diff --git a/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansImpl.java b/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansImpl.java
index 03b222f3a..731d9e806 100644
--- a/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansImpl.java
+++ b/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansImpl.java
@@ -464,6 +464,7 @@ private void _returnAsset(String _from, BigInteger _value, String _collateralSym
     public void redeemCollateral(Address _collateralAddress, BigInteger _amount) {
         checkStatus();
         loansOn();
+        Context.require(!getRedemptionExemption(_collateralAddress), "bnUSD cannot be redeemed for this collateral");
         Address caller = Context.getCaller();
         String collateralSymbol = CollateralDB.getSymbol(_collateralAddress);
         BigInteger daofundFee = redemptionDaoFee.getOrDefault(BigInteger.ZERO).multiply(_amount).divide(POINTS);
@@ -888,6 +889,17 @@ public BigInteger getRedemptionFee() {
         return redemptionFee.get();
     }
 
+    @External
+    public void setRedemptionExemption(Address token, boolean exempt) {
+        onlyGovernance();
+        redemptionExemptions.set(token, exempt);
+    }
+
+    @External(readonly = true)
+    public boolean getRedemptionExemption(Address token) {
+        return redemptionExemptions.getOrDefault(token, false);
+    }
+
     @External
     public void setRedemptionDaoFee(BigInteger _fee) {
         onlyGovernance();
diff --git a/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansVariables.java b/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansVariables.java
index 70271a9ed..c6ec50817 100644
--- a/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansVariables.java
+++ b/core-contracts/Loans/src/main/java/network/balanced/score/core/loans/LoansVariables.java
@@ -42,6 +42,7 @@ public class LoansVariables {
     private static final String REDEMPTION_DAO_FEE = "redemption_dao_fee";
     private static final String RETIREMENT_BONUS = "retirement_bonus";
     private static final String NEW_LOAN_MINIMUM = "new_loan_minimum";
+    private static final String REDEMPTION_EXEMPTIONS = "redemption_exemptions";
 
     private static final String REDEEM_BATCH_SIZE = "redeem_batch_size";
     private static final String MAX_RETIRE_PERCENT = "max_retire_percent";
@@ -69,6 +70,7 @@ public class LoansVariables {
     static final VarDB<BigInteger> newLoanMinimum = Context.newVarDB(NEW_LOAN_MINIMUM, BigInteger.class);
     static final VarDB<Integer> redeemBatch = Context.newVarDB(REDEEM_BATCH_SIZE, Integer.class);
     static final VarDB<BigInteger> maxRetirePercent = Context.newVarDB(MAX_RETIRE_PERCENT, BigInteger.class);
+    static final DictDB<Address, Boolean> redemptionExemptions= Context.newDictDB(REDEMPTION_EXEMPTIONS, Boolean.class);
 
     static final VarDB<Address> expectedToken = Context.newVarDB(EXPECTED_TOKEN, Address.class);
     static final VarDB<BigInteger> amountReceived = Context.newVarDB(AMOUNT_RECEIVED, BigInteger.class);
diff --git a/core-contracts/Loans/src/test/java/network/balanced/score/core/loans/LoansTest.java b/core-contracts/Loans/src/test/java/network/balanced/score/core/loans/LoansTest.java
index 77d2fdd3e..238bc010c 100644
--- a/core-contracts/Loans/src/test/java/network/balanced/score/core/loans/LoansTest.java
+++ b/core-contracts/Loans/src/test/java/network/balanced/score/core/loans/LoansTest.java
@@ -1679,6 +1679,27 @@ void redeemCollateral_redeemAboveMax() {
         expectErrorMessage(redeemAboveMaxSize, expectedErrorMessage);
     }
 
+    @Test
+    void redeemCollateral_exemptCollateral() {
+        // Arrange
+        Account account1 = sm.createAccount();
+        Account redeemer = sm.createAccount();
+        BigInteger collateral = BigInteger.valueOf(4000).multiply(EXA);
+        BigInteger loan = BigInteger.valueOf(400).multiply(EXA);
+
+        BigInteger sICXRate = EXA.divide(BigInteger.TWO);
+        mockOraclePrice("sICX", sICXRate);
+
+        // Act && Assert
+        loans.invoke(governance.account, "setRedemptionExemption", sicx.getAddress(), true);
+        takeLoanICX(account1, "bnUSD", collateral, loan);
+
+        String expectedErrorMessage = "bnUSD cannot be redeemed for this collateral";
+        Executable redeemExemptToken = () -> loans.invoke(redeemer, "redeemCollateral", sicx.getAddress(), BigInteger.ONE);
+        expectErrorMessage(redeemExemptToken, expectedErrorMessage);
+    }
+
+
     @Test
     void redeemCollateral_iETH() {
         // Arrange
diff --git a/score-lib/src/main/java/network/balanced/score/lib/interfaces/Loans.java b/score-lib/src/main/java/network/balanced/score/lib/interfaces/Loans.java
index 873f99f6c..6e4af666d 100644
--- a/score-lib/src/main/java/network/balanced/score/lib/interfaces/Loans.java
+++ b/score-lib/src/main/java/network/balanced/score/lib/interfaces/Loans.java
@@ -148,6 +148,12 @@ void depositAndBorrow(@Optional String _asset, @Optional BigInteger _amount, @Op
     @External(readonly = true)
     BigInteger getRedemptionDaoFee();
 
+    @External
+    void setRedemptionExemption(Address token, boolean exempt);
+
+    @External(readonly = true)
+    boolean getRedemptionExemption(Address token);
+
     @External
     void setNewLoanMinimum(BigInteger _minimum);
 
diff --git a/score-lib/src/main/java/network/balanced/score/lib/utils/Versions.java b/score-lib/src/main/java/network/balanced/score/lib/utils/Versions.java
index d659c4b3f..bc08e7ced 100644
--- a/score-lib/src/main/java/network/balanced/score/lib/utils/Versions.java
+++ b/score-lib/src/main/java/network/balanced/score/lib/utils/Versions.java
@@ -19,7 +19,7 @@
 public class Versions {
     public final static String BALN = "v1.1.0";
     public final static String DIVIDENDS = "v1.0.0";
-    public final static String LOANS = "v1.2.0";
+    public final static String LOANS = "v1.2.1";
     public final static String RESERVE = "v1.0.0";
     public final static String SICX = "v1.1.1";
     public final static String STAKING = "v1.0.1";