By Hamid Alavi, Senior Private Sector Development Specialist, Middle East and North Africa Region
 August 2007 - Many small and medium-sized emerging exporters in developing countries have inadequate access to short-term working capital to finance their export transactions.  This is mainly due to a market failure resulting from informational asymmetries on the part of banks about exporters’ ability to execute export orders according to buyers’ standards of quality, cost, and delivery.  Several countries have established preshipment export finance guaranty facilities to help alleviate this market failure. Their aim is to act as catalyst to temporarily share nonperformance risks of exporters with the banks, allowing the banks to evaluate nonperformance risks of emerging exporters. Some countries have implemented these facilities successfully encouraging banks to provide preshipment finance without guarantees, while others have not.  The note Access to Preshipment Export Finance: Do Guarantees Help? (pdf) draws on Tunisia’s experience to outline the necessary conditions for the success of these facilities.      |
RSS