potential.
Many of the larger EXIM banks are members of the Berne Union (www.berneunion.org.uk), whose goal is to promote sound practices in export and investment financing, and to facilitate the exchange of information and expertise among members. While new export credit agencies (EXIMs as well as export credit insurance institutions) do not qualify for membership, the Berne Union, in cooperation with the EBRD, has setup the Prague Club to support ECAs in developing their export credit and investment schemes. Many ECAs of transition and emerging economies, including EXIMT, meet regularly during the Club’s meetings. Level III institutions Commercial Banks
In most countries, commercial banks are, from far, the largest providers of trade finance services. The main role of banks is to act as facilitators and/or intermediaries between savers and borrowers. Banks provide short-term financing of trade transactions by various means, including advances against (or discounting of) export bills. They also help reduce the risk inherent in trade transactions by providing documentary credit (e.g., letters of credit) services or other alternative methods of payments, and by facilitating access to foreign exchange markets to hedge against a possible currency risk. While private commercial banks make up the largest share of trade financing activities in most countries, they generally favour lending to well-established and larger firms to reduce their risk exposure, or to the government. As a result, small and medium enterprises may find it difficult to secure trade financing through traditional commercial
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banks. In the case of transition economies, where the private sector mostly consist of small firms with a short corporate history, trade financing through commercial banks typically involve very high collateral requirements (e.g., 150% of the value of the loan in Mongolia), which severely limits these firms ability to export and grow. Non-Banking Financial Institutions (NBFI)
The non-banking financial institutions are an important part of the trade finance infrastructure. While they are typically not authorized to take deposits (as opposed to banks), they can play an important role in trade finance. A non-exhaustive list of NBFI includes export houses, factors, as well as agencies specialized in leasing or counter trade arrangements. Export houses are non-bank institutions that traditionally provide confirmation services only, typically acting on behalf of overseas buyers. However, over time, they have often extended their services to trade financing. Many export houses may provide finance to cover the gap between the goods leaving the factory and being purchase by the end user. Credit is provided for periods of 30 to 180 days and is available for all types of goods (export of capital goods can often be covered for periods of up to 5 years). Export houses commissions are based on the period of credit, average invoice value, volume of business and the amount of other services provided. Factors are organizations that buy from traders their outstanding book debts. In practice, the exporter will send all invoices at specified intervals and will receive a cheque for an agreed initial percentage of the total invoice value usually in the range of 80-85%. As payments are made, the balances of sum due are credited to the exporter. Leasing may be described as an agreement whereby the lessor (e.g., a leasing company) conveys to the lessee (e.g., a wine producer and exporter), in return for a payment or series of payments, the right to use an asset (e.g., a harvesting machine) for an agreed period of time. Some estimate that leasing companies provide about one-eighth of the world’s annual equipment financing requirement. Leasing can allow small firms to finance their growth and/or survival in difficult environment, and should therefore be encouraged in SCCA countries (Lasfer and Levis, 1998).8 Counter Trade can be considered to be a viable alternative in countries where capital or funding is limited. Some financial institutions specialize in arranging counter trade deals, by assisting exporters to negotiate and dispose of the goods they will receive as payment for their exports. Note that, in most countries, the services offered by NBFIs may also be offered by commercial banks and some of the level II institutions. For example, ECGC Limited (India), offers factoring services to exporters.
