Improving access to export finance

A major hurdle for the small-scale sector is access to finance. The financial services that are available are usually oriented towards the large scale sector, so that even small formal enterprises have difficulty obtaining credit. Informal enterprises do not have direct access to the banking sector and rely mainly on money lenders and other informal sources for financing, often at much higher cost.

In this context, special measures may be considered not only by governments but also by external agencies to ease the export credit constraint, either directly or indirectly. First, the activity of government agencies acting as intermediaries should be encouraged, as well as that of export houses selling the small-scale sector's output in foreign markets. Access for these intermediaries to bank advances would be helpful to facilitate exports as the money could be channelled through them to the smallscale sector.

Second, the requirement for collateral by financial institutions could be replaced by the provision of government-supported guarantees or insurance. For this purpose, pre-shipment export finance guarantee schemes could be introduced by governments to replace physical collateral. For example, the Korea Credit Guarantee Schemes and the Export-Import Bank of Korea provide this type of guarantees In Chile, small producers of non-traditional exports can obtain a guarantee from the Guarantee Fund for Non-Traditional Exports for loans covering working capital requirements.27' At the subcontractor level, simple procedures for obtaining bank loans using purchase orders or letters of credit as collateral could be helpful to small enterprises. At the artisan level, NGOs, cooperatives and rural banks, as well as commercial banks, could be encouraged to provide small credits by using innovative forms of guarantee such as, for example, collective responsibility.

Third, in order to strengthen the small-scale sector's competitiveness in export markets and its capacity to offer attractive terms to importers, it would help to provide pre- and post-shipment export finance on concessional terms. In India, for example, subsidized credit is in principle available for most exporters of manufactures, including small producers. In addition to pre- and post-shipment credit, small producers can also obtain subsidized bank loans for working capital. For handicrafts such as carpets, gems and jewellery, these loans may be equal to as much as half the value of the export order, at an interest rate of 3 to 5 percentage points below the prime lending rate. The problem is, however, that many exporters are considered by the banks to be too small or too risky and are therefore excluded from from the scheme.

Many SMEs do not realize their full potential contribution to employment, growth, diversification, widening of the export base, a vibrant industrial sector and development because they lack access to markets, finance, business skills, technology and training. These traditional "access" problems have in some cases been alleviated by and in other cases compounded by globalization and liberalization.