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Small Borrowers Will Get Loan Waivers Under New Bankruptcy Scheme


It is likely that small informal borrowers with annual income up to Rs 60,000 will get automatic relief on unsecured loans that they are not able to repay. The Ministry Of Corporate Affairs and the Insolvency and Bankruptcy Board of India (IBBI) are currently working on a loan waiver programme to cover small scale enterprises, farmers, artisans and other small borrowers in the country.

Small Borrowers Will Get Loan Waivers Under New Bankruptcy Scheme

The debt relief scheme is expected to be ready for implementation by the time the new government is formed.

In the details disclosed by the IBBI (the board that overseas bankruptcy ecosystem in India) in its monthly bulletin, the scheme is aimed to benefit small informal financial creditors as well as partnerships and proprietorship, the legal form most small and medium enterprises take.

It further said that those with an annual income of up to Rs 60,000, outstanding loans of Rs 35,000 or less and assets worth Rs 20,000 or less will be eligible for the waiver.

The idea behind the scheme is to give waivers to small entrepreneurs and borrowers where the cost of recovering dues from them does not justify the amount that will be recovered from them eventually.

The loan defaulters can apply for the relief and the debt recovery tribunal will examine and decide the action based on the hearing. When a relief is granted, it enables the borrower to come out of bankruptcy as his/her unsecured loan is waived off, subject to an entry in his/her credit history.

The Insolvency and Bankruptcy Code (IBC), introduced in 2016, is suited for corporate entities but does not cover individuals, partnerships and proprietorship. Hence, the government wanted a simpler, low cost bankruptcy regime based on humanitarian grounds for small borrowers.

Read more about: ibc
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