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see www.leaseurope.org, for more information on leasing. 13
Is the model adapted to Central Asian and South Caucasus countries? To answer this question, we start with a review of selected experiences of some of the countries most advanced in their transition process, followed by a stylized analysis of the financial sector dynamics in NIS over time. Selected experiences from UNECE Member countries in transition9 The selected experiences from Ukraine, Czech Republic, and Estonia presented below highlight some of the challenges and issues related to the development of statesupported trade finance institutions (level II institutions), which are often lacking or underdeveloped in SCCA countries. Ukraine “State support to enterprises in transition economies has not always been successful. Some time ago there was an Innovation Fund in the Ukraine, which was financed through deductions from company revenues (one per cent of the total revenue). This fund was actually governed by State officials; they were in charge of loan allocation. The history of this Fund testifies that as much as 70 per cent of loans were provided to enterprises that were operational for less than one year. Consequently, the Fund’s loan portfolio mainly consisted of bad loans. Currently [October 2001], the Innovation Fund is under liquidation and there are several proposals on how to use its financial resources and there are discussions in the Government regarding the establishment of a State Bank for Reconstruction and Development. One more example of an unsuccessful State-supported project in which our bank participated relates to servicing intergovernmental credit lines. In the early 1990s, through these intergovernmental credit lines, Ukrainian enterprises obtained loans worth more than USD three billion. The loans were approved by the Foreign Exchange and Credits Commission of the Ukrainian Government. As in the case of the Innovation Fund, borrowing through intergovernmental credit lines resulted in a large amount of bad debts, which the Government had to service imposing considerable burden on the State budget. The State Export-Import Bank of the Ukraine was established in January 1992 on the basis of the former USSR Vneshekonombank representative office in Ukraine. The bank inherited from Vneshekonombank its staff, and, as you know, personnel are the most precious asset. The Export-Import Bank has become one of the leading banks in servicing the foreign trade of Ukrainian enterprises. During its first years of operation, it serviced up to 40 per cent of Ukrainian foreign trade. At present, the respective figure is about 20 per cent and the export-Import Bank is considered by enterprises to be one of the most professional in foreign trade financing. Initially, the founders of the Export-Import Bank thought that its functions would be similar to those of western banks specializing in foreign trade financing. However, in practice, the functions of the bank have become very broad, characteristic rather of a universal bank. Until last year, the Export-Import Bank, which was established as a State9
The material in this section is borrowed from UNECE (b) 2003. 14
owned entity, was outside of the Ukrainian legal framework – according to the Law on Banks and Banking Activities of Ukraine, the banking structure comprises only two levels, namely the Central Bank and commercial banks, which the then already existing State Sberbank and Export-Import Bank not mentioned. To remedy this, it was decided in 2000 to transform our bank into a joint stock company and that is how the open Joint Stock Company “State export-Import bank of Ukraine” was established.” (Source: Mr. Mikhaylo Butsko, Deputy Head, Export Development Department, Eximbank, Ukraine, October 2001.) Czech Republic “There are a number of State entities providing enterprises with information on existing insurance and financial opportunities. Czech Trade, for example, is a small agency that provides information to SMEs about foreign markets and support schemes offered by international organizations (e.g., the World Bank). Czech Trade also conducts market research, helps companies to participate in international fairs, and offers them advice on export finance and insurance. This agency has branches abroad, which assist in promoting Czech goods abroad. The most important link in the export support system is the Export Insurance Agency (EGAP a.s.). Established in 1992, it has achieved considerable results in export credit financing and insurance. In 1995, the Czech Export Bank (CEB, a.s.) was established with the aim of financing medium and long-term export projects. The Czech Government participated in the statutory capital of EGAP and CEB, having allocated funds from the State budget. It also provides government guarantees for EGAP and CEB. At the same time, both institutions have created their own reserves and are financially self-sufficient. CEB provides refinancing credits to commercial banks: it borrows on international markets with government guarantees and then on-lends these resources to Czech commercial banks. Further on, direct export credits channelled from western banks to Czech commercial banks via CEB have become more common. Pre-shipment (pre-export) financing appears to be the most demanded financial instrument in export financing. At the same time the Bank guarantees the exporters’ obligations (notably, guarantees on preshipment finance, performance bonds, etc.). CEB supplies medium and long-term export financing, whereas domestic commercial banks are unable to provide such a service. It also creates the possibility for Czech exporters to provide credit to their buyers at internationally competitive conditions. The system of minimal fixed interest rates adopted by the OECD allows Czech exporters to be competitive as compared with their German, French and other OECD competitors. It should be noted that CEB does not subsidize interest rates on loans to exporters and it does not anticipate using this instrument of export finance. CEB finances only two per cent of Czech exports. However, this portion of exports is important because it includes products with high value-added, the production of which involves many local suppliers and sub-contractors. Therefore, its operations also have an indirect, positive effect on export growth in machine building, in particular. In 2000, CEB’s share in the outstanding credits in foreign currency was over 8 per cent.” (Source: Ms. Miroslava Hrnirova, Deputy General Director and Member of Board, Czech Export Bank, October 2001).
