Euribor cuts & Indian exports: A liquidity play

The Euro Interbank Offered Rate (Euribor) determines borrowing costs among Eurozone banks, influencing global trade. In May 2025, the ECB cut rates to stimulate growth amid projected 2.3% headline inflation. For Indian exporters, these cuts affect demand, pricing, and financing. Invoice financing offers a solution, enabling exporters to access 80-90% of invoice value upfront without collateral, addressing working capital needs efficiently.

Image source: Freepik

As global growth stutters and inflation eases across developed markets, central banks are entering a new phase of monetary easing. In June 2025, the European Central Bank (ECB) became the first among major central banks to cut key interest rates, including those linked to the Euro Interbank Offered Rate (Euribor). The move is aimed at reigniting demand in the Eurozone, where investment and consumption have remained tepid since early 2024.

For Indian exporters, this rate cut presents a mixed bag. On one hand, softer European demand may limit export volumes in the short term. On the other, lower Euribor rates have significantly reduced the cost of trade finance, creating fresh opportunities to ease liquidity pressures. Many Indian businesses are now turning to innovative tools like collateral-free invoice financing—unlocking up to 90% of invoice value upfront—to stay agile amid delayed payments and currency volatility.

As trade dynamics shift, Indian exporters must strike a careful balance between navigating external demand uncertainties and leveraging favorable financing conditions to stay competitive.

Impact on Indian exporters

Indian exporters in sectors like textiles, pharmaceuticals, and IT face several impacts from Euribor rate cuts:

1. Demand and Margin Pressures: Lower borrowing costs in Europe may boost demand for Indian goods. However, a stronger rupee, hitting 87.5 against the dollar in February 2025, increases export costs, forcing price reductions that squeeze margins.
2. Currency Volatility: A weaker euro due to rate cuts raises the cost of Indian exports in Europe. Combined with rupee fluctuations, this complicates pricing and profit repatriation, requiring effective hedging.
3. Cheaper External Financing: Euribor cuts make External Commercial Borrowings (ECBs) more attractive. In FY25, ECB registrations hit $47.3 billion, up 21% from FY24. However, hedging costs can offset these savings.
4. Working Capital Gaps: MSMEs, contributing 40% of India’s exports, face financing constraints. Export credit fell from ₹2,27,452 crore in March 2023 to ₹2,17,406 crore in March 2024 due to banks’ collateral demands. Euribor cuts don’t directly address these domestic challenges, pushing exporters toward alternative financing.

Unlocking working capital through Invoice Financing

Invoice financing, including factoring and single invoice finance, allows exporters to access 80-90% of invoice value upfront without collateral, bridging cash flow gaps.

How It Works

• Invoice Submission: Exporters submit invoices to a financing provider.
• Credit Evaluation: The provider assesses the buyer’s creditworthiness, not the exporter’s assets.
• Upfront Funding: Exporters receive 80-90% of the invoice value within days, with the balance (minus fees) paid post-settlement.

Benefits for Exporters

1. Collateral-Free: Unlike bank loans, invoice financing doesn’t require assets, ideal for MSMEs. Platforms like Drip Capital offer quick approvals with minimal documentation.
2. Improved Liquidity: Immediate funds cover operational costs or growth investments, bypassing 30-120-day payment delays.
3. Currency Risk Mitigation: Foreign currency financing hedges against euro-rupee volatility.
4. Scalability: Fintechs like MODIFI support financing for domestic and international invoices, aiding market expansion.

Accessing Invoice Financing

• Fintech Platforms: Drip Capital and MODIFI provide collateral-free financing, disbursing funds in 24-48 hours.
• Exim Bank: Offers pre- and post-shipment credit, including invoice-based financing, with 10-20% margins.
• TReDS Platforms: RBI’s TReDS facilitates MSME invoice financing, though adoption is low due to awareness and buyer resistance.

Challenges and Solutions

Invoice financing faces hurdles in India, including low TReDS uptake, fragmented digital trade systems, and regulatory gaps like the delay in adopting the UNCITRAL Model Law on Electronic Transferable Records (MLETR). Solutions include:

• Awareness Campaigns: Government and industry bodies should educate MSMEs on invoice financing benefits through workshops and digital outreach.
• Regulatory Reforms: Recognizing private trade credit insurance and adopting MLETR can simplify financing processes.
• Digital Integration: A unified platform for banking, customs, and shipping data can reduce documentation burdens and enhance efficiency.

Conclusion

Euribor rate cuts offer Indian exporters opportunities to tap increased European demand but pose challenges like currency volatility and margin pressures. Invoice financing provides a vital tool to unlock working capital, enabling exporters to access 80-90% of invoice value upfront without collateral. By leveraging fintech platforms, Exim Bank programs, and TReDS, exporters can overcome liquidity constraints and strengthen their global competitiveness. Regulatory reforms and increased financial literacy will further empower Indian exporters to navigate the evolving trade landscape effectively.