Surety bonds' market faces multiple growth challenges despite govt push

The issuance of such bonds remains muted due to several challenges, such as collaboration between banks and insurance firms, data sharing, and regulatory parity, among others

Despite a regulatory and government push, surety bonds — touted as an alternative to bank guarantees — have not gained as much traction as was initially expected. This is largely due to legal challenges in recovery, as insurers are not treated on par with banks under the Insolvency and Bankruptcy Code (IBC), and lack of reliable data which affects accurate pricing and discourages participation from reinsurers.

 

Surety Bond insurance acts as a risk transfer mechanism protecting the project owner from potential losses if the contractor fails to fulfil their contractual obligations. They are legally enforceable tripartite contracts that guarantee compliance,