15
Estonia “Estonia is a small country and its exports are small (total export value is less than USD 3 billion). It is worth noting that Estonia has a most liberal trade regime. The development of the Estonian banking system has been dynamic, and in 1998 the Government felt that there was more demand for export risk insurance than for direct export finance. Thus, in 1999, the Law on government insurance of export risk was adopted. “KredEx” Fund was established in 2001 on the basis of three funds, namely the Export Guaranteeing and Crediting Fund, Business Credits Insurance Fund, and Mortgage Insurance Fund, as the result of a government effort to minimize budgetary expenditure and make the insurance scheme more cost effective. At present, the volume of reserves is almost USD 5 million and the total volume of loans that the fund is able to extend amounts to USD 15 million. KredEx’s major activities include issuing guarantees for bank credits, and, secondly, export credit risk insurance. Since the fund is quite young, at present it offers only two insurance products: a simple insurance and a framework insurance (where transactions with all the client’s principal buyers are insured). The minimum premium is 0.4 per cent for short term credits, and the maximum amount of guarantees provided cannot exceed USD 17.5 million. (…) Given the short-term nature of credits, the fund’s activity can cover bout 5 per cent of total Estonian exports.” Mr. Sergei Semjonov, Officer, Export and Credit Guarantee Fund “KredEx”, October 2001. Financial sector dynamics in NIS countries since independence In order to understand whether the above model is adapted to SCCA countries, it is useful to review the evolution of the financial sectors in these and other transition economies. Three basic stages may be identified from the experience in the development of their financial sector since 1990. Figure 4 is an attempt to represent graphically the typical NIS financial sector dynamics, although wide variations exist across countries10. This figure was designed based on information gathered during advisory missions to Mongolia and Georgia, as well as on a report on the evolution of banking supervision in the Czech Republic (Czech National Bank, 1999). In the first stage, the countries convert their banking system into a two-tier system, with one central bank, in charge of monetary policies and financial sector regulations, and introduce new banking legislation, authorizing the development of private commercial banks. This typically result in the creation of a large number of small undercapitalised banks (over 400 in Georgia, a country with a population of less than 5 million), due to weak or inexistent prudential regulations. The share of state ownership in banks starts falling sharply as a result.
10
Indeed, this representation is highly stylized and does not readily take into account the effect of the Russian financial crisis, which adversely affected all CIS economies, but to varying degrees. Financial sector dynamics can also expected to vary somewhat depending on whether or not a country preferred a slower more progressive approach to transition reforms as opposed to a quicker more radical transition process. 16
Figure 4 – Typical Timeline of the Changes in the Banking Sector and Trade Finance Institutions in Transition Economies STAGE I
STAGE II
STAGE III
Share of state ownership in the banking system Number of private (commercial) banks Increase or decrease in the level of trust in government and banking system
• •
Time Stable/increasingly favourable macroeconomic and legal environment o Increased Government Resources • Financial sector restructuring o Development of TFIs and other (privatisation) specialized financial institutions, supported by the Government
Independence Financial and other reform begins
•
In the second stage, the development of banking supervisions mechanisms (including prudential rules such as minimum capital requirements) and the unravelling of “pyramid schemes” setup by smaller banks, as well as the high level of inflation of the newly created currencies, result in the bankruptcy of most of the private banks, and the need to privatise some or all of the state-owned banks. In particular, some of the specialized trade development banks, typically state-owned, disappear or cease activity11. At this stage, trust in the banking system falls in many countries because of (1) failure of many recently established undercapitalised private banks and (2) high inflation and instability of newly created national currencies drastically reducing the value of deposits (originally in rubbles) in state-owned banks. Trust in the government also falls as a result. The third stage, arguably, is characterized by a stabilization of the number of banks, an increase in domestic deposits, and an increase in government involvement in the banking and financial sector through specialized financial institutions, including EXIM banks and/or export credit insurance and guarantees agencies (Level II institutions). This last stage has arguably been reached in some transition economies, especially the ones being considered for early entry in the European Union. The following economies in transition have active export credit agencies: Albania, Belarus, Bosnia & Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Lithuania, Macedonia, Poland, 11
