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Universal debt relief scheme on cards for micro enterprise borrowers

As per reports, India has begun work on a universal debt relief scheme for small borrowers which will be specifically aimed at micro enterprises, small farmers and artisans. The scheme is likely to be ready for implementation when the next government is in place.

As per the relief scheme, the individuals below a specified income and asset threshold will only be eligible. People with annual income of INR 60,000 or less, outstanding loans of INR 35,000 or less, and assets worth INR 20,000 or less may be eligible.

On this, the corporate affairs secretary, Injeti Srinivas said “this will be a well-structured loan waiver programme across sectors for small farmers, artisans, micro enterprises or other individuals.”

The scheme is anticipated to be one of the key features of changes being considered to the Insolvency and Bankruptcy Code (IBC). Reports indicated that the cost of the scheme is unlikely to exceed INR 20,000 crore, but it will benefit millions in the very small-ticket loan category. Srinivas also pointed that the IBC does not provide any special dispensation for small borrowers and the personal insolvency chapter requires some amendments.

The government official further added, “there are people who are genuinely poor and the law as it stands today provides the process (for them) is as rigorous as corporate insolvency resolution process,” he said.

“In this category there will be millions and millions of people coming in and no system will be able to deliver. It could be an online system within the Insolvency and Bankruptcy Board of India (IBBI) with a dedicated team to examine and take a call on applications. We may create a personal insolvency cell or division in IBBI to handle debt relief only, Srinivas added.”

Srinivas also quoted that, “if you can establish that your income is less than this (specified threshold) and assets are less than this (specified threshold) then by way of entitlement you will get debt relief and you can make a fresh start.”

He also pointed out that, the scheme will also allow for flexibility so that individuals can opt out to protect their credit history. “We will allow a person who doesn't want to avail the scheme to exempt himself because debt relief will actually put some stigma on you or restraint on taking future credit,” Srinivas said, underlining that individuals will have the option to opt for insolvency.