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Impact of Stronger Insolvency Laws on Borrower Decisions in Romania

Study the effects of new out-of-court debt restructuring guidelines in Romania since November 2010, focusing on debtor options and increased effectiveness compared to court processes. Explore how learning about the new law impacts SME borrowers' loan repayment rates and loan requests, testing different delivery mechanisms. This research aims to inform policymakers, lenders, and stakeholders on the potential benefits and cost-effective strategies of the insolvency reforms.

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Impact of Stronger Insolvency Laws on Borrower Decisions in Romania

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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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