Given the increasing number of corporate loan defaulters, the Insolvency and Bankruptcy Board of India (IBBI) is working on a blueprint of the SME bankruptcy code, likely to be framed by the end of July.
In lending ecosystem, number of SME borrowers surpasses the any other corporate borrowers. Hence, despite the loan amount being low or minimal, SME lending has a major command over the finance structure and its stability.
Small and medium enterprises are mostly organised as partnerships and proprietorships, whose promoters have unlimited liability, unlike companies, in which the promoters’ liability is limited to the extent of their share capital. The insolvency and bankruptcy code currently deals with only companies and not any other form of organised economic activity.
Hence a need for an SME exclusive framework was felt as the sector generates jobs with low capital, without any protection for their own personal assets.
The Insolvency and Bankruptcy Code (IBC) is an Act which helps troubled corporates, partnership firms and individuals in debt to re-organise and opt for insolvency resolution in a time-bound manner to maximise value of its assets. IBC, passed by the Parliament on May 11, 2016 and received Presidential assent on May 28 2016, was recently in May 2017 amended wherein the Reserve Bank of India (RBI) has been given more power to deal with non-performing assets (NPAs).
The micro, small and medium enterprises (MSMEs) in India contribute 40 per cent to manufacturing, 45 per cent to exports and 8 per cent to the GDP of the nation and widely accepted as the growth engines of any economy.