The Export Finance and Insurance Corporation is backing the formation of a government scheme to improve access to finance for smaller businesses, modelled on similar lenders in Germany and Britain."The financial system is inefficient," EFIC declared in its submission to the Financial System Inquiry."Australia's financial system is dominated by banks and superannuation funds. It is also tightly supervised and regulated. ""This architecture has provided attractive returns to investors, and security and confidence to deposit holders. However, from a business perspective, it has also resulted in a culture of risk aversion and a bias against lending to SMEs." EFIC, a government owned financier that supports exports, said "small to medium enterprises and businesses of all sizes operating in emerging and frontier markets, cannot consistently access the finance they need to succeed."It said funding requirements of SMEs "do not fit into the standard criteria, or the model-based lending approach adopted by banks, given the small amounts involved and the lack of security and readily available information on borrowers' abilities to perform."It argued that "Australia's regulatory settings also bias banks against providing credit to SMEs."In its theme, at least, EFIC's submission to the Financial System Inquiry echoes the priorities highlighted by other federal agencies, including the Reserve Bank of Australia and Treasury.But EFIC goes further in advocating a particular business model and supporting the use of the Australian government's balance sheet to address what it sees as a market failure.Of its special field of trade finance, EFIC said "the international focus of Australia's banks is more limited than that of many of Australia's exporters resulting in financing shortfalls.""Financial flows into emerging markets also suffer from short-termism; exposing exporters and investors to abrupt and wholesale credit withdrawals when sentiment changes."EFIC predicted that "Australian SMEs and transactions of scale in emerging and frontier markets are likely to remain undersupplied for finance in the foreseeable future."Interestingly, a Productivity Commission review in 2012 identified the same shortcomings in EFIC that EFIC has identified in the financial system. The Commission was critical of EFIC's preference for doing business with large companies.More than three-quarters of the value of EFIC signings in 2010/11 were facilities provided to large corporate clients. Facilities with small and medium businesses accounted for about 20 per cent of EFIC's commercial account business. It signed 90 facilities with SMEs, worth about A$135 million.Among its deals that year, EFIC provided a US$100 million export finance guarantee to the Wiggins Island coal terminal consortium for a A$3 billion project to increase coal export capacity at the Port of Gladstone.It provided a US$270 million insurance policy to Brookfield Australia for a project to upgrade the rail line from Morawa to Geraldton, and provided a US$250 million export finance guarantee to the Santos liquefied natural gas project in Gladstone.The Commission, in its 2012 review, said EFIC's activities should be reoriented to addressing market failures that affect newly exporting SMEs seeking to access export finance. It said: "EFIC has not targeted its operations to address market failures but rather to areas