decline in demand. Large corporations often rely more greatly on self-financing and retained earnings. Also in times of crisis, banks have been reported to follow a ‘flight-toquality’ strategy and offer better lending rates to large corporations which often are better capitalized and likely to be more resilient to a drop in demand.

- In Chile, bank interviews indicated that large firms that traditionally financed internationally have turned toward the domestic banks, crowding out domestic SMEs.

- In Indonesia, SMEs reported that the cost of trade finance has become more expensive than for larger firms.

- In Peru, interest rates for larger companies have increased twice as much as for SMEs.

- In the Philippines, multinational banks remained focused on larger domestic firms and multinational companies located in the country.  Little credit exposure is made to local, and, much less, smaller exporters. Moreover, the domestic banks maintained their trade credit lines with large, reputable exporters, while smaller exporters have been experiencing a reduction or even winding down of their trade credit lines. Larger firms have also access to lower interest rates, capital markets and greater assets to support their lending operations.

Even firms that have not been relying extensively on the banking system for trade finance have also been affected. These firms usually use open account with self-financing, cash in advance and accounts payable. The scarcity of trade finance originated from the slower demand from their export markets and the consequent drop in revenues, delays in payment terms by buyers, and shortening payment terms by suppliers. This has in turn squeezed the capital base of exporters and importers, their working capital and capacity to selffinance their transactions. It is typically firms that are integrated in global supply-chains with a zero-sum game between different segments of the value-chain: firms lower in the supply chain are more affected as a result of reduced access to credit by final suppliers/customers.

- In Indonesia where most firms in the sample produce consumer products and are assemblers of different semi-finished products to be final products, the impact has been large.  Exporters were experiencing an increase of up to 37 days in their cash flow cycle.

- In India, 60 percent of firms’ cash-to-cash cycle time has increased from 15 to 90 days post September 2008; and 80 percent of firms reported overdue payment ranging from 5 to 70 percent of their sales.

- Firms in Turkey also complained about overdue payment, in particular when using a direct method of payment rather than safer method of payments such as Letters of Credit (LCs).  This may lead some firms to prefer safer methods of payments, provided that banks are willing to work with them.

Yet, most firms highlighted that the drop in global demand was their top concern and that trade finance was not a major binding constraint. They noted that they could still handle these tightening conditions. These reports will be corroborated by the banks survey results in Section III as trade finance volumes have reportedly increased despite higher pricing in countries where trade flows have been somewhat sustained such as in Kenya and Ghana.

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