Extreme policies sometime had to be adopted, such as an agreement between the World Bank and the Government of Georgia suggesting that the Government not be allowed to maintain direct ownership in any of the banks (Source: David Chkhartishvili, National Training Workshop on Trade Finance Infrastructure Development, Tbilisi, Georgia, 15-16 October 2003) 17
Romania, Slovak Republic, and Slovenia12. In addition, (only) two of the SCCA countries appear to have active state-owned trade finance related institutions: Uzbekistan, whose export credit agency is a member of the Prague Club (Uzbekinvest); and Kazakhstan, whose recently established Development Bank of Kazakshtan (DBK) is expected to become the government’s primary vehicle for promoting exports in the non-extracting sectors of the Kazakh economy.13 A favourable macroeconomic environment as a pre-requisite to TFIS implementation What can be concluded from the TFIS experiences in the countries that have made the most progress in their transition to market economies and their financial sector dynamics? Probably that the simple trade finance institutional model presented earlier is adapted to the SCCA economies in which the level of trust in both the public institutions and the banking system is increasing, as measured by a reduction in the level of corruption, the willingness of the private sector to move activities from the informal to the formal sector of the domestic economy, and the growth in government revenue and the overall economy. Stage III, during which the proposed TFIS model is to be fully implemented, has not been reached by most SCCA countries. Many of these economies appear to still be in the second stage of their financial sector evolution, where the financial sector structure is supposed to stabilize and where the emerging private sector gains trust in the government, through implementation of reform programs that create an environment favourable to economic growth and trade development. Indeed, the third stage can be reached only once the trust in the banking sector, often seriously affected in stage II of the transition, has been restored. However, this trust in the financial sector will only be restored if people inside and outside the country trust the governing authorities, and if internal and regional territorial conflicts have been solved. Full implementation of the TFIS model is unlikely to yield positive results if implemented before state III is reached. Indeed, the main feature of the model is to create fully or partially state-owned trade finance institutions (Level II) to support traders. If the state, as represented by its government officials, is no trusted, it is unlikely that relevant private sector participants will become clients of the new institutions. Perhaps more importantly, governments, in most cases, will not have enough resources to establish and sustain operations of the new institutions, since many of the income-generating activities will remain in the informal sector of the economy. 12
Based on the list of the Prague Club members, Berne Union Yearbook, 2003 (www.berneunion.org.uk). The financial sector in Kazakhstan is widely acknowledged as the best in Central Asia, as reflected by the good international credit ratings of its banks (see The Economist, 2003). While Kazakhstan also reportedly has an EXIM Bank of Kazakhstan (Kadrzhanova, 2003), no information was found that confirmed whether this bank is still active.
13
18
Table 2 – A Benchmark of Macro-economic indicators for Trade Finance Development from Selected Asian Countries Caucasian CIS Indicators
AM AZ GE
Central Asian CIS KZ KG TJ
TM UZ
TRADE FLOWS Total Trade as a % of GDP Cover Ratio as a %
74 79 46 106
84 81
107 124
Change in Total Trade (Y-5 to Y) as a %
38
97
98
61
4
0
NET RESOURCES Net FDI Flows as a % of GNI Net Official Development Assistance as a % of GNI
1 11
-8 3
2 6
-2 1
-4 18
0 15
.. 1
EXTERNAL DEBT & LIQUIDITY Total External Debt Stock as a % of GNI
46
24
54
39 150 125
8
8
10
17
Total External Debt Service as a % Total Exports Reserves in Months of Goods & Services Imports
Selected Eastern European
94 165 116 83 88 95 118 114
29
11
23 -15
CZ HU PL
144 139 95 99
SK
Other Selected ESCAP Members IN TH Benchmark
66 150 81 97
31 126 84 114
84 85
+ +
26
72
49
33
53
1
23
+
0 3
-3 1
-1 1
1 1
9 1
0 0
-2 1
0 3
+ +
..
59
43
67
41
50
22
66
59
-
..
26
13
24
21
18
13
16
13
-
4
4
1
3
5
..
..
..
4
4
6
4
7
5
4
+
-14
-3
-5
6
-6
-7
10
2
-4
-3
-6
-4
-1
8
-4
+
Short Term Debt as a % of Long Term Debt
32
71
25
9
21
18
..
