This movie portrayed the life story of Chiyo. This scene shows Mameha (played by Michelle Yeoh) bargaining with Kayoko Nitta. Mameha who is one of the most prominent Geisha decides to invest in Chiyo’s geisha training.
She promises to pay her twice over after her debut. However, she puts a condition in the agreement that if Chiyo is able to erase her debt in the time allowed, Nitta will have no part in her future earnings.
In this blog, Learning Perspectives will explore the meaning of financial covenants.
What are financial covenants?
Financial covenants are generally seen in loan agreements. These are certain conditions that need to be met by the borrowing company. The borrower is supposed to comply with these covenants so that the loans keep running.
Let’s assume a company borrows Rs. 15 lakhs from a financial lender or a bank. The financial lender would set some financial covenants for the company. These could be maintaining the debt to equity ratio or asset to debt ratio at an agreed rate.
This is done by the financial lender to secure his position. Financial covenants are waived off for some time if there is an economic condition in the country. For example, during demonetization, many covenants were relaxed. This happened as many borrowers were defaulting on their payments. Another time was during the COVID crisis.
If the lender believes it is okay to waive off the covenant, then it can be done, temporarily or permanently.
