Rising Demand for Credit in MSMEs

Due to the ongoing conflict in West Asia stretching beyond a month, the demand for working capital loans among Micro, Small, and Medium Enterprises (MSMEs) has increased. Delays in receivables and increased rates of raw materials, especially chemicals, have put pressure on the cash flow of small industries, leading to a higher demand for bank credit.

Bankers believe that MSMEs are likely to be the most affected by the ongoing war in West Asia. Its impact may be reflected in the quality of banks’ loan portfolios in the financial year 2027. According to banks, this sector could become a major area of concern.

However, similar trends are often observed towards the end of the financial year as well. The disruption in supply chains due to the West Asia conflict has significantly impacted certain sectors. In particular, exporters and importers dependent on West Asian markets are facing difficulties. Additionally, sectors such as fertilizers and chemicals are also encountering challenges.

Normally, when business activity slows down, the need for working capital ideally should not increase significantly. However, during such slowdowns, it becomes more difficult to cover costs. Further pressure may be seen over the next 6 to 12 months. The full impact of the current situation is likely to be visible by the end of April or in May, as such effects take time to materialize.

According to bankers, rising input costs such as raw materials, freight, and shipping could pose challenges. Additionally, an increase in diesel prices may lead to higher domestic transportation costs. Packaging material costs have already risen, and industries linked to crude oil—such as plastics and chemicals—are clearly experiencing cost pressures. As a result, the demand for working capital may increase.

For example, if input costs rise by 20–30%, even if production volumes decline, the overall capital requirement may still increase.

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