10
73
16
13
14
4
29
15
-
EXCHANGE RATE POLICY Exchange Rate Arrangement Exchange rate volatility (1996-2002)
IF MF 10 7
IF 22
MF MF 33 49
IF
P MF 18 83
MF 13
P 22
IF MF 16 17
MF 11
IF 20
-
-2
-3
0
-3
-5
-2
-
31
26
Current Account Balance as a % of GNI
CREDIT MARKET Gov. deficit in % of GDP Domestic Credit to the Private Sector as a % of GDP
..
..
..
0
-2
..
..
11
6
9
13
4
..
..
..
50
31
29 109
Moody's sovereign LT debt rating
..
..
..
Ba2
..
.. B2
..
Baa1
A3Baa1Baa3
Ba2Baa3
Standard & Poor's sovereign LT debt rating
..
..
..
BB
..
..
..
..
A-
A- BB+BBB-
BBBBB-
9 11 112 145
5 69
11 68
5 61
.. ..
.. ..
65 40 38 61 190 152 257 223
47 94 235 569
23 29
.. ..
34 25
.. ..
.. ..
MONETARY AND FINANCIAL SYSTEM Deposit as a % of GDP Quasi money as & of narrow money (Fin. Deep II) FINANCIAL SECTOR EFFICIENCY Interest Rate Spread Real Interest Rate
13 33
.. ..
.. ..
4 6
3 5
6 12
6 8
.. 8
5 6
24
+
+ + 9 9
-
Sources: Calculated by ITC from IMF (2002) and World Bank (2002).
19
The level of foreign and domestic trust in the government is often reflected in, and dependent of, the macro-economic and legal environment. Table 2 summarizes a number of macro-economic indicators believed to have a long-term impact on financial sector development, and trade finance infrastructure development in particular (ITC, 2003). The table provides a benchmark, defined as the median value of each indicator in a group of 129 developing countries. A country that is below the median value is doing worth (or better) than most developing countries in the world. The direction of the effect of each macro-economic indicator is also given, with a “+” sign indicating that a higher value of the indicator is generally preferable (while a “-“ suggests that a lower value of the indicator is preferable) for the development of the financial sector and trade finance. As can be seen from table 2, the SCCA countries typically have macro-economic performance indicators that are below those of most developing countries, and far below those of the most successful Eastern European countries (this is especially true for SCCA countries which have limited oil and gaz resources to boost export and government revenue). In the context of this paper, the very large interest spreads (difference between interest rates on savings and borrowings) and real interest rates (up to 33% for Kazakhstan), as well as the very low amount of domestic credit channelled to the private sector, are of particular interest. Once again, the indicators suggest that the proposed TFIS model may not be fully implemented before the macro-economic situation in many of the SCCA economies improves. In fact, proceeding with the establishment of (likely weak) state-owned trade finance institutions to support SMEs before the macro-economic environment shows signs of improvement may be counter productive. Indeed, as argued in the case study of EXIM Thailand (see Box 3), one of the key advantage of state-owned export credit agencies over private commercial banks, is that they often have the same international credit rating as the government (sovereign debt credit rating). While this is a clear advantage in countries that enjoy a high sovereign debt credit rating, this may not be in many SCCA countries, where the sovereign credit ratings are often well below investment grade (with the exception of Kazakhstan). Creating or maintaining state-owned trade finance institutions in these conditions may unnecessarily mobilize (or even drain) government resources, with no tangible benefits to SMEs. Toward a Step-by-step Implementation of the TFIS Model Given the prevailing situation in SCCA countries, the proposed TFIS model could be implemented in steps, as shown in figure 5. Many developing countries have used this approach, starting out with (ad-hoc) export financing schemes managed by the Central Bank (level I institutions). The next step would be to establish a credit insurance and guarantee agency with limited products and scope, perhaps as an extension of an existing trade and investment promotion agency under the Ministry in charge of trade. The establishment of an EXIM bank, or other specialized banks (SME banks, Industrial banks,…), could come much later, only after a thorough needs assessment has bee done, and when the government has enough resources to properly support and maintain such institutions.
