Loan waiver
Encyclopedia
A loan waiver is the waiving
of the real or potential liability of the person or party who has taken out a loan through the voluntary action of the person or party who has made the loan. Examples of loan waivers include the Stafford Loan
Forgiveness program in the United States and the Agricultural Debt Waiver and Debt Relief Scheme in India.
through the Stafford Loan
Forgiveness program. Eligibility for the program depends on the borrower meeting certain service criteria after they have completed their education. These can include one of the following:
, at the time Finance Minister of India
, announced a relief package for farmers which included the complete waiver of loans given to small and marginal farmers. Called the Agricultural Debt Waiver and Debt Relief Scheme, the 600 billion rupee
package included the total value of the loans to be waived for 30 million small and marginal farmers (estimated at 500 billion rupees) and a One Time Settlement scheme (OTS) for another 10 million farmers (estimated at 100 billion rupees). During the financial year 2008-09 the debt waiver amount rose by 20% to 716.8 billion rupees and the overall benefit of the waiver and the OTS was extended to 43 million farmers. In most of the Indian States the number of small and marginal farmers ranges from 70% to 94% of the total number of farmers.
, scheduled commercial banks
, Regional Rural Bank
s (RRBs) and cooperative lending institutions
. The top executives of these banks and institutions were also urged by the Indian Government to visit their rural and semi-urban branches to enable better and faster implementation of the scheme.
(UPA) government and has faced sharp criticisms from many groups including the opposition parties in the Indian Parliament, agricultural experts, and bankers. Critics said that the loan waiver was simply a populist
move by the UPA Government in view of the forthcoming elections. According to Parshuram Ray, director of the New Delhi-based Center for Environment and Food Security, the loan waiver was "an electoral sop that involves a lot of statistical jugglery and very little of real hope for Indian farmers." An important feature of the program which has been heavily criticized is that it covers only formal sources of credit and excludes any kind of informal loan. Thus, while it benefitted wealthy and large-scale farmers who had access to institutional credit (about 23% of the total number of farmers), small and marginal farmers, who borrow the majority of their funds from private moneylender
s, would not benefit from the scheme. Another criticism of this scheme was that it might cripple the agricultural credit system.
Waiver
A waiver is the voluntary relinquishment or surrender of some known right or privilege.While a waiver is often in writing, sometimes a person's actions can act as a waiver. An example of a written waiver is a disclaimer, which becomes a waiver when accepted...
of the real or potential liability of the person or party who has taken out a loan through the voluntary action of the person or party who has made the loan. Examples of loan waivers include the Stafford Loan
Stafford loan
A Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education...
Forgiveness program in the United States and the Agricultural Debt Waiver and Debt Relief Scheme in India.
Stafford Loan Forgiveness
In certain situations, the United States Federal Government can waive all or a part of an education loanStudent loan
A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education...
through the Stafford Loan
Stafford loan
A Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education...
Forgiveness program. Eligibility for the program depends on the borrower meeting certain service criteria after they have completed their education. These can include one of the following:
- Volunteer work in federal programs such as AmeriCorpsAmeriCorpsAmeriCorps is a U.S. federal government program that was created under President Bill Clinton by the National and Community Service Trust Act of 1993 and later expanded by 50 percent under President George W. Bush...
, the Peace CorpsPeace CorpsThe Peace Corps is an American volunteer program run by the United States Government, as well as a government agency of the same name. The mission of the Peace Corps includes three goals: providing technical assistance, helping people outside the United States to understand US culture, and helping...
, or Volunteers in Service to AmericaVolunteers in Service to AmericaVISTA or Volunteers in Service to America is an anti-poverty program created by Lyndon Johnson's Economic Opportunity Act of 1964 as the domestic version of the Peace Corps. Initially, the program increased employment opportunities for conscientious people who felt they could contribute tangibly to...
(VISTA) - Military service such as serving in the Army National GuardArmy National GuardEstablished under Title 10 and Title 32 of the U.S. Code, the Army National Guard is part of the National Guard and is divided up into subordinate units stationed in each of the 50 states, three territories and the District of Columbia operating under their respective governors...
