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How do Stronger Insolvency Laws Impact Borrower Decisions?

ROMANIA:. How do Stronger Insolvency Laws Impact Borrower Decisions?. Policy questions. Study the impact of new out-of-court debt restructuring guidelines introduced in Romania in November 2010

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How do Stronger Insolvency Laws Impact Borrower Decisions?

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  1. ROMANIA: How do Stronger Insolvency Laws Impact Borrower Decisions?

  2. Policy questions • Study the impact of new out-of-court debt restructuring guidelines introduced in Romania in November 2010 • The debtor and the creditor now have the option to enter into a mutually agreed upon debt restructuring, in a way that allows the debtor to continue doing business • Out-of–court restructuring is perceived as more effective than the court process because in successful cases, the dispute is settled earlier and the debt is recovered more often. • Currently, most delinquent borrowers enter insolvency

  3. Policy questions • As a simpler and cheaper alternative to the courts, the main expected beneficiaries are SME’s. • Our aim is to identify: • The causal effects of learning about the new law on SME borrower: • loan repayment rates • the size and frequency of new loan requests • The impact of in-person training relative to other delivery mechanisms, such as mail, video, and internet.

  4. Intervention • We test the interactive impact of: • Learning about the new law • The delivery mechanism of educating borrowers Classroom lecture E-learning Video Mailing (lowest) Intervention Cost (highest)

  5. Future influence on policy • For WB/IFC staff & government partners: • Understanding the potential impact of insolvency reforms on financial stability, employment, and firm survival • For lenders: • Identifying a cost-effective way to inform borrowers of insolvency reforms • Reducing losses and improving profitability

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