Subordinate debt: A way for govt to hand out cash to needy MSMEs

The scheme provides liquidity to stressed MSMEs without really burdening them with heavy debt obligations and the banks are guaranteed the loan amount so they don't have to worry about repayment

On August 19, the government operationalised the Credit Guarantee Scheme for Subordinate Debt for stressed Micro, Small & Medium Enterprises (MSMEs). It had announced this scheme as part of the Aatma Nirbhar Bharat Package. Here’s a look at what the scheme involves and what it means for MSMEs.

What is subordinate debt?

Subordinate debt is a type of debt that an individual or a company can take on and which has a lower priority of repayment. In other words, in the event of liquidation or bankruptcy, the borrower would first pay off other “senior” debt and obligations and only then