Escalating conflict in the Middle East is pushing Indian MSME exporters to use the Trade Receivables Discounting System (TReDS) to manage cash flow.

Escalating tensions in the Middle East is likely to increase demand for working capital financing through the Trade Receivables Discounting System (TReDS), as export-oriented micro, small and medium enterprises (MSMEs) grapple with shipment delays, higher freight costs and rising insurance premiums.

Lessons from the Pandemic
“During periods of heightened uncertainty and fluctuating input costs, corporates and MSMEs tend to prefer regulated, bank-backed mechanisms like TReDS to access liquidity and maintain stable supplier relationships,” Ketan Gaikwad, managing director and CEO of Receivables Exchange of India Ltd (RXIL) said.

He explained that a similar pattern was observed during the Covid-19 pandemic. According to Prashant Girbane, Director General of Mahratta Chamber of Commerce, Industries & Agriculture, MSMEs account for around 45% of India’s exports, while roughly 10% of the country’s merchandise exports are directed to the United Arab Emirates. 

Logistics Volatility
Export shipments to the Middle East have also faced disruptions as logistics routes remain volatile. A key trading hub for Indian exports in the region is the United Arab Emirates, particularly through Jebel Ali Port, which acts as a major redistribution hub for global trade. He said businesses are dealing with mixed conditions, with some exporters reporting smooth operations while others face uncertainty around fuel availability, shipping schedules and logistics costs.

Trade receivables financing platforms are also seeing some moderation in cross-border invoice activity linked to the Gulf region. “Since tensions escalated in the Middle East, we have not seen any sharp, system-wide disruption, but there are some sector-specific dips in invoice flows and financing behavior,” Gaikwad said.

“We have not seen any reduction yet, but if shipments remain disrupted, we could see the impact on invoices in the coming weeks,” said Manish Kumar, CEO and Founder of KredX.

Besides slower invoicing, some of major fallouts could include greater use of existing credit limits and rising discount rates for certain buyer categories as well.

At the same time, more businesses are using invoice factoring to secure earlier cash flows and hedge against delayed payments, higher freight charges and rising insurance costs, Gaikwad said.