20
Figure 5 – TFIS Model: Staged Implementation Ministry of Trade
Central Bank
Trade and Investment Promotion Agency
Export Facilitation/ Promotion schemes
Feasibility Study
/Needs Analysis
Ministry of Trade
Central Bank
Trade and Investment Promotion Agency
Export Facilitation/ Promotion schemes
Feasibility Study Ministry of Trade Trade and Investment Promotion Agency
Export Credit Insurance Agency
/Needs Analysis
EXPORT-IMPORT BANK Export Facilitation/Promotion schemes Export Credit Insurance and Guarantees Trade finance and trade-related investment finance services
A step-by-step implementation may allow countries to offer the most urgently needed services to SMEs before they reach stage III of their financial sector evolution. Note, however, that careful feasibility and needs analysis should be conducted before any new services or institutions are established, so as to identify the sequencing of the institutional build-up, which may vary depending on the need of the countries.
Conclusions and Recommendations New and small and medium enterprises in SCCA countries face numerous obstacles that seriously limit their ability to participate in international trade and reap the benefits of the globalization process. One of these obstacles is the lack of access to trade finance, including trade-related investment financing. However, in contrast with most middle and high income countries, SCCA transition economies, for the most part, have not yet developed the trade finance institutions needed to support SMEs international trade activities. Based on the experiences of selected Asian developing countries, a simple national trade finance institutional structure (TFIS) model was proposed for possible implementation in SCCA countries, characterized by three levels of institutions, classified according to their relations to the Government. The following recommendations can be made for each of the three institutional levels: Level I institutions (Direct Governmental Role) • The Central Bank / Monetary authority should take into account the needs of SMEs and trade development when establishing financial system regulations, including
21
• •
simplification of export-related financing rules and procedures. Enforcement of prudential and other regulations should be strengthened so as to rapidly stabilize the banking and financial system. The ministries of finance should also adopt, whenever possible, policies that encourage the development of SMEs, including possible tax incentives for export-oriented SMEs and streamlining of Customs procedures. The ministries in charge of trade should play an active role in promoting and supporting SMEs trade. Establishment of a trade promotion organization (TPO) able to provide expert advice on trade financing would be a possibility. More importantly, these ministries should be able to actively negotiate removal of trade obstacles setup by other administrative or regulatory bodies.
Level II (Full or partial government ownership, and limited direct management role) • Careful needs and feasibility analysis should be done before establishing Level II institutions. o In particular, Level II institutions should not be established if the Government cannot readily support them at their early stages of development (proper capitalization is essential). o Another key issue is whether these institutions should be established under the Ministry of Finance and/or Ministry of Trade, and whether they should have to comply with all the regulations imposed on similar private entities. • Strengthening of the macro-economic and legal environment (by level I and other responsible institutions) is a pre-requisite to establishment/strengthening of these institutions. • Given the lack of resources in many SCCA countries, some of the functions of Level II institutions could be performed by Level I institutions at the early stage (Central Bank and Ministry of Trade, in particular). • Level II institutions most adapted to SCCA countries may take the form of public-private partnerships, such as in the case of the export credit agency of Zimbabwe. • Step-by-step implementation of the institutional model is recommended, as shown in figure 5. Level III (Market driven, no or very limited government ownership) • Clear and transparent legislation (developed in cooperation with level I institutions) would be needed to encourage the development of private non-banking financial institutions, including leasing companies. • Specialized training and education programmes should be made available domestically to upgrade the skills of commercial bank personnel to international standards If only one conclusion had to be drawn from this analysis, it would be that creating government-backed trade finance institutions when the government is too weak to support or manage them may be counter productive. As a country’s macroeconomic conditions improves, as measured by international credit ratings as well as trade ratios and other relevant indicators,
22