- Teaching full-time in schools whose students predominantly come from low-income families
- Practicing law in public interest or non-profit organizations
- Practicing medicine in remote or economically deprived communities that lack adequate medical care
Agricultural Debt Waiver and Debt Relief Scheme
On 29 February 2008, P. ChidambaramP. Chidambaram
P. Chidambaram or Chidambaram Palaniappan, sometimes written Palaniappan Chidambaram is an Indian politician with the Indian National Congress and present Union Minister of Home Affairs of the Republic of India. Previously he was the Finance Minister of India from May 2004 to November 2008...
, at the time Finance Minister of India
Finance Minister of India
The Minister of Finance, also known as the Finance Minister of India is a cabinet position in the Government of India and heads the Ministry of Finance. He drafts the general budget of the country, and is in charge of the national economy. Currently, Pranab Mukherjee holds the charge of finance...
, announced a relief package for farmers which included the complete waiver of loans given to small and marginal farmers. Called the Agricultural Debt Waiver and Debt Relief Scheme, the 600 billion rupee
Rupee
The rupee is the common name for the monetary unit of account in India, Sri Lanka, Nepal, Pakistan, Mauritius, Seychelles, Maldives, and formerly in Burma, and Afghanistan. Historically, the first currency called "rupee" was introduced in the 16th century...
package included the total value of the loans to be waived for 30 million small and marginal farmers (estimated at 500 billion rupees) and a One Time Settlement scheme (OTS) for another 10 million farmers (estimated at 100 billion rupees). During the financial year 2008-09 the debt waiver amount rose by 20% to 716.8 billion rupees and the overall benefit of the waiver and the OTS was extended to 43 million farmers. In most of the Indian States the number of small and marginal farmers ranges from 70% to 94% of the total number of farmers.
Implementation
The scheme's implementation was scheduled to be completed by 30 June 2008. Guidelines were issued to every branch of every lending institution including public sector banksPublic sector banks in India
Public sector banks are banks where a majority stake is held by a government. The shares of these banks are listed on stock exchanges...
, scheduled commercial banks
Scheduled banks
Scheduled Banks in India are those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 of the Act....
, Regional Rural Bank
Regional Rural Bank
The Government of India set up Regional Rural Banks on October 2, 1975.Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of India...
s (RRBs) and cooperative lending institutions
Cooperative banking
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world....
. The top executives of these banks and institutions were also urged by the Indian Government to visit their rural and semi-urban branches to enable better and faster implementation of the scheme.
Criticisms
The Agricultural Debt Waiver and Debt Relief Scheme was initiated by the United Progressive AllianceUnited Progressive Alliance
The United Progressive Alliance is a ruling coalition of center-left political parties heading the government of India. The coalition is led by the Indian National Congress , which is currently the single largest political party in the Lok Sabha...
(UPA) government and has faced sharp criticisms from many groups including the opposition parties in the Indian Parliament, agricultural experts, and bankers. Critics said that the loan waiver was simply a populist
Populist
Populist may refer to:* A supporter of Populism, a political philosophy urging social and political system change that favours "the people" over "the elites", or favours the common people over the rich and wealthy business owners...
move by the UPA Government in view of the forthcoming elections. According to Parshuram Ray, director of the New Delhi-based Center for Environment and Food Security, the loan waiver was "an electoral sop that involves a lot of statistical jugglery and very little of real hope for Indian farmers." An important feature of the program which has been heavily criticized is that it covers only formal sources of credit and excludes any kind of informal loan. Thus, while it benefitted wealthy and large-scale farmers who had access to institutional credit (about 23% of the total number of farmers), small and marginal farmers, who borrow the majority of their funds from private moneylender
Moneylender
A moneylender is a person or group who offers small personal loans at high rates of interest.-See also:* Microfinance - provision of financial services to low-income individuals....
s, would not benefit from the scheme. Another criticism of this scheme was that it might cripple the agricultural credit system.