A planned investment project by the International Finance Corporation (IFC) and German group EOS to purchase nonperforming loans and recovered assets in Morocco has sparked debate over whether the initiative could result in borrowers’ debts being canceled.
A source familiar with the matter told Hespress AR that the project involves establishing a private company specializing in the purchase of nonperforming loans.
The company would engage with banks to purchase portfolios of loans that borrowers have been unable to repay, generally at a value below their original face value. It would then take responsibility for recovering the outstanding amounts from the borrowers.
The source stressed that the purchase of nonperforming loans does not amount to debt forgiveness or the cancellation of borrowers’ financial obligations.
“There is no social component involving the waiving of amounts owed by the holders of these loans,” the source said, dismissing speculation that the initiative could automatically relieve borrowers of their debts.
The source said the main objective is to reorganize the relationship between banks and the companies purchasing their distressed debt. Once a portfolio is sold, the purchasing company becomes directly responsible for pursuing and collecting the outstanding amounts.
The financial institutions, companies and investment funds involved in such transactions will be responsible for communicating with affected borrowers and announcing the procedures governing the recovery process, the source said.
The transactions would also be subject to specific rules and criteria designed to prevent abuses or the exploitation of people affected by nonperforming debt, according to the source.
The clarification comes as Morocco prepares a legal framework governing the direct transfer of nonperforming loans held by credit institutions.
Draft Law No. 02.26 on the direct transfer of nonperforming loans by credit institutions and similar entities is currently listed on the government’s agenda and has been submitted for public comment by the General Secretariat of the Government.
The draft legislation establishes a legal framework allowing credit institutions to transfer nonperforming loans to other entities under specific conditions and procedures.
It defines nonperforming debt and regulates the transfer process, including the requirements that entities acquiring such debt must meet and the manner in which the rights attached to the loans are transferred.
The legislation is intended to help address the stock of nonperforming loans accumulated within Morocco’s banking sector.
Importantly, the draft law does not provide for the automatic cancellation or reduction of a borrower’s debt when the loan is transferred.
Instead, the transfer changes the identity of the creditor without automatically extinguishing the underlying debt. Borrowers therefore remain liable for their outstanding obligations under the applicable legal framework unless a separate settlement or agreement modifies the amount owed.
In other words, the proposed framework regulates the transfer of debt rather than its cancellation.
The planned investment involving IFC and EOS is expected to contribute to the development of a market for distressed assets in Morocco, while the proposed legislation would establish the legal framework governing such transactions.
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