The NCGS was launched on October 5

MB Subba

All Bhutanese desiring to start new businesses or upgrade existing projects can now apply for loans under the National Credit Guarantee Scheme (NCGS), under which the government guarantees a portion of the loan.

Banks started receiving applications for loans since yesterday, Sonam Penjor, chief programme officer with the department of macroeconomic affairs, Ministry of Finance, said. The guarantee period will not exceed a maximum of three years.

Only three banks—Bank of Bhutan Limited (BOBL), Bhutan Development Bank Limited (BDBL) and National Cottage and Small Industries Bank (NCSIB)—will provide the service.

The government has established a NCGS Facility at Chubachu, Thimphu, as a one-stop shop for NCGS clients. It will support project development; facilitate clearances and approval for business establishment; smooth implementation of the approved projects.

The interest rates for cottage and small industries (CSI) have been fixed at 7 percent during the gestation period and 8 percent after commercial operation of the business project.

For businesses under the medium and large industries category, the interest rates have been fixed at 8.75 percent during the gestation period and 9.75 percent after commercial operation.

The debt to equity ratio will be 90:10, which is much lower than the existing ratio of 75:25. Startups, however, will be eligible for 100 percent debt financing.

According to NCGS rules, the guarantee will be limited to the debt finance of the project and will not exceed Nu 30 million. The government has plans to provide Nu 3 billion in loan guarantee coverage.

The opening of applications for the NCGS comes at a time when some clients are saying that there has been a delay in disbursement of loans. However, bank officials said that delays could have happened due to procedural requirements.

BOBL’s CEO, Dorji Kadin, said that banks had enough money and that there won’t be problems related to lack of cash.

The scheme was launched as a counter-cyclical policy measure during the Covid-19 pandemic situation. NCGS is aimed at countering the Covid-19-induced economic disruptions in the country.

The government hopes that the scheme would boost exports, reduce economic dependency by investing in import substitution-based projects, promote innovation and technology; and create jobs to absorb the displaced and unemployed.

The NCGS aims to overcome one of the major impediments in availing credit facilities from financial institutions by providing collateral-free loans for investments in the cottage and small category.

The NCGS was launched on October 5.

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