Thukten Zangpo

The Bhutan Hardware Association (BHA) has requested the government to provide an overdraft (OD) facility against stock or working capital for a robust hardware and trading sector. 

The financial institutions (FIs) have stopped providing OD facility, and under the Monetary Measures IV, announced in June 2022, the OD loan accounts or working capital was not provided deferment until June this year because it was not considered as term loans. 

Overdraft loans or working capital are short-term loans obtained by businesses, including wholesalers, retailers, manufacturers, and contractors, to support their day-to-day operations against the value of their stock and adequate collateral security. 

These loans can be availed at 60 percent of the total value of stock, book debts, and fixed assets which would be considered as the permissible limit on the past track record and repayment capacity.

BHA’s General Secretary, Tenzin Namgay, said that the discontinuation of the OD loans has impacted the hardware. “This was a short-term loan which comes with hassle-free documentation and easy fund access when the sector needs loan or cash.”

Another dealer said that for hardware firms, both wholesellers and retailers, the stock is their investment for growth and is needed to boost business. “OD facilities on 40 to 50 percent of the stock should be considered as a mortgage.”

He added that the financial assistance enables businesses to maintain optimal inventory levels and bulk rate benefits to continuously link with principal manufacturing companies over border towns which happened to shift dealerships within Bhutan during Covid-19.

The dealer also said that such support measures foster economic growth, job creation, and ensure the resilience of the industry benefiting both businesses and consumers.

The hardware sector requested the active involvement of the government in providing financial assistance, particularly in the form of accessible loans, which is underscored as a pivotal strategy for fostering a robust hardware sector and contributing to overall economic vitality. 

“The ripple effect extends to benefit both businesses and consumers, laying a foundation for a thriving and resilient economic landscape,” the Association stated. 

The BHA also requested timely receipt of payments because the sector has been currently grappling with challenges regarding the timely receipt of payments from various government departments and ministries.

“This delay in settling bills has created a notable imbalance within the sector’s business operations,” it added.

To mitigate these issues, the Association requested to establish a more efficient and timely payment process from the government entities to ensure a stable and uninterrupted business environment for the hardware sector. 

Earlier, a banker said that a significant portion of the non-performing loans (NPL) are from the trade and commerce sector, particularly among shopkeepers with OD loans. 

These OD facilities or working capital loans in the trade and commerce sector fall under the category of NPL if they are not renewed annually. However, there is a provision allowing the RMA to provide a grace period of 90 days for renewal.