governments may implement an export-led growth strategy that includes development of level II institutions to support the emerging private sector. In the mean time, a country with limited ability to provide trade finance to SMEs, may request support from a number of international financial institutions (IFI), many of which have been increasingly active in extending loans to SMEs through existing commercial banks14. Many of the IFIs are also offering useful technical assistance services on trade and SME finance15. SACC countries, most of whom receive significant amounts of overseas development aid (see table 2), could also request that part of this aid be redirected to assistance programmes related to SMEs financing for trade development, or to conduct feasibility studies and needs analysis on national trade finance institutions. While this paper has (partially) addressed the institutional aspects of trade finance infrastructure development for improving SMEs access to trade finance, it is important to realize that this is only one facet of trade finance infrastructure development. Indeed, the trade finance infrastructure necessarily includes legal, technological and accounting aspects that have not been directly addressed in this paper. In addition, trade finance infrastructure development should be taken in the context of the overall development of a country, and fully integrated into the national trade development strategy developed by the Ministry in charge of Trade in cooperation with all the relevant stakeholders. The simple national TFIS model proposed could be extended to include relevant financial markets (foreign exchange and securities markets), and, perhaps, an institutionalized working group on trade finance issues, composed of relevant institutions, including private sector traderelated associations. Regional trade finance institutions could also be included in the model, as regional initiatives could be a more effective way to support trade and SMEs development in many of the smaller SCCA economies16. Although, as argued in this paper, setting up state-supported trade finance institutions may be part of the solution, further research is needed to identify innovative ways in which trade financing can be made available in developing and transition economies at affordable rates and with reduced collateral requirements. This may require answering the following question: to what extent should the financial policy options and regulations that have proved effective in developed countries be transferred to emerging economies?17
14
Major IFIs with active SME and trade finance related programmes include the World Bank, the Asian Development Bank, and The European Bank of Reconstruction and Development (EBRD). 15 For example, the Asian Development Bank is implementing technical assistance for trade and SME development in Pakistan, which may be replicated in some of the SCCA countries (See Shah 2003). 16 The Islamic Corporation for the Insurance of Investment and Export Credit (ICIED), a subsidiary of the Islamic Development Bank (IDB) is one option for many Central Asian countries (www.iciec.com). 17 A similar question was recently raised by Michael H. Moskow, President and CEO, Federal Reserve Bank of Chicago. See Moskow (2001).
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References Dhungana, B.P., “Strengthening the Competitiveness of Small and Medium Enterprises in the Globalization Process: Prospects and Challenges”, Investment Promotion and Enterprise Development Bulletin for Asia and the Pacific, No. 1, ESCAP, United Nations, 2003. Kadrzhanova, A. How do companies in Eurasia Finance their Trade/Investment Deals?, BISINIS, Almaty, Kazakhstan, January 2003. (www.bisnis.doc.gov). ITC, Trade Finance Pointer: Methodology, Interpretation and Theoretical Considerations, Unpublished Draft, 2003. (www.intracen.org). ITC, Export Credit Insurance and Guarantee Schemes, Trade Support Services, ITC, 1998. Lasfer A. and Levis M., 'The determinants of the leasing decision of small and large companies', European Financial Management, Vol. 4, No. 2, 1998. Moskow, M., H., “Financial Infrastructure in Emerging Economies”, Journal of Financial Intermediation, No. 11, 354-361 (2002). Shah. M.A., ADB’s Perspective on SME Sector Growth and Development in Pakistan, April 2003, http://www.adb.org/Documents/Speeches/2003/ms2003040.asp Stiglitz, J.E. “The Role of the State in Financial Markets”, Proceedings of the World Bank Annual Conference on Development Economics 1993, IBRD/WB, 1994. Suhir, E. and Kovach, Z., Administrative Barriers to Entrepreneurship in Central Asia, Center for International Private Enterprise, June 2003. (www.cipe.org). The Economist, “Finance in Kazakhstan: Small but Elegant”, The Economist, May 31st 2003 (page 67). USDC, Country Commercial Guides FY 2002 (various countries). (www.usatrade.gov). UNCTAD, “Report on the Expert Meeting on Improving the Competitiveness of SMEs through Enhancing Productive Capacity: Financing Technology”, (TD/B/COM.3/50), November 2002. UNECE (a), Economic Survey of Europe, No. 1, 2003, United Nations. UNECE (b), “Trade Finance for Small and Medium-sized Enterprises in CIS Countries”, Trade and Investment Guides, No. 7, United Nations, 2003. (www.unece.org). UNESCAP, “Export Promotion for Economies in Transition”, Studies in Trade and Investment, No. 45, p. 106, 2001. (www.unescap.org).
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