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The Cabinet has issued an order to form dzongkhag priority sector lending (PSL) committee in pursuant to the scheme the Royal Monetary Authority (RMA) has launched.

Signed by the Prime Minister, the order issued earlier this month states that dzondags in the respective dzongkhags will serve as the chairman of the committee. Members include representatives from the ministry of agriculture, labour, education, regional trade office, GNHC, land commission and the National Environment Commission.

The order states that Dzongkhag PSL committee shall be empowered to assess and approve proposals submitted by prospective clients and provide clearances.

“All relevant ministries and agencies shall delegate the authority for providing the regulatory clearances to the committee,” the order states. “For those assessment and clearances that are retained with the sector head offices in line with their respective laws, the sectors shall work closely with the committee to coordinate and expedite clearances.”

The RMA also issued directives to all financial institutions on December 26, 2017. The central bank and financial institutions are currently touring dzongkhags to advocate on PSL, role of committee and procedures.

The directive fixed the preferential interest rates for 2018 at 8 percent for primary production for agriculture CSI and 8.5 percent for non-agriculture CSI and projects involving value addition to primary production.

While lending to primary production will be based on mandatory insurance, which replaces the need for collateral or guarantor, other projects will be based on cash flow with mandatory fire and theft insurance.

The RMA directive also states that each bank, except for the Bhutan Development Bank Limited, must lend one percent of their portfolio to agriculture based CSI projects over their portfolio as of June end 2017.

While 100 percent debt financing is available for primary production, debt to equity ratio of 70:30 will apply for all other PSL loans. Loan to individuals for primary production is capped at Nu 0.5M.

There is also a strict directive to financial institutions to ensure seamless service delivery through the PSL channel and focal persons be appointed.

The RMA directive also states that financial institutions will work closely with special technical windows of the government in the form of Dzongkhag PSL committee.

The PSL committee

The standard operating procedure of this special technical window states that sectors that do not have a dzongkhag-level presence will identify a focal staff to coordinate with the committee.

The committee will also appoint a sector head among its members as committee secretary on a rotation basis. The committee is mandated to identify one gewog-level staff besides working closely with the local government leaders and other competent agencies.

The responsibility of the committee is to ensure that applicants pursue full diligence to the procedures, taking into account technical feasibilities and assessment. The committee is also tasked to ensure minimum turn – around time in assessment and work with sector heads to expedite the clearances.

While the dzongdags are given to responsibility to lead the PSL-related activities, members are also required to submit periodic progress reports on the projects. Technical recommendations within the areas of expertise of the members should be deemed necessary.

The PSL will also involve gewog staff for technical backstopping and identifying potential areas and assist clients in obtaining clearances.

Procedure

Applicants must avail a clean chit from the credit information bureau along with security, land and community clearance. In case of cooperatives and groups, registration certificate from relevant authorities are required.

Should an applicant meet the pre-requisites, the filled PSL application would be followed by clearances and field visits. The application would then be forwarded to the PSL committee.

This will be followed by PSL committee assessment, which would take into account technical feasibility reports and further clearance. This process must be completed within 10 working days.

Once the committee approves a proposal, it will be forwarded to respective financial institutions for appraisal.

The client will then have to fill in another application identified by the financial institution along with a business proposal form, if the project cost is more than Nu 0.5M.

The financial institutions are guided by another standard operating procedure framed by the RMA. Application forms and business proposals for various segments of the clients are already prepared by the RMA and available online. This removes the need for clients to hire consultants to draft proposals.

Tshering